-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OyYj0k08deQEHgMFjgpx+xRsNBxZG3PDBzRwjq0eqsWFrAEDFcSC6RJNma28uwA5 CYumoTd5bzVSXfvPWRZqIw== 0001047469-06-006968.txt : 20060512 0001047469-06-006968.hdr.sgml : 20060512 20060512092210 ACCESSION NUMBER: 0001047469-06-006968 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060511 FILED AS OF DATE: 20060512 DATE AS OF CHANGE: 20060512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HudBay Minerals Inc. CENTRAL INDEX KEY: 0001322422 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 000000000 STATE OF INCORPORATION: A6 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-124186-02 FILM NUMBER: 06832349 BUSINESS ADDRESS: STREET 1: 201 PORTAGE AVENUE, SUITE 1906 CITY: WINNEPEG STATE: A2 ZIP: R3B 3L3 BUSINESS PHONE: (204) 949-4261 MAIL ADDRESS: STREET 1: 201 PORTAGE AVENUE, SUITE 1906 CITY: WINNEPEG STATE: A2 ZIP: R3B 3L3 6-K 1 a2170399z6-k.txt FORM 6-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 6-K Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934 For the month of: May 2006 Commission File Number: 333-124186-02 HUDBAY MINERALS INC. (Name of Registrant) 201 PORTAGE AVENUE, SUITE 1906 WINNIPEG, MANITOBA CANADA R3B 3L3 (Address of Principal Executive Offices) Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: Form 20-F Form 40-F ----- ----- Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ____ Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ____ Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes No X ----- ----- If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): N/A SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HUDBAY MINERALS INC. Date: May 11, 2006 By: /s/ Jeffrey A. Swinoga ------------------------------ Name: Jeffrey A. Swinoga Title: Vice President and Chief Financial Officer EXHIBIT INDEX EXHIBIT DESCRIPTION OF EXHIBIT - ------- ---------------------- 99.1 HudBay Minerals Inc. Interim Consolidated Financial Statements for the Period Ended March 31, 2006 99.2 HudBay Minerals Inc. Interim Management Discussion and Analysis of Results of Operations and Financial Condition - Quarter Ended March 31, 2006 99.3 HudBay Announces Strong First Quarter 2006 Results EX-99.1 2 a2170399zex-99_1.txt EXHIBIT 99.1 Exhibit 99.1 HUDBAY MINERALS INC. Consolidated Financial Statements FOR THE PERIOD ENDED MARCH 31, 2006 (expressed in Canadian Dollars) HUDBAY MINERALS INC. Consolidated Statement of Earnings (In thousands of Canadian dollars, except share and per share amounts)
Three months ended March 31 - ------------------------------------------------------------------------------------------------------------------- 2006 2005 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------- Revenue $ 207,963 $ 151,525 Expenses: Operating 121,887 117,713 General and administrative 5,928 3,641 Depreciation and amortization 15,542 12,724 Accretion of asset retirement obligation 660 652 Exploration 3,134 569 Foreign exchange (gain) (1,268) (250) - -------------------------------------------------------------------------------------------------------------------- 145,883 135,049 - ------------------------------------------------------------------------------------------------------------------- Operating earnings 62,080 16,476 Interest expense (4,754) (5,653) Foreign exchange (loss) on long term debt (824) (1,330) Gain on derivative instruments (note 10) 4,331 2,364 Interest and other income 1,172 470 Amortization of deferred financing fees (362) (341) - -------------------------------------------------------------------------------------------------------------------- Earnings before income tax 61,643 11,986 Tax recovery (expense) (note 8) 14,343 (2,805) - -------------------------------------------------------------------------------------------------------------------- Earnings for the period $ 75,986 $ 9,181 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- Earnings per share: Basic $ 0.89 $ 0.12 Diluted $ 0.70 $ 0.12 Weighted average number of common shares outstanding Basic 85,392,988 78,547,993 Diluted 108,179,593 79,202,545
See accompanying notes to consolidated financial statements. 2 HUDBAY MINERALS INC. Consolidated Statement of Retained Earnings (In thousands of Canadian dollars)
Three months ended March 31 - ------------------------------------------------------------------------------------------------------------------- 2006 2005 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------- Retained earnings (deficit), beginning of period $ 78,732 $ (6,486) Earnings for the period 75,986 9,181 - ------------------------------------------------------------------------------------------------------------------- Retained earnings, end of period $ 154,718 $ 2,695 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 3 HUDBAY MINERALS INC. Consolidated Balance Sheet (in thousands of Canadian dollars)
MARCH 31, 2006 December 31, 2005 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------- ASSETS: Current assets: Cash and cash equivalents $ 127,364 $ 141,660 Accounts receivable 87,286 44,698 Inventories 132,329 116,596 Prepaid expenses 3,920 3,625 Current portion of fair value of derivatives 8,623 4,483 Future income taxes 38,500 26,200 - ------------------------------------------------------------------------------------------------------------------- 398,022 337,262 Property, plant and equipment 405,974 378,207 Other assets (note 4) 11,781 13,284 - ------------------------------------------------------------------------------------------------------------------- $ 815,777 $ 728,753 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Accounts payable and accrued liabilities $ 102,338 $ 91,930 Interest payable on long-term debt 3,630 8,004 Current portion of other liabilities (note 5) 29,389 28,211 - ------------------------------------------------------------------------------------------------------------------- 135,357 128,145 - ------------------------------------------------------------------------------------------------------------------- Long-term debt (note 6) 191,326 191,493 Pension obligations 44,853 46,743 Other employee future benefits 62,357 61,250 Asset retirement obligations 29,919 29,219 Obligations under capital leases 8,022 9,011 Future income tax liabilities 2,688 1,666 - ------------------------------------------------------------------------------------------------------------------- $ 474,522 $ 467,527 - ------------------------------------------------------------------------------------------------------------------- Shareholders' equity: Share capital: Common shares 147,588 143,611 Warrants 27,203 28,931 Contributed surplus 11,804 10,015 Cumulative translation adjustment (58) (63) Retained earnings 154,718 78,732 - ------------------------------------------------------------------------------------------------------------------- 341,255 261,226 - ------------------------------------------------------------------------------------------------------------------- $ 815,777 $ 728,753 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 4 HUDBAY MINERALS INC. Consolidated Statement of Cash Flows (in thousands of Canadian dollars)
Three months ended March 31 - ------------------------------------------------------------------------------------------------------------------- 2006 2005 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------- Cash provided by (used in): Operating activities: Earnings for the period $ 75,986 $ 9,181 Items not affecting cash: Depreciation and amortization 15,542 12,724 Tax expense (recovery) (14,939) 2,002 Unrealized foreign exchange gain 518 1,086 Amortization of deferred financing costs 362 341 Accretion expense on asset retirement obligation 660 652 Stock-based compensation 2,251 - Unrealized portion of change in fair value of derivative (3,159) (1,363) Other 752 60 Change in non-cash working capital (note 11) (51,847) 3,203 - ------------------------------------------------------------------------------------------------------------------- 26,126 27,886 - ------------------------------------------------------------------------------------------------------------------- Financing activities: Repayment of senior secured notes (1,168) - Issuance of common shares, net of costs - 8,669 Proceeds on exercise of stock options 1,180 - Proceeds on exercise of warrants 4,269 - Repayments of obligations under capital leases (936) (919) Deferred financing cost - (133) -------------------------------------------------------------------------------------------------------------- 3,345 7,617 ------------------------------------------------------------------------------------------------------------- Investing activities: Additions to property, plant and equipment (27,003) (15,847) Acquisition of White Pine Copper Refinery, Inc., net of cash acquired (note 3) (17,041) - Decrease in restricted cash - 13,000 Additions to environmental deposits 15 - ------------------------------------------------------------------------------------------------------------- (44,029) (2,847) -------------------------------------------------------------------------------------------------------------- Foreign exchange gain on cash held in foreign currency 262 244 - ------------------------------------------------------------------------------------------------------------------- Change in cash and cash equivalents (14,296) 32,900 Cash and cash equivalents, beginning of period 141,660 64,553 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 127,364 $ 97,453 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements 5 HUDBAY MINERALS INC. Notes to the Interim Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except share and per share data) For the three months ended March 31, 2006 - -------------------------------------------------------------------------------- 1. NATURE OF BUSINESS The Company is an integrated mining and metals processing company that operates mines and concentrators in northern Manitoba and Saskatchewan, Canada. It operates a copper and zinc metal production complex in Flin Flon, Manitoba, a zinc oxide production facility in Brampton, Ontario, a mine in New York State, and on January 1, 2006 acquired a copper refinery operation in Michigan State. 2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION These consolidated financial statements include the financial statements of the Company, all of its subsidiaries and the proportionate share of the assets and liabilities of any joint ventures where the Company shares joint ownership. Inter-company accounts and transactions have been eliminated on consolidation. The unaudited interim consolidated financial statements do not include all of the information and disclosures required by Canadian GAAP for audited annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included in the unaudited interim consolidated financial statements. The unaudited interim consolidated financial statements should be read in conjunction with the most recent audited annual consolidated financial statements of the Company, including the notes thereto. 3. ACQUISITION OF WHITE PINE COPPER REFINERY INC. On January 1, 2006, the Company, through Hudson Bay Mining and Smelting Co., Limited (HBMS), acquired all of the outstanding common shares of White Pine Copper Refinery Inc. (WPCR) for total cash purchase consideration of $17,913. The acquisition is accounted for by the purchase method and the result of operations and cash flows has been included within these consolidated financial statements from January 1, 2006. The following table summarizes the preliminary allocation of the purchase consideration based on management's current estimate of the fair value of the assets and liabilities acquired on the date of acquisition.
------------------------------------------------------------------------------------------------------------- Current assets (including cash of $872) $ 2,817 Property, plant and equipment 16,306 Current liabilities (1,210) ------------------------------------------------------------------------------------------------------------- $ 17,913 ------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------
6 Management expects to obtain additional information that may require adjustments to amounts shown above for property, plant and equipment and asset retirement obligations, and these potential adjustments may be material. 4. OTHER ASSETS
MARCH 31, 2006 December 31, 2005 ------------------------------------------------------------------------------------------------------------- Deferred financing costs $ 7,248 $ 7,610 Deferred option premiums - 3,647 Environmental deposits 1,743 1,758 Fair value of derivatives 2,790 269 ------------------------------------------------------------------------------------------------------------- $ 11,781 $ 13,284 ------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------
5. CURRENT PORTION OF OTHER LIABILITIES
MARCH 31, 2006 December 31, 2005 ------------------------------------------------------------------------------------------------------------- Current portion of long-term debt $ 4,000 $ 4,000 Current portion of pension obligation 19,479 18,354 Current portion of other employee future benefits 2,032 2,032 Current portion of obligations under capital leases 3,878 3,825 ------------------------------------------------------------------------------------------------------------- $ 29,389 $ 28,211 ------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------
6. LONG-TERM DEBT
MARCH 31, 2006 December 31, 2005 ------------------------------------------------------------------------------------------------------------- Senior Secured Notes $ 181,040 $ 181,428 Province of Manitoba 14,286 14,065 ------------------------------------------------------------------------------------------------------------- $ 195,326 $ 195,493 Less current portion of long term debt 4,000 4,000 ------------------------------------------------------------------------------------------------------------- $ 191,326 $ 191,493 ------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------
On January 31, 2006, HBMS concluded a $25 million revolving credit facility that matures on January 31, 2007. Subject to the approval of the lenders, the initial maturity date may be extended for an additional 364 days. The borrowings under this facility may be made in either Canadian dollars in the form of (a) Prime Rate Advances or (b) Bankers' Acceptances or in United States dollars in the form of (i) United States Base Rate Advances or (ii) London Interbank Offered Rate (LIBOR) loans. Borrowings under these facilities 7 bear interest, when drawn, at a rate that varies based on the type of borrowing. Canadian or US dollar denominated letters of credit or guarantees can also be used against this facility. As of March 31, 2006 there were no amounts drawn under the new facility. This credit facility provides that during the term of this agreement, HBMS will be required to maintain a Total Leverage Ratio not exceeding 3.25 to 1 and an Interest Coverage Ratio of not less than 3.5. As of March 31, 2006, the Company is in compliance with these covenants. 7. PENSION AND OTHER FUTURE EMPLOYEE BENEFIT EXPENSE
Three months ended March 31 ------------------------------------------------------------------------------------------------------------- 2006 2005 ------------------------------------------------------------------------------------------------------------- Pension expense $ 2,858 $ 2,325 Other future employee benefits expense 1,617 1,150 ------------------------------------------------------------------------------------------------------------- $ 4,475 $ 3,475 ------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------
8. INCOME TAXES
Three months ended March 31 ------------------------------------------------------------------------------------------------------------- 2006 2005 ------------------------------------------------------------------------------------------------------------- Income tax provision applicable to: Current taxes $ (596) $ (429) Future taxes 14,939 (2,376) -------------------------------------------------------------------------------------------------------------- Income tax recovery $ 14,343 $ (2,805) -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------
The net future tax asset reflects a valuation allowance that represents management's estimate of the allowance necessary to reflect the future income tax assets at an amount that the Company considers is more likely than not to be realized. Since HBMS had many years of ever increasing timing differences, with 2005 the first year of a reduction, the tax asset has been based on only one future year of earnings. This is considered appropriate due to uncertainties of future metal prices, exchange rates and the magnitude of prior losses, but will continue to be reviewed as circumstances change. Future taxes include changes in the tax asset of $12,300 (2005 - ($2,002)), the flow through share income tax component of $3,662 (2005 - nil), offset by future income tax expenses of $1,023 (2005- $374) recognized through the joint venture interest in Considar Metal Marketing Inc. (CMM). 8 9. SHARE CAPITAL (a) Common shares: Authorized: Unlimited common shares Issued:
Three months ended March 31, 2006 -------------------------------------------------------------------------------------------------------- Common Shares Amount -------------------------------------------------------------------------------------------------------- Balance, beginning of period 84,807,452 $ 143,611 Exercise of warrants 946,932 5,998 Exercise of options 434,174 1,641 Tax impact of flow-through shares - (3,662) -------------------------------------------------------------------------------------------------------- Balance, end of period 86,188,558 $ 147,588 -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------
During 2005, the Company completed two private placements for a total of 2,999,452 shares with proceeds from the financing for Canadian exploration. In February 2006, the Company renounced $10 million of the flow through financing to investors with an effective date of December 31, 2005. In accordance with EIC-146, "Flow-through shares", the Company reduced its share capital by $3,662 using a tax rate of approximately 37% applied to the temporary taxable differences created by the renunciation. (b) Warrants:
--------------------------------------------------------------------------------------------------------- Number Amount --------------------------------------------------------------------------------------------------------- Warrants outstanding, beginning of period 1,076,082,458 $ 28,931 Underlying warrants issued 256,649 - Exercised (28,408,251) (1,728) --------------------------------------------------------------------------------------------------------- Warrants outstanding, end of period 1,047,930,856 $ 27,203 -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------
Warrants outstanding to acquire common shares (30 warrants required to acquire one common share) of the Company at March 31, 2006 are as follows: 9
-------------------------------------------------------------------------------------------------------- Warrants Outstanding Exercise Price Expiry Date -------------------------------------------------------------------------------------------------------- 2,200,438 0.06 September 28, 2006 1,950 0.05 September 28, 2006 2,053,351 0.12 November 30, 2006 35 0.09 November 30, 2006 15,922,347 0.086 December 21, 2006 1,027,752,735 0.105 December 21, 2009 -------------------------------------------------------------------------------------------------------- 1,047,930,856 -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------
(c) Stock option plan: Pursuant to the Company's stock option plan (the "Plan") approved in June 2005, during the quarter the Company granted additional options to directors and employees of the company for the 2006 entitlement. The fair value of the options granted during 2006 has been estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 4%; dividend yield of 0%; volatility factor of the expected market price of the Company's common stock of 42%; and a weighted average expected life of these options of 4 years.
-------------------------------------------------------------------------------------------------------- Weighted average Number of exercise shares price -------------------------------------------------------------------------------------------------------- Balance, beginning of period 3,498,828 $2.66 Granted 1,611,713 9.65 Exercised (434,174) 2.72 -------------------------------------------------------------------------------------------------------- Outstanding, end of period 4,676,367 $5.06 -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------
10 The following table summarizes the options outstanding at March 31, 2006:
-------------------------------------------------------------------------------------------------------- Weighted average Weighted average Number of remaining Number of remaining options Exercise contractual life options contractual life Outstanding Price (Years) Exercisable (Years) -------------------------------------------------------------------------------------------------------- 2,869,187 $2.59 9.2 555,731 9.2 25,000 3.00 2.7 25,000 2.7 153,800 3.35 9.2 3,800 9.2 5,000 4.50 0.2 5,000 0.2 11,667 7.50 1.3 11,667 1.3 40,000 7.64 10.0 13,332 10.0 1,571,713 9.70 10.0 523,852 10.0 -------------------------------------------------------------------------------------------------------- 4,676,367 $5.06 1,138,382 -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------
10. RISK MANAGEMENT USING FINANCIAL INSTRUMENTS The Company from time to time employs derivative financial instruments, including forward and option contracts, to manage risk originating from actual exposures to commodity price risk, foreign exchange risk and interest rate risk. (a) Foreign currency risk management: The Company uses forward exchange or currency collar contracts to limit the effects of movements in exchange rates on foreign currency-denominated assets and liabilities and future anticipated transactions. The Company holds put options securing the right, but not the obligation to sell US $4.375 million per quarter at $1.20482, continuing to January 2009. Prior to January 1, 2006 this option met hedge accounting and was accounted for as such. This option was matched to future forecasted cash receipts, but due to changes in payment terms for sales contracts the critical terms no longer matched. As such, this option became ineligible for hedge accounting. The unrealized gain on the option was deferred at January 1, 2006 $438 to be taken into income over the remaining term of the option ($36 per quarter). The changes in fair value after January 1, 2006 are taken into income ($153 for the first quarter 2006). The Company intends to meet hedge accounting for this option in the future to limit the fluctuations in the fair values. 11 (b) Commodity price risk management: From time to time, the Company maintains price protection programs and conducts commodity price risk management through the use of forward sales contracts, spot deferred contracts, option contracts and commodity collar contracts. Through its joint venture interest in CMM, the Company manages the risk associated with forward physical sales where it receives a fixed price regarding zinc and zinc oxide and, accordingly, enters into forward zinc purchase contracts to convert the fixed price to a floating price arrangement. At March 31, 2006, the joint venture had outstanding forward contracts to purchase 10,733 tonnes of zinc at prices ranging from U.S. $834 to U.S. $2,689 per tonne with settlement dates in the next three years. The fair value approximates its carrying value. 11. CHANGE IN NON-CASH WORKING CAPITAL
Three months ended March 31 ------------------------------------------------------------------------------------------------------------- 2006 2005 ------------------------------------------------------------------------------------------------------------- Accounts receivable $ (42,082) $ 3,311 Inventories (14,482) 10,293 Accounts payable and accrued liabilities 9,198 (10,695) Prepaid expenses (107) (4,849) Interest payable (4,374) 5,143 ------------------------------------------------------------------------------------------------------------- $ (51,847) $ 3,203 ------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------
12. SUPPLEMENTARY CASH FLOW INFORMATION
Three months ended March 31 - ------------------------------------------------------------------------------------------------------------------- 2006 2005 - ------------------------------------------------------------------------------------------------------------------- Interest paid $ 8,906 $ 275 Additions to obligations under capital leases - 1,451
12 13. SEGMENTED INFORMATION The Company is an integrated base metals producer and operates in a single reportable operating segment. The Company's revenue by significant product types:
Three months ended March 31 ------------------------------------------------------------------------------------------------------------- 2006 2005 ------------------------------------------------------------------------------------------------------------- REVENUES: Copper $ 112,483 $ 82,076 Zinc 60,120 32,852 Zinc oxide 26,040 17,650 Gold, silver and other 9,320 18,947 ------------------------------------------------------------------------------------------------------------- $ 207,963 $ 151,525 ------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------
14. SUBSEQUENT EVENTS (a) Repurchase of debt On April 4, 2006, the Company repurchased, through the open market an additional US$30 million of its 9 5/8% senior secured notes due January 5, 2012. (b) ScoZinc sale agreement On April 7, 2006, the Company, through its wholly-owned subsidiary Pan American Resources Corp., executed the definitive purchase and sale agreement with Acadian Gold Corporation to sell 100% of its outstanding shares of ScoZinc Limited for C$7.5 million. The sale of ScoZinc is scheduled to close on July 6, 2006, or such earlier date as the parties may agree. The completion of the sale is subject to usual closing conditions, including obtaining all necessary regulatory and stock exchange approvals, and the purchaser completing satisfactory financing arrangements. 13 (c) Early warrant exercise On April 21, 2006, the Company filed a preliminary short form prospectus in connection with a proposal to issue new common shares as an incentive for holders of its publicly-traded warrants to exercise such warrants during a 30-day early exercise period expected to commence on or about June 5, 2006. If all warrants are exercised during the early exercise period, the Company will: o receive gross proceeds of approximately $107.9 million on or before July 6, 2006; o issue approximately 34.2 million common shares; and o issue approximately 2.1 million additional common shares as an incentive for the exercise of the warrants, representing approximately 1.6% of the fully diluted outstanding shares. (d) Flow-through common shares On April 25, 2006, the company issued 1.46 million flow-through common shares at a price of $13.75 per share for aggregate gross proceeds of approximately $20 million. Proceeds from the private placement will be used for exploration and development on the Company's Canadian properties. 15. HUDSON BAY MINING AND SMELTING CO., LIMITED A summary of the selective financial information for Hudson Bay Mining and Smelting Co., Limited is as follows:
Three months ended March 31 ------------------------------------------------------------------------------------------------------------- 2006 2005 ------------------------------------------------------------------------------------------------------------- Total revenues $ 207,934 $ 151,525 Net earnings 77,693 12,813 Long-term financial debt (excluding current portion) 191,326 236,993 Total assets 783,915 629,071
14 EX-99.2 3 a2170399zex-99_2.txt EXHIBIT 99.2 Exhibit 99.2 HUDBAY MINERALS INC. Management Discussion and Analysis of Results of Operations and Financial Condition Quarter Ended March 31, 2006 MAY 11, 2006 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION UNLESS THE CONTEXT OTHERWISE SUGGESTS, REFERENCES TO "WE", "US", "OUR" AND SIMILAR TERMS, AS WELL AS REFERENCES TO "HUDBAY" OR THE "COMPANY", REFER TO HUDBAY MINERALS INC. AND ITS SUBSIDIARIES. This Management's Discussion and Analysis ("MD&A") dated May 11, 2006 should be read in conjunction with the Company's consolidated financial statements for the quarter ended March 31, 2006, and related notes which have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). Additional information regarding the Company, including its Annual Report for 2005, is available on SEDAR at www.sedar.com. All figures are in Canadian dollars unless otherwise noted. OUR BUSINESS HudBay is an integrated mining and metals processing company that operates mines, concentrators and a copper and zinc production complex in the Flin Flon area of northern Manitoba, a copper refinery in Michigan, and a zinc oxide production facility in Brampton, Ontario and is re-opening the Balmat zinc mine in New York State. TABLE OF CONTENTS Page ---- Key Financial and Production Results 3 Health, Safety, Environment and Product Quality 4 Operations Overview 4 Financial Review 10 Cash Cost per Pound of Zinc Sold 12 Operating Costs 13 Cash Flows, Liquidity and Capital Resources 14 Financial Condition 15 Risk Management 16 Outlook 16 Forward Looking Statements 17 Appendix - Production Results 19 2 KEY FINANCIAL AND PRODUCTION RESULTS
- ------------------------------------------------------------------------------------------------ QUARTER Quarter ENDED Ended MAR 31, Mar 31, 2006 2005 Change - ------------------------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS ($000s except per share amounts and cash cost of zinc) Revenue 207,963 151,525 + 37% Earnings 75,986 9,181 + 728% Operating cash flow 1 77,973 24,683 + 216% Earnings per common share: 2 Basic $0.89 $0.12 + 642% Diluted $0.70 $0.12 + 483% Operating cash flow per common share: 1 Basic $0.91 $0.31 + 194% Diluted $0.72 $0.31 + 132% Cash cost per pound of zinc sold 3 $0.05 $0.21 - 76% - ------------------------------------------------------------------------------------------------ OPERATING HIGHLIGHTS Production Copper TONNES 23,686 20,697 + 14% Zinc TONNES 29,906 29,204 + 2% Gold TROY OZ. 26,511 25,774 + 3% Silver TROY OZ. 390,230 338,294 + 15% Metal Sold 4 Copper TONNES 18,932 20,382 - 7% Zinc, incl sales to Zochem TONNES 30,172 27,097 + 11% Gold TROY OZ. 14,846 25,397 - 42% Silver TROY OZ. 232,456 331,644 - 30% - ------------------------------------------------------------------------------------------------ FINANCIAL CONDITION QUARTER Year ($000s) ENDED Ended MAR 31, Dec 31, 2006 2005 Change ----------------------------------------------- Cash and cash equivalents 127,364 141,660 - 10% Working capital 262,665 209,117 + 26% Net debt 5 79,862 66,669 + 20% Total assets 815,777 728,753 + 12% Shareholders' equity 341,255 261,226 + 31% - ------------------------------------------------------------------------------------------------
1 Operating cash flow (excluding change in working capital) is after changes in non-cash capital items. Operating cash flow per common share is considered a non-GAAP measure. 2 As of May 10, 2006, there were 87,910,534 common shares of the Company issued and outstanding, as well as 1,059,352,944 warrants (pre-consolidated basis at 30 warrants exercisable for one common share) exercisable for an aggregate of 35,311,764 common shares and 975 additional warrants (pre-consolidated). In addition, options exercisable for an aggregate maximum of 4,397,450 common shares were outstanding. 3 Non-GAAP reconciliation of cash cost per pound of zinc sold, net of by-product credits. 4 Excludes inventory changes at CMM. 5 Current and long term portion of long term debt, Province of Manitoba loan and capital leases ($181,040, $14,286, and $11,900 respectively) less cash and cash equivalents of $127,364. 3 HEALTH, SAFETY, ENVIRONMENT AND PRODUCT QUALITY HudBay's total operations recorded a Lost Time Accident (LTA) frequency rate, being the number of lost time injuries per 200,000 hours worked, for employees and contractors of 1.1 for the first quarter of 2006. This is the first full quarter to include the Balmat operations of St Lawrence Zinc Company, LLC (SLZ), which are being reopened. Balmat operations recorded one LTA in the first quarter producing a frequency rate of 2.4. The operations of Hudson Bay Mining and Smelting Co., Limited (HBMS), which now includes those of its newly acquired subsidiary White Pine Copper Refinery Inc (WPCR), recorded 4 LTA's in the quarter for a frequency rate of 0.9. This compares with a frequency rate of 0.7 for the first quarter of 2005. However, HBMS' severity rate, being days lost per 200,000 hours worked, for the first quarter of 2006 was 9 compared to 24 for the comparable period in 2005. HBMS' operations, with the exception of WPCR, continue to have management systems certified to both OHSAS 18001 for occupational health & safety and to ISO 14001 for the environment. In addition the production and supply of its final products are registered to the ISO 9001 quality standard. Both SLZ and WPCR have commenced work on obtaining similar certification, with registration targeted within 2 years. OPERATIONS OVERVIEW MINES AND CONCENTRATORS 777 MINE The 777 mine is located immediately adjacent to the Company's principal concentrator and metallurgical plant in Flin Flon, Manitoba. Ore production at the 777 mine, for the quarter ended March 31, 2006, increased by 32% compared to the quarter ended March 31, 2005 due to the planned ramp-up in annual production to design capacity of 1.35 million tonnes. Operating costs per tonne in the first quarter dropped by 12% compared to the same period last year due primarily to increased production volumes. Zinc ore grades increased 61% due to the ability to access portions of the 777 ore body containing greater zinc content. Copper ore grades were 3% lower compared to the same period last year consistent with mining areas with greater zinc content. Gold and silver content in ore was 15% and 25% higher respectively in the first quarter 2006 compared to the same period last year.
- ------------------------------------------------------------------------- QUARTER Quarter ENDED Ended MAR 31, Mar 31, Q1 2006 2005 2006/2005 ----------------------------------------- Production TONNES 321,849 243,248 + 32% Copper grade % 2.17 2.23 - 3% Zinc grade % 6.02 3.75 + 61% Gold grade G/TONNE 2.16 1.88 + 15% Silver grade G/TONNE 25.68 20.57 + 25% Operating costs $/TONNE 37.18 42.20 - 12% - -------------------------------------------------------------------------
4 TROUT LAKE MINE The Trout Lake mine is approximately six kilometres from the Company's principal ore concentrator and metallurgical plant in Flin Flon. Ore production at the Trout Lake mine for the quarter ended March 31, 2006 decreased by 7% compared to the same quarter in 2005 due to a higher proportion of tonnage being mined from pillars. Zinc ore grades dropped by 25% compared to the same quarter in 2005 and copper ore grade increased by 48%. The grade variation compared to the same quarter in 2005, was related to variability in metal content of mining areas. Operating costs increased by 7% due to the higher proportion of pillar mining where additional drilling and support costs were necessary. Mining of a higher portion of pillars is expected to continue throughout 2006.
- --------------------------------------------------------------------------- QUARTER Quarter ENDED Ended MAR 31, Mar 31, Q1 2006 2005 2006/2005 ----------------------------------------- Production TONNES 198,973 213,055 - 7% Copper grade % 1.90 1.28 + 48% Zinc grade % 4.77 6.37 - 25% Gold grade G/TONNE 1.37 1.55 - 12% Silver grade G/TONNE 17.21 15.96 + 8% Operating costs $/TONNE 38.99 36.39 + 7% - --------------------------------------------------------------------------
CHISEL NORTH MINE The Chisel North mine is approximately 10 kilometres from the Company's Snow Lake ore concentrator, which is approximately 215 kilometres from Flin Flon. Ore production from the mine for the first quarter 2006 decreased by 8% compared to the same quarter of last year due to the reduced volume of longhole stoping blocks compared to the same quarter in 2005. Zinc grades decreased by 11% in line with the planned mining areas for the quarter. Operating costs per tonne of ore increased by 58% in the first quarter largely due to mining greater amounts of ore from first cuts in stopes, an increased amount of waste placed as backfill in previously mined stopes as well as an increased amount of operating development. Operating costs per tonne of ore are expected to return to normal levels in subsequent quarters of 2006.
- --------------------------------------------------------------------------- QUARTER Quarter ENDED Ended MAR 31, Mar 31, Q1 2006 2005 2006/2005 -------------------------------------- Production TONNES 79,678 86,545 - 8% Zinc grade % 8.58 9.64 - 11% Operating costs $/TONNE 57.34 36.28 + 58% - ---------------------------------------------------------------------------
5 FLIN FLON CONCENTRATOR The Flin Flon concentrator, produces zinc and copper concentrates from ore mined at the 777 and Trout Lake mines. For the first quarter of 2006 the Flin Flon concentrator ore tonnage throughput was similar compared to the same quarter last year. Copper head grade increased slightly while zinc head grade increased by 17% in line with higher zinc ore grade obtained from the 777 mine. Gold and silver grades also increased principally as a result of increased gold and silver content from the 777 mine ore production. Copper and zinc recoveries increased compared to the same quarter last year, due to optimization work completed in the concentrator during 2005 and higher ore head grades. Gold recovery however was lower compared to the same period last year in part due to the change in ore copper and zinc head grades. Operating costs per ore tonne processed were 1% lower compared to the same quarter in 2005.
- ------------------------------------------------------------------------------------ QUARTER Quarter ENDED Ended MAR 31, Mar 31, Q1 2006 2005 2006/2005 --------------------------------------- Ore processed TONNES 550,289 552,829 - Copper grade % 2.14 2.10 + 2% Zinc grade % 5.27 4.52 + 17% Gold grade G/TONNE 1.82 1.71 + 6% Silver grade G/TONNE 21.81 16.95 + 29% Copper concentrate TONNES 45,246 45,666 - 1% Concentrate grade CU % 24.02 23.06 + 4% Zinc concentrate TONNES 48,179 39,448 + 22% Concentrate grade ZN % 51.84 50.34 + 3% Copper recovery % 92.10 90.80 + 1% Gold recovery % 70.60 77.30 - 9% Silver recovery % 60.90 68.10 - 11% Zinc recovery % 86.10 79.40 + 8% Operating costs $/TONNE 8.15 8.21 - 1% - ------------------------------------------------------------------------------------
SNOW LAKE CONCENTRATOR The Snow Lake concentrator is approximately 225 kilometres from the Flin Flon concentrator and metallurgical plant. For the first quarter of 2006, the Snow Lake concentrator ore throughput decreased by 6% which is consistent with the decreased Chisel North mine production and the zinc ore head grades. Recoveries of zinc were essentially similar to the same quarter in 2005, despite the lower ore head grade. Operating costs per tonne of ore processed increased by 12% due to increased maintenance costs within the plant and the lower tonnage milled. 6
- ----------------------------------------------------------------------------------- QUARTER Quarter ENDED Ended MAR 31, Mar 31, Q1 2006 2005 2006/2005 ---------------------------------------- Ore processed TONNES 80,241 85,632 - 6% Zinc ore % 8.60 9.64 - 11% Zinc concentrate TONNES 13,012 15,827 - 18% Concentrate grade ZN % 51.56 50.91 + 1% Zn recovery % 97.30 97.60 - Operating costs 1 $/TONNE 18.48 16.51 + 12% - -----------------------------------------------------------------------------------
1 Operating costs include the cost of trucking concentrates to the Flin Flon metallurgical plant. METALLURGICAL PLANTS COPPER SMELTER The copper smelter in Flin Flon treats copper concentrate and produces copper anodes, which are railed to the White Pine copper refinery in Michigan, USA. Both copper concentrate from HudBay owned mines and copper concentrate purchased from others are treated at the smelter. Approximately 30% of the concentrate tonnage treated at the copper smelter was purchased concentrate during the first quarter of 2006. Our Company has long term contracts with both Highland Valley Copper and Montana Resources for the purchase of copper concentrate requirements. Copper production for the first quarter of 2006 increased by 14% compared to the same quarter last year. On a unit cost of copper produced basis, operating costs were 5% higher in the first quarter of 2006 as compared to the first quarter last year, primarily as a result of an increase in heavy fuel oil costs. The smelter plans to proceed with the previously announced 28 day temporary maintenance shutdown during the second quarter of 2006. The maintenance shutdown is primarily to rebuild the reverberatory furnace, which is rebuilt every few years. Management of copper anode inventory between the copper smelter and the White Pine copper refinery will in part, mitigate the impact on sales. HBMS' mines and concentrators will continue to operate during the shutdown.
- --------------------------------------------------------------------------------------- QUARTER Quarter ENDED Ended MAR 31, Mar 31, Q1 2006 2005 2006/2005 --------------------------------------- Domestic conc. treated TONNES 57,714 48,352 + 19% Purchased conc. treated TONNES 24,363 28,839 - 16% --------------------------------------- Total TONNES 82,077 77,191 + 6% Copper produced TONNES 23,686 20,698 + 14% Gold TROY OZ. 26,511 25,774 + 3% Silver TROY OZ. 390,230 338,295 + 15% Operating costs (cent)/LB. CU 24.80 23.60 + 5% - ---------------------------------------------------------------------------------------
7 WHITE PINE COPPER REFINERY The White Pine copper refinery in Michigan, electro-refines HBMS copper anode, railed from Flin Flon, into market standard cathode copper. During processing, anode slimes, which contain precious metals are recovered, dried and sold. Approximately 18%, of the copper anode shipped to White Pine remains after electro-refining and it is railed and sold to third parties. London Metals Exchange (LME) grade copper cathode is railed and sold to various customers in the business of making wire, tube and brass. Copper cathode production increased by 11%, in the first quarter compared to the same quarter last year. Operating costs per pound of cathode copper produced increased by 2% primarily related to an increase in electrical energy costs. The refinery plans to do routine repairs to some of its electrolysis cells during part of the copper smelter temporary planned maintenance shutdown. The managed anode inventory at White Pine will maintain the refinery at approximately 90% capacity during the second quarter, 2006 including the period of the copper smelter maintenance shutdown.
- ----------------------------------------------------------------------------------------- QUARTER Quarter ENDED Ended MAR 31, Mar 31, Q1 2006 2005 2006/2005 --------------------------------------- Anodes received TONNES 20,888 21,107 - 1% Cathode produced TONNES 17,761 16,045 + 11% Spent anode produced TONNES 3,222 3,054 + 6% Liberator anode produced TONNES 643 649 - 1% Cathode shipped TONNES 18,682 17,155 + 9% Slimes produced TONNES 48 48 - Operating costs US(cent)/LB. CU CATHODE 6.31 6.21 + 2% - -----------------------------------------------------------------------------------------
ZINC PLANT The zinc plant in Flin Flon uses leading edge technology and includes an oxygen plant, two-stage pressure leach plant, four step solution purification, an electrolysis plant and a casting plant. The zinc plant produces special high grade zinc and other zinc alloys for sale. Production of cast zinc metal, during the first quarter compared to the same quarter in 2005, increased by 2% to 29,906 tonnes. All metal produced was from the processing of concentrate from HBMS mines. For the first quarter of 2006, operating costs in the zinc plant, on a unit cost of zinc metal produced basis, increased by 6% compared to the same quarter last year. During the second quarter of 2006 and similar to 2005, a routine ten-day annual maintenance shutdown is planned for the zinc plant. HBMS' mines and concentrators will continue to operate. 8 - --------------------------------------------------------------------------------------- QUARTER Quarter ENDED Ended MAR 31, Mar 31, Q1 2006 2005 2006/2005 --------------------------------------- Domestic conc. treated TONNES 58,207 58,809 - 1% Purchased conc. treated TONNES NIL nil nil --------------------------------------- Total conc. treated TONNES 58,207 58,809 - 1% Zn produced TONNES 29,906 29,204 + 2% Operating costs (cent)/LB. ZN 26.40 24.90 + 6% - ---------------------------------------------------------------------------------------
ZINC OXIDE FACILITY - ZOCHEM Zochem is HudBay's zinc oxide production facility in Brampton, Ontario. Zochem processes between 32,000 and 41,000 tonnes of HudBay's zinc metal annually. Zochem has a total production capability of 45,000 tonnes per annum of zinc oxide. In the first quarter of 2006, Zochem consumed approximately 8,823 tonnes of zinc, of which 8,771 tonnes was from HBMS, and sold 11,220 tonnes of zinc oxide. During the first quarter of 2006, work commenced on a project, which will use robots to bag zinc oxide, resulting in increased productivity and reduction of ergonomic risk to employees. 9 FINANCIAL REVIEW The following table sets forth our selected consolidated financial information.
- ----------------------------------------------------------------------------------------------------------------- 2006 2005 2004 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 -------------------------------------------------------------------------------------- ($000s, except per share information) -------------------------------------------------------------------------------------- Net Revenue 207,963 173,051 169,264 158,188 151,525 13,308 6 7 Earnings (loss) 75,986 43,941 23,405 8,691 9,181 (2,891) (3,282) (2,083) Per Common Share Basic 0.89 0.52 0.28 0.11 0.12 (0.18) (0.45) (0.30) Diluted 1 0.70 0.47 0.28 0.11 0.12 (0.18) (0.45) n/a - -----------------------------------------------------------------------------------------------------------------
1 Based on the treasury method of calculating diluted shares outstanding. REVENUE For the quarter, total revenue was $208.0 million, resulting from the sale of 30,172 tonnes of zinc (which includes 8,771 tonnes to our Zochem facility), 18,932 tonnes of cathode copper, 14,846 ounces of gold and 232,456 ounces of silver. Zochem had sales of 11,220 tonnes of zinc oxide. Over the quarter, realized prices averaged US $1.08/lb. zinc, US $2.33/lb. copper, US $532 oz. gold, and US $9.29 oz. silver. The Canadian to US dollar exchange rate averaged Cdn $1.15 per US $1.00 for the quarter.
- ----------------------------------------------------------------------------------------------------------------- QUARTER Quarter Year ENDED Ended Ended MAR 31, Mar 31, Q1 Q1 1 Dec 31, 2006 2005 2006/2005 Average 2005 ----------------------------------------------------------------- REALIZED METAL PRICES & EXCHANGE RATE Zinc (US $/lb.) 1.08 0.62 + 74% 1.02 0.65 Copper (US $/lb.) 2.33 1.49 + 56% 2.25 1.72 Gold (US $/troy oz.) 532 426 + 25% 554 445 Silver (US $/troy oz.) 9.29 7.23 + 28% 9.70 7.28 Cdn/US exchange rate 1.15 1.23 - 7% 1.15 1.21 - -----------------------------------------------------------------------------------------------------------------
1 LME average for zinc and gold prices, Comex average for copper and silver prices. EXPENSES OPERATING EXPENSES Operating expenses in the first quarter of 2006 of $121.9 million increased by approximately 4% compared to $117.7 million in the same quarter in 2005. This increase primarily related to increased profit sharing expenses (10% of 2005 net profit distributed among eligible employees) of $5.2 million due to higher net profit of HBMS, an increase in concentrate purchase costs of net $16.2 million (we treated less purchased copper concentrate, however we paid more due to higher copper prices) partially offset by accumulated inventory. GENERAL AND ADMINISTRATIVE Total general and administrative expenses for the quarter were $5.9 million compared to $3.6 million for the same quarter of 2005. Stock based compensation costs of $2.3 million were incurred due to the granting of stock options to employees and directors during the quarter whereas no plan was in place in the first quarter of 2005. 10 EXPLORATION EXPENSES Surface exploration expenditures of $3.1 million were incurred in the first quarter 2006, primarily funded by a previously announced flow through share program. During the first quarter of 2005 the level of exploration expenditures was significantly lower as no flow-through program was in place. FOREIGN EXCHANGE GAIN In the first quarter of 2006, the Company incurred a foreign exchange gain of $1.2 million relating primarily to the change in the value of the Company's cash and accounts receivable balances which are held largely in US dollars and converted to Canadian dollars at a quarter end exchange rate of Cdn $1.168 per US $1.00 versus $1.163 at year end. For the quarter ended March 31, 2005, there was a slight overall movement in foreign exchange rates resulting in a gain of $0.3 million. OPERATING EARNINGS For the quarter, operating earnings were $62.1 million compared to $16.5 million for the three months ended March 31, 2005. The favourable variance of $45.6 million is mainly attributable to higher metal prices, with small offsets for increased costs for concentrates, general and administration and operating expenses. INTEREST EXPENSE The interest expense for the quarter of $4.7 million was slightly lower than the same quarter in 2005 as US $19 million of our long-term debt was repurchased during 2005 and the US exchange rate was lower. GAIN ON DERIVATIVE INSTRUMENTS In the quarter, the Company recorded a $4.3 million gain on derivative instruments compared to a $2.3 million gain for the quarter ended March 31, 2005. The derivatives are forward contracts of zinc and to a lesser extent zinc oxide, placed in conjunction with CMM fixed price sales contracts to convert the fixed price zinc sales contracts to floating prices. TAX RECOVERY For the quarter, the Company recorded a recovery of taxes of $14.3 million, of which $12.3 million was related to the increase in the tax asset and $3.7 million was related to the flow-through share renunciation offset by other current and deferred taxes of $1.7 million. The tax asset has been adjusted to reflect the future income tax assets at an amount that the Company considers is more likely than not to be realized. Since HBMS had many years of tax losses, the tax asset has been based on only one future year of earnings. One year is considered appropriate due to the uncertainties of future metal prices, exchange rates and the magnitude of prior losses, but the asset was increased in light of higher metal price projections. In the first quarter of 2005, a tax expense was recorded of $2.8 million. The Company has sufficient tax pools to shelter taxable income and does not anticipate significant cash income taxes in the foreseeable future. ANALYSIS OF MARCH 31, 2005 TO MARCH 31, 2006
- --------------------------------------------------------------------------------- ($ millions) -------------- Earnings - First Quarter 2005 $ 9.2 Additional revenue from higher metal prices and production 56.4 Operating costs (4.2) Stock based compensation (2.3) Depreciation and amortization (2.8) Exploration (2.6) Foreign exchange - operating 1.0 Gain on derivative instruments 2.0 Tax recovery - income tax asset 12.3 Tax recovery - flow-through share renouncement 3.7 Other 3.3 -------------- Earnings - First Quarter 2006 $76.0 - ---------------------------------------------------------------------------------
11 CASH COST PER POUND OF ZINC SOLD HudBay's cash cost of zinc sold, net of by-product credits, for the first quarter of 2006 was US $0.05 per pound. NON-GAAP RECONCILIATION OF CASH COST PER POUND OF ZINC SOLD, NET OF BY-PRODUCT CREDITS
- --------------------------------------------------------------------------------------------------------- QUARTER Quarter Year ENDED Ended Ended MAR 31, Mar 31, Dec 31, 2006 2005 2005 ------------------------------------------------ ($000) ------------------------------------------------ Expenses C$145,883 C$135,049 C$569,469 Non-cash operating costs Depreciation and amortization (15,542) (12,724) (53,100) Stock-based compensation (2,251) - (2,674) Accretion and other non-cash (660) (652) (2,612) Exploration (3,134) (569) (11,281) Foreign exchange gain (loss) 1,268 250 (2,338) ------------------------------------------------ 125,562 121,354 497,464 Less: By-product credits 1 (121,753) (106,263) (450,097) ------------------------------------------------ Cash cost net of by-products C$3,809 C$15,091 C$47,367 Exchange rate (C$/US$) 2 1.155 1.227 1.211 ------------------------------------------------ Cash cost net of by-products US $3,300 US $12,299 US $39,114 Zinc sales (000 lbs.) 66,517 59,739 252,760 ------------------------------------------------ Cash cost per pound of zinc, net of by-product credits US $0.05 US $0.21 US $0.16 - ---------------------------------------------------------------------------------------------------------
1 By-product credits include revenues from sale of copper, gold, silver, zinc oxide sales (excluding quarter end inter-company inventory adjustments) and the Company's proportionate share of by-product sales by its marketing joint venture. 2 Weighted average exchange rate for sales during the period. CASH COST PER POUND OF ZINC SOLD, NET OF BY-PRODUCT CREDITS, IS FURNISHED TO PROVIDE ADDITIONAL INFORMATION AND IS A NON-GAAP MEASURE THAT DOES NOT HAVE A STANDARDIZED MEANING AND IS THEREFORE UNLIKELY TO BE COMPARABLE TO SIMILAR MEASURES PRESENTED BY OTHER ISSUERS. THIS MEASURE SHOULD NOT BE CONSIDERED IN ISOLATION AS A SUBSTITUTE FOR MEASURES OF PERFORMANCE PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND IS NOT NECESSARILY INDICATIVE OF OPERATING EXPENSES AS DETERMINED UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. THIS MEASURE IS INTENDED TO PROVIDE INVESTORS WITH INFORMATION ABOUT THE CASH GENERATING CAPABILITIES OF HBMS' OPERATIONS. HBMS USES THIS INFORMATION FOR THE SAME PURPOSE. THIS ANALYSIS EXCLUDES CAPITAL EXPENDITURES. ALL PER POUND VALUES IN THE FOLLOWING SECTION ARE ROUNDED TO THE CLOSEST CENT. The above table shows a US $0.16 per pound net decrease in the cash cost per pound of zinc sold for the quarter ended March 31, 2006 compared to the quarter ended March 31, 2005. The decrease per pound of zinc is comprised of favourable variances of approximately US $0.25 from by-product credits, US $0.02 from higher volumes, offset by higher costs of US $0.06 largely due to the higher price of purchased copper concentrate and the impact of a stronger Canadian dollar of US $0.05. The calculation of cash cost per pound of zinc sold is significantly influenced by by-product metal prices, which may fluctuate going forward. 12 OPERATING COSTS
- ---------------------------------------------------------------------------------------------------------------------- QUARTER Quarter Year ENDED Ended Ended MAR 31, Mar 31, Q1 1 Dec 31, 2006 2005 2006/2005 2005 ---------------------------------------------------- MINES 777 $/TONNE 37.18 42.20 - 12% 37.60 Trout Lake $/TONNE 38.99 36.39 + 7% 35.43 Chisel North $/TONNE 57.34 36.28 + 58% 42.40 Konuto 2 $/TONNE - 40.32 - 36.42 ---------------------------------------------------- Total mines $/TONNE 40.45 39.16 + 3% 37.36 CONCENTRATORS Flin Flon $/TONNE 8.15 8.21 - 1% 7.93 Snow Lake $/TONNE 18.48 16.51 + 12% 17.35 METALLURGICAL PLANTS & REFINERY Copper Smelter $/LB. CU. 0.25 0.24 + 5% 0.25 White Pine Copper Refinery US$/LB. 0.06 0.06 + 2% - Zinc Plant $/LB. ZN. 0.26 0.25 + 6% 0.26 Non-GAAP Reconciliation of Operating Expenses ($000) Mines 777 C$000 11,967 10,136 + 18% 41,119 Trout Lake 7,757 7,754 0% 30,425 Chisel North 4,569 3,141 + 45% 14,278 Konuto 14 3,510 - 100% 11,380 Concentrators Flin Flon 4,481 4,538 - 1% 17,934 Snow Lake 1,483 1,414 + 5% 5,749 Metallurgical Plants Copper Smelter 12,958 10,770 + 20% 46,975 White Pine Copper Refinery 2,853 - - - Zinc Plant 17,362 16,015 + 8% 65,082 Other Purchased Concentrate Treated 50,733 34,555 47% 161,906 Anode Freight & Refining 2,357 6,313 - 63% 22,893 Services & Administration 6,989 6,059 + 15% 26,353 Care & Maintenance 55 820 - 93% 3,440 Zochem (excluding zinc purchases from HBMS) 3,091 4,131 - 25% 13,887 Other 3 (4,782) 8,557 - 156% 19,097 ---------------------------------------------------- Total Operating Expenses, per financials 121,887 117,713 + 4% 480,518 - ----------------------------------------------------------------------------------------------------------------------
1 Percentage variances are calculated from costs expressed to fractions of a cent. 2 Konuto was depleted of ore and closed in November 2005, stockpiled ore continued to be processed during the first quarter 2006. 3 Includes profit sharing, changes in domestic inventory, share of CMM and miscellaneous provisions. 13 CASH FLOWS, LIQUIDITY AND CAPITAL RESOURCES The following table summarizes our cash flows for the three and twelve-month periods ended March 31, 2006, March 31, 2005 and December 31, 2005. OPERATING ACTIVITIES
- --------------------------------------------------------------------------------------------------------- QUARTER Quarter Year ENDED Ended Ended MAR 31, Mar 31, Dec 31, 2006 2005 2005 --------------------------------------- ($000's) --------------------------------------- Earnings for the period 75,986 9,181 85,218 Items not affecting cash 1,987 15,627 37,953 Net change in non-cash items (51,847) 3,078 21,691 --------------------------------------- Cash generated by (required for) operating activities 26,126 27,886 144,862 Cash generated by (required for) investing activities (44,029) (2,847) (57,430) Cash generated by (required for) financing activities 3,345 7,617 (7,368) Foreign exchange gain (loss) on cash held in foreign currency 262 244 (2,957) --------------------------------------- Increase (decrease) in cash and cash equivalents (14,296) 32,900 77,107 - ---------------------------------------------------------------------------------------------------------
As of March 31, 2006, HudBay had cash and cash equivalents of $127.4 million compared to $141.7 million as at December 31, 2005 and $97.5 million as at March 31, 2005. Cash flow from operating activities totaled $26.1 million for the quarter compared to $27.9 million for the quarter ended March 31, 2005. Significant changes in non-cash working capital affecting the quarterly cash flow were increases in accounts receivable of $42.1 million and inventory of $14.5 million. Accounts receivable increase was due to changes in payment terms with the new copper cathode sales contracts as well as increased metal prices for all receivables. Inventories fluctuations include an increase in anode inventory at the White Pine refinery to allow refinery production during the smelter shutdown, as well as a slight increase in gold and zinc inventories that would be within normal fluctuations of working levels. Interest of $8.7 million was paid in January on the long-term debt. The remaining difference was a result of normal working capital fluctuations. In the quarter a total of $44.0 million was required for investing activities, which related largely to the purchase of the shares of White Pine Copper Refinery Inc. of $17.9 million, additional expenditures for Balmat of $8.3 million and capitalized mine development and other sustaining capital expenditures of $18.7 million which was slightly higher than the prior quarter. Financing activities in the quarter resulted in cash generation of $3.3 million with approximately $5.4 million proceeds from the exercise of warrants and stock options offset by a $1.2 million repurchase of debt and a $0.9 million repayment under capital lease obligations. As at March 31, 2006, HudBay had long-term financial debt (excluding the current portion) of $191.3 million essentially unchanged from December 31, 2005, but $8.0 million lower than March 31, 2005 due to lower foreign exchange rates, repayments of notes and capital leases. The Company will continue to consider, from time to time, reducing debt further. Cash outflow for the quarter was $14.3 million compared to a cash inflow of $32.9 million for the quarter ended March 31, 2005 as the following chart will demonstrate. In the second quarter of 2006 the Company has paid $10.6 million (or $7,600 per employee) related to the HBMS employees' profit sharing plan based on 10% of HBMS's 2005 eligible income. 14 CASH FLOW VARIANCE ANALYSIS
- ---------------------------------------------------------------------------- ($ millions) -------------- Cash increase - First Quarter 2005 $ 32.9 Cash earnings 53.1 Non-cash working capital - receivables (45.4) Non-cash working capital - inventories (24.8) Non-cash working capital - prepaid and other assets 4.7 Non-cash working capital - interest and other payables 10.5 Change in restricted cash (13.0) Investment in WPCR (net of cash) (17.0) Capital expenditures (9.7) Change in shares, warrants, options (3.2) Repayment of senior secured notes (1.2) Repayment of capital leases (1.5) Other 0.3 -------------- Cash (decrease) - First Quarter 2006 $(14.3) - ----------------------------------------------------------------------------
FINANCIAL CONDITION FINANCIAL CONDITION AT MARCH 31, 2006 COMPARED TO FINANCIAL CONDITION AS AT DECEMBER 31, 2005 Cash and cash equivalents at March 31, 2006 decreased by $14.3 million to $127.4 million compared to December 31, 2005. Working capital improved by $53.5 million. Accounts receivable increase was due to changes in payment terms with the new copper cathode sales contracts as well as increased metal prices for all receivables. Inventories fluctuations include an increase in anode inventory at the White Pine refinery to allow refinery production during the smelter shutdown, as well as a slight increase in gold and zinc inventories that would be within normal fluctuations of working levels. Common share capital increased by $4.3 million from exercise of warrants and $1.2 million from exercise of options. HudBay's contractual obligations at March 31, 2006 are materially unchanged from December 31, 2005 except for increases in purchase and services commitments at the end of March relating to the higher levels of expenditures expected during the planned plant maintenance shutdowns of approximately $7.0 million with various suppliers. The Company has established with the Bank of Nova Scotia a revolving credit facility in the total amount of $25.0 million. In addition, the bank may consent to increasing the credit facility to $50.0 million if HBMS satisfies certain conditions. The facility closed in February 2006. The Collective Bargaining Agreements (CBA's) with the unionized HBMS' Flin Flon/Snow Lake workforce expired on December 31, 2005. In 1998, and in support of the $435 million 777 Project, HBMS entered into an Amending Agreement in respect of certain of its collective bargaining agreements. The Amending Agreement prohibits strikes and lockouts and provides for binding arbitration through to 2012 in the event that negotiated CBA settlements are not achieved. The formal negotiations have ceased and binding arbitration is planned for later in 2006. 15 RISK MANAGEMENT The Company uses forward exchange contracts to limit the effects of movements in exchange rates on foreign currency denominated assets and liabilities and future anticipated transactions. At March 31, 2006 the Company held US dollar put options giving it the right, but not the obligation, to sell up to US $52.5 million in equal quarterly amounts at $1.20482 per US dollar continuing to January 2009. From time to time the Company maintains price protection programs and conducts commodity price risk management to reduce risk through the use of financial instruments. The Company manages risk associated with forward physical sales that are made on a fixed price basis regarding zinc and zinc oxide and, accordingly, enters into forward zinc purchase contracts. These contracts effectively offset the Company's forward sales price commitments. In the current environment of strong base metal market prices, the Company has benefited from full exposure to metal price movements, but may consider implementing protection to limit the effects of future price changes. OUTLOOK BALMAT REOPENING HudBay decided in 2004 to re-open its wholly owned Balmat mine and concentrator after completion of an internal feasibility study. The Balmat zinc mine is located near a multi-modal transportation system for concentrate. Most of the mines production will be treated at the CEZ refinery close to Montreal, some 158 kilometres from the mine. The Balmat mine has been maintained to a high standard while on care and maintenance since October 2001. It includes a 3,200 foot deep shaft, underground excavations to access the ore zones, extensive mining equipment and a 5,000 ton per day ore concentrator. Recovery of zinc to concentrate is expected to be 96%, producing a concentrate containing 55.5% zinc. At full production in 2008, the mine is expected to produce approximately 60,000 tons of zinc metal in concentrate and up to 40% of the concentrate may be treated at HudBay's zinc plant in Manitoba. Production of concentrate is on track for the second quarter of 2006 as planned; however, due to lower than expected availability of mining contractors, the ramp up in production may be slightly slower than originally anticipated. Projected capital costs have been increased by approximately 4.6% largely due to escalation of prices and a greater amount of steel rehabilitation required in the concentrator areas compared to the original estimate. Most mobile equipment has been delivered to site and is being moved underground. At the end of the first quarter, 129 employees have been hired with some 22 contractors doing underground development. Currently 90% of the senior management positions have been filled and it is expected to be 100% by the end of the second quarter. Life of mine total unit zinc production costs, including concentrate treatment and capital expenditures, are expected to average US $0.48 lb. (US $0.57 per lb. for 2006 to 2008, and US $0.43 per lb. thereafter) some escalation of operational cost per pound of zinc is expected if high zinc prices persist as refinery concentrate treatment charges will increase through refinery zinc price participation. We expect Balmat's first concentrate in the second quarter of 2006 and then increasing to full production in 2008. 16 EXPLORATION & INCREASED LAND POSITION In the second quarter of 2006, the Company raised gross proceeds of $20 million through an issue of flow through common shares. This will provide funding for the $10 million planned expenditures during 2006 and 2007. During the first quarter approximately $3.1 million was spent on exploration activities which was somewhat less than that expected during the winter season. Diamond drilling on surface was impacted by unfavourable winter freezing conditions reducing access to drill sites. Exploration work continues in the Snow Lake and Flin Flon areas on prospective targets. HBED land holdings increased to approximately 300,000 hectares due to the acquisition of an additional 94,000 hectares in the Greenstone belt. In addition, the Company also expects to be exploring the approximate 20,000 hectares of land adjacent to its Balmat mine in New York State, its lead/zinc deposit, Tom Valley in the Yukon Territory, as well its zinc holdings in Ontario and copper holdings in Chile. DIVESTITURE OF SCOZINC In December 2005, we announced we had entered into a letter of intent to sell ScoZinc (Gays River lead and zinc mineral property) to Acadian Gold Corporation for $7.5 million. The agreement was executed April 7, 2006 and the sale is expected to close on July 6, 2006. RELATIONSHIP CHANGE WITH CONSIDAR METAL MARKETING INC. (CMM) In the second quarter of 2006, the Company plans to change the contractual arrangement with CMM to convert HudBay's zinc and zinc oxide products from a sale to an agency arrangement. In January of 2006, the Company converted its copper, gold and silver to a similar arrangement. FURTHER DEBT REDUCTION In April 2006, we announced we had repurchased a further $30 million of the 9?% US notes to reduce the outstanding amount of this debt to US $125 million. In 2006, the Company, may, from time to time, divert cash toward further debt reduction. WARRANT TRANSACTION On April 21, 2006, the Company filed a preliminary short form prospectus in connection with a proposal to issue new common shares as an incentive for holders of its publicly-traded warrants to exercise such warrants during a 30-day early exercise period expected to commence on or about June 5, 2006. FORWARD LOOKING STATEMENTS This MD&A contains certain forward-looking statements. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding the Company's future plans and objectives are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove accurate, and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Company's expectations are disclosed in documents that we have filed from time to time with the Canadian and other regulatory authorities. 17 Certain items of financial information in this MD&A, including operating cash flow per common share, unit operating expenses, and cash cost per pound of zinc, net of by-product credits, are non-GAAP measures and are furnished to provide additional information. As non-GAAP measures they neither have standardized meanings nor are they necessarily comparable with similar measures presented by other companies. These measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles and are not necessarily indicative of operating expenses as determined under generally accepted accounting principles. These measures are intended to provide investors with information about the cash generating capabilities of the Company's operations. HudBay uses this information for the same purpose. Mining operations are capital intensive. These measures exclude capital expenditures. Capital expenditures are discussed throughout the MD&A and the consolidated financial statements. 18 APPENDIX - PRODUCTION RESULTS FIRST QUARTER RESULTS
- ------------------------------------------------------------------------------------------------------------------------ QUARTER Quarter Quarter Year ENDED Ended Ended Ended MAR 31, Mar 31, Dec 31, Dec 31, Q1, 2006/ Q1, 2006/ MINES 2006 2005 2005 2005 Q1, 2005 Q4, 2005 --------------------------------------------------------------------------------------- 777 Ore TONNES 321,849 243,248 308,099 1,093,683 + 32% + 4% Copper % 2.17 2.23 2.28 2.24 - 3% - 5% Zinc % 6.02 3.75 5.10 4.47 + 61% + 18% Gold G/TONNE 2.16 1.88 2.06 2.09 + 15% + 5% Silver G/TONNE 25.68 20.57 24.56 23.83 + 25% + 5% TROUT LAKE Ore TONNES 198,973 213,055 214,981 858,751 - 7% - 7% Copper % 1.90 1.28 1.79 1.39 + 48% + 6% Zinc % 4.77 6.37 3.86 5.61 - 25% + 24% Gold G/TONNE 1.37 1.55 1.32 1.47 - 12% + 4% Silver G/TONNE 17.21 15.96 13.35 14.61 + 8% + 29% CHISEL NORTH Ore TONNES 79,678 86,545 80,996 336,731 - 8% - 2% Zinc % 8.58 9.64 8.97 9.00 - 11% - 4% KONUTO 1 Ore TONNES - 87,062 52,522 312,465 n/a n/a Copper % - 4.19 3.30 3.90 n/a n/a Zinc % - 1.39 2.36 1.81 n/a n/a Gold G/TONNE - 1.73 1.73 1.65 n/a n/a Silver G/TONNE - 8.48 11.46 9.15 n/a n/a TOTAL MINES Ore TONNES 600,500 629,910 656,598 2,601,630 - 5% - 9% Copper % 1.81 1.89 1.94 1.89 - 4% - 7% Zinc % 5.95 5.12 4.95 5.11 + 16% + 20% Gold G/TONNE 1.71 1.58 1.59 1.64 + 8% + 8% Silver G/TONNE 21.91 17.86 19.95 19.40 + 23% + 10% - ------------------------------------------------------------------------------------------------------------------------
1 Konuto mine closed in the fourth quarter of 2005. 19 FIRST QUARTER RESULTS
- -------------------------------------------------------------------------------------------------------------------- QUARTER Quarter Quarter Year ENDED Ended Ended Ended MAR 31, Mar 31, Dec 31, Dec 31, Q1, 2006/ Q1, 2006/ CONCENTRATORS 2006 2005 2005 2005 Q1, 2005 Q4, 2005 ---------------------------------------------------------------------- FLIN FLON CONCENTRATOR Ore TONNES 550,289 552,829 566,445 2,262,555 - - 3% Copper % 2.14 2.10 2.23 2.14 + 2% - 4% Zinc % 5.27 4.52 4.32 4.53 + 17% + 22% Gold G/TONNE 1.82 1.71 1.75 1.78 + 6% + 4% Silver G/TONNE 21.81 16.95 19.01 18.14 + 29% + 15% Copper Concentrate TONNES 45,246 45,666 49,465 188,851 - 1% - 9% Concentrate Grade % CU 24.02 23.06 23.99 23.82 + 4% - Zinc Concentrate TONNES 48,179 39,448 38,115 164,417 + 22% + 26% Concentrate Grade % ZN 51.84 50.34 52.15 51.51 + 3% - 1% Copper recovery % 92.10 90.80 93.70 92.80 + 1% - 2% Gold recovery % 70.60 77.30 72.50 74.90 - 9% - 3% Silver recovery % 60.90 68.10 66.10 66.30 - 11% - 8% Zn recovery % 86.10 79.40 81.20 82.60 + 8% + 6% SNOW LAKE CONCENTRATOR Ore TONNES 80,241 85,632 82,729 331,427 - 6% - 3% Zinc % 8.60 9.64 9.00 9.00 - 11% - 4% Zinc Concentrate TONNES 13,012 15,827 14,118 56,646 - 18% - 8% Concentrate Grade % ZN 51.56 50.91 51.21 51.25 + 1% + 1% Zn recovery % 97.30 97.60 97.10 97.30 - - - --------------------------------------------------------------------------------------------------------------------
20 FIRST QUARTER RESULTS
- ---------------------------------------------------------------------------------------------------------------------- QUARTER Quarter Quarter Year ENDED Ended Ended Ended MAR 31, Mar 31, Dec 31, Dec 31, Q1, 2006/ Q1, 2006/ SMELTER 2006 2005 2005 2005 Q1, 2005 Q4, 2005 ---------------------------------------------------------------------- COPPER CONCENTRATE TREATED Domestic TONNES 57,714 48,352 55,172 206,343 + 19% + 5% Purchased TONNES 24,363 28,839 28,828 111,935 - 16% - 15% Total TONNES 82,077 77,191 84,000 318,278 + 6% - 2% WHITE PINE COPPER REFINERY Anodes received TONNES 20,888 21,107 - - - 1% - Cathode produced TONNES 17,761 16,045 - - + 11% - Spent anode produced TONNES 3,222 3,054 - - + 6% - Liberator anode produced TONNES 643 649 - - - 1% - Cathode shipped TONNES 18,682 17,155 - - + 9% - Slimes produced TONNES 48 48 - - - - Operating costs US(cent)/lb. Cu 6.31 6.21 - - + 2% - ZINC PLANT ZINC CONCENTRATE TREATED Domestic TONNES 58,207 58,809 59,856 228,107 - 1% - 3% Purchased TONNES - - - - - - Total TONNES 58,207 58,809 59,856 228,107 - 1% - 3% METAL PRODUCED FROM HUDBAY MINES Copper TONNES 15,096 11,411 13,822 49,179 + 32% + 9% Zinc TONNES 29,893 29,177 30,485 114,557 + 2% - 2% Gold TROY OZ. 26,074 25,197 25,311 100,144 + 3% + 3% Silver TROY OZ. 281,678 214,608 264,259 916,810 + 31% + 7% FROM PURCHASED CONCENTRATES Copper TONNES 8,590 9,287 9,985 37,106 - 8% - 14% Zinc TONNES 14 30 35 131 - 54% - 60% Gold TROY OZ. 437 577 546 1,927 - 24% - 20% Silver TROY OZ. 108,552 123,686 137,131 493,702 - 12% - 21% TOTAL METAL PRODUCED Copper TONNES 23,686 20,697 23,807 86,285 + 14% - 1% Zinc TONNES 29,906 29,206 30,520 114,687 + 2% - 2% Gold TROY OZ. 26,511 25,774 25,857 102,371 + 3% + 3% Silver TROY OZ. 390,230 338,294 401,390 1,410,512 + 15% - 3% METAL SOLD 1 Copper TONNES 18,932 20,382 17,644 78,070 - 7% + 7% Zinc, incl sales to Zochem TONNES 30,172 27,097 29,598 114,682 + 11% + 2% Gold TROY OZ. 14,846 25,397 21,783 95,511 - 42% - 32% Silver TROY OZ. 232,456 331,644 358,434 1,321,784 - 30% - 35% - ----------------------------------------------------------------------------------------------------------------------
1 Excludes inventory changes at CMM. 21 EX-99.3 4 a2170399zex-99_3.txt EXHIBIT 99.3 Exhibit 99.3 [HUDBAY MINERALS INC LOGO] FOR IMMEDIATE RELEASE: HUDBAY ANNOUNCES STRONG FIRST QUARTER 2006 RESULTS Q1 2006 FINANCIAL HIGHLIGHTS o NET EARNINGS $76.0 MILLION OR $0.89 PER BASIC SHARE o OPERATING CASH FLOW $78.0 MILLION OR $0.91 PER BASIC SHARE o NET DEBT $79.9 MILLION o REVENUE $208.0 MILLION o CASH COST, NET OF BY-PRODUCT CREDITS US$0.05/LB. OF ZINC SOLD Q1 2006 PRODUCTION HIGHLIGHTS COMPARED TO Q1 2005 o ZINC PRODUCTION UP 700 TONNES TO 29,906 TONNES o COPPER IN ANODE PRODUCTION UP 3,000 TONNES TO 23,700 TONNES o GOLD PRODUCTION UP 3% TO 26,511 OZS. o SILVER PRODUCTION UP 15% TO 390,230 OZS. Q1 CORPORATE HIGHLIGHTS o WHITE PINE COPPER REFINERY PURCHASE COMPLETED o BALMAT ZINC MINE REOPENING PROJECT - ON SCHEDULE o EXPLORATION LAND HOLDINGS INCREASED BY 94,000 HECTARES WINNIPEG, MANITOBA - MAY 12, 2006 - HUDBAY MINERALS INC. (TSX:HBM) ("HudBay") announced today an eight-fold increase in net earnings to $76.0 million or $0.89 per basic share on revenue of $208 million for the first quarter ended March 31, 2006. This compares to net earnings of $9.2 million on revenue of $151.5 million for the first quarter of 2005. "We are delighted with the results reported today," said Peter Jones, President and Chief Executive Officer of HudBay. "The results show growth and achievement at HudBay and our strong financial position at year end 2005 has further improved in the first quarter of 2006." Production of all metals was higher than in the same quarter in 2005, including zinc at 29,906 tonnes (29,206)(1); copper in anode at 23,686 tonnes (20,697); gold at 26,511 ozs. (25,774); and silver at 390,230 ozs. (338,294). (1) VALUES SHOWN IN BRACKETS FOLLOWING THIS FOOTNOTE ARE FOR THE QUARTER ENDED MARCH 31, 2005. 2 Total revenue for the quarter was $208.0 million ($151.5) from sales of 30,172 tonnes of zinc, (27,097) including sales to Zochem; 11,200 tonnes of zinc oxide (10,300); 18,932 tonnes of copper (20,382); 14,846 ounces of gold (25,397) and 232,456 ounces of silver (331,644). During the quarter, sales of copper and contained gold and silver were less than production due mainly to a planned copper inventory increase related to a scheduled copper smelter shutdown. Over the quarter, gross realized prices averaged US$1.08/lb. for zinc (US$0.62); US$2.33/lb. for copper (US$1.49); US$532/oz. for gold (US$426) and US$9.29/oz. for silver (US$7.23). For the quarter, the Canadian to US dollar exchange rate averaged Cdn$1.15 per US$1.00 (Cdn$1.23). Operating costs for the first quarter were $121.9 million ($117.7). For the quarter, HudBay's cash cost, net of by-product credits, per pound of zinc sold, was US$0.05 (US$0.21). On January 1, 2006 HudBay completed the purchase of White Pine Copper Refinery Inc., a Michigan-based copper refinery for $17.9 million and also during the first quarter, our Balmat zinc mine reopening project continued on schedule. EVENTS SUBSEQUENT TO THE END OF THE FIRST QUARTER In April, HudBay announced that it had repurchased, through the open market, an additional US$30 million of its 9 5/8% senior secured notes due January 5, 2012. Note repurchases then totaled US$50 million, leaving a balance of US$125 million of these notes outstanding. Also in April, HudBay entered into an agreement with a syndicate of investment dealers led by GMP Securities L.P., for the sale of 1.46 million flow-through common shares at a price of $13.75 per share on an underwritten private placement basis for aggregate gross proceeds to the Company of approximately $20 million. The private placement was successfully completed on April 25 and proceeds will be used for exploration and development on HudBay's Canadian properties. In April, HudBay also filed a preliminary short form prospectus respecting its warrants, in each of the provinces of Canada. For further information, please see attached hereto, HudBay's management discussion and analysis for the quarter ended March 31, 2006, and selected financial information for the quarters ended March 31, 2006 and 2005. A copy of HudBay's consolidated financial statements for the quarters ended March 31, 2006 and 2005, as well its MD&A for the quarter ended March 31, 2006, are available on SEDAR at www.sedar.com and on the HudBay website at www.hudbayminerals.com. ABOUT HUDBAY MINERALS INC. HudBay Minerals Inc. is an integrated mining and metals company that operates mines, concentrators and a metal production complex in northern Manitoba and Saskatchewan. The company also owns a zinc oxide production facility in Ontario, the White Pine Copper Refinery in Michigan, and the Balmat zinc mine in New York state. - 30 - 3 FOR FURTHER INFORMATION, PLEASE CONTACT: Don Bain Director, Investor Relations Tel: (204) 949-4272 Fax: (204) 942-8177 E-mail:don.bain@hbms.ca CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This press release contains "forward-looking statements", within the meaning of applicable Canadian securities legislation, concerning the business, operations and financial performance and condition of HudBay. Forward-looking statements include, but are not limited to, statements with respect to the future price of zinc, copper, gold and silver, the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of the development of new deposits, success of exploration activities, permitting time lines, currency exchange rate fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims, limitations on insurance coverage, increased electricity, heavy fuel oil and natural gas cost risk, inflation risks and risks associated with the re-opening of the Balmat mine. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of HudBay, to be materially different from those expressed or implied by such forward-looking statements, including but not limited to: risks related to the integration of acquisitions; risks related to international operations; risks related to joint venture operations; actual results of current exploration activities; actual results of current reclamation activities; conclusions of economic evaluations; changes in project parameters as plans continue to be refined; future commodity prices; possible variations in ore reserves, grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities, as well as those factors discussed in the section entitled "Risk Factors" in HudBay's Annual Information Form for the year ended December 31, 2005, available on www.sedar.com. Although HudBay has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. HudBay does not undertake to update any forward-looking statements that are incorporated by reference herein, except in accordance with applicable securities laws. This press release is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States absent registration or an exemption from registration. Any public offering of securities that may be made in the United States will be made by means of a prospectus that may be obtained from the issuer and that will contain detailed information about the company and management, as well as financial statements. -----END PRIVACY-ENHANCED MESSAGE-----