Unaudited Condensed Consolidated Interim Financial Statements

(In US dollars)

HUDBAY MINERALS INC.

For the three and nine months ended September 30, 2018 and 2017

HUDBAY MINERALS INC.

Condensed Consolidated Interim Balance Sheets

(Unaudited and in thousands of US dollars)

			Sep. 30, 2018			Dec. 31, 2017			Jan 1, 2017
						Restated			Restated
	Note					(note 4	)		(note 4	)
Assets
Current assets
Cash and cash equivalents		$	459,863		$	356,499		$	146,864
Trade and other receivables	6		151,540			155,522			152,567
Inventories	7		146,573			141,682			112,464
Prepaid expenses and other current assets			5,517			8,995			3,992
Other financial assets	8		6,175			2,841			3,397
Taxes receivable			3			3			17,319
			769,671			665,542			436,603
Receivables	6		38,685			32,459			32,648
Inventories	7		5,840			5,809			4,537
Other financial assets	8		18,592			22,461			30,848
Intangible assets - computer software			4,651			5,575			6,614
Property, plant and equipment	9		3,831,481			3,964,233			3,953,752
Deferred tax assets	16b		13,252			31,937			40,162
		$	4,682,172		$	4,728,016		$	4,505,164
Liabilities
Current liabilities
Trade and other payables		$	151,871		$	199,117		$	169,662
Taxes payable			8,122			10,794			4,419
Other liabilities	10		32,312			51,962			42,207
Other financial liabilities	11		10,660			26,760			13,495
Finance lease obligations	12		20,377			18,327			3,172
Long term debt	13		—			—			16,490
Deferred revenue	14		92,039			107,194			87,411
			315,381			414,154			336,856
Other financial liabilities	11		23,957			20,801			28,343
Finance lease obligations	12		58,397			66,246			9,760
Long term debt	13		976,252			979,575			1,215,674
Deferred revenue	14		484,914			494,736			528,835
Provisions	15		194,058			200,138			179,702
Pension obligations			12,340			22,221			28,379
Other employee benefits			103,329			108,397			89,273
Deferred tax liabilities	16b		318,275			309,403			328,263
			2,486,903			2,615,671			2,745,085
Equity
Share capital	17b		1,777,340			1,777,409			1,588,319
Reserves			(28,351	)		(26,463	)		(53,633	)
Retained earnings			446,280			361,399			225,393
			2,195,269			2,112,345			1,760,079
		$	4,682,172		$	4,728,016		$	4,505,164

Commitments (note 20)

1

HUDBAY MINERALS INC.

Condensed Consolidated Interim Statements of Cash Flow

(Unaudited and in thousands of US dollars)

			Three months ended						Nine months ended
			September 30,						September 30,
			2018			2017			2018			2017
						Restated						Restated
	Note					(note 4	)					(note 4	)
Cash generated from (used in) operating activities:
Profit for the period		$	22,808		$	36,304		$	88,926		$	45,413
Tax expense	16a		7,479			17,448			64,261			47,91374
Items not affecting cash:
Depreciation and amortization	5b		86,384			80,835			250,783			221,324
Share-based payment (recoveries) expenses	5c		(156	)		6,324			(3,604	)		9,444
Net finance expense	5e		35,707			43,506			108,063			128,252
Change in fair value of derivatives	5e		(1,422	)		1,377			(5,893	)		1,253
Change in deferred revenue related to stream	14		(26,624	)		(21,975	)		(70,122	)		(69,111	)
Change in taxes receivable/payable, net	21a		(762	)		(4,984	)		(11,565	)		(9,420	)
Unrealized (gain) loss on warrants	5e		(86	)		1,974			(6,748	)		(1,765	)
(Gain) loss on investments	5e		(106	)		(1,637	)		4,019			(1,925	)
Pension and other employee benefit payments, net of accruals			(345	)		(2,375	)		(1,789	)		(5,393	)
Other and foreign exchange			3,191			1,089			(5,453	)		5,003
Taxes paid			(3,971	)		(3,943	)		(25,354	)		(12,326	)
Operating cash flow before change in non-cash working capital			122,097			153,943			385,524			358,662
Change in non-cash working capital	21a		(8,271	)		13,954			(43,295	)		51,481
			113,826			167,897			342,229			410,143
Cash generated from (used in) investing activities:
Acquisition of property, plant and equipment			(46,896	)		(67,717	)		(133,467	)		(161,737	)
Net sale (purchase) of investments			952			(2,245	)		564			(2,016	)
Release of (addition to) restricted cash			—			(91	)		206			16,854
Net interest received			2,718			167			4,323			494
			(43,226	)		(69,886	)		(128,374	)		(146,405	)
Cash generated from (used in) financing activities:
Long term borrowing			—			25,000			—			25,000
Principal repayments			—			(150,194	)		—			(281,439	)
Interest paid on long-term debt			(37,375	)		(36,921	)		(74,750	)		(52,741	)
Financing costs			(5,452	)		(11,070	)		(16,006	)		(21,533	)
Sale leaseback			—			67,275			—			67,275
Payment of finance lease			(5,664	)		(1,817	)		(15,892	)		(3,688	)
Net proceeds from equity transactions			—			187,446			(69	)		187,426
Dividends paid	17b		(2,019	)		(1,912	)		(4,045	)		(3,686	)
			(50,510	)		77,807			(110,762	)		(83,386	)
Effect of movement in exchange rates on cash and cash equivalents			197			437			271			1,711
Net increase in cash and cash equivalents			20,287			176,255			103,364			182,063
Cash and cash equivalents, beginning of period			439,576			152,672			356,499			146,864
Cash and cash equivalents, end of period		$	459,863		$	328,927		$	459,863		$	328,927

For supplemental information, see note 21.

2

HUDBAY MINERALS INC.

Condensed Consolidated Interim Income Statements

(Unaudited and in thousands of US dollars, except share and per share amounts)

			Three months ended						Nine months ended
			September 30,						September 30,
			2018			2017			2018			2017
						Restated						Restated
	Note					(note 4	)					(note 4	)
Revenue	5a	$	362,649		$	380,181		$	1,120,593		$	977,980
Cost of sales
Mine operating costs			191,103			179,880			571,655			492,734
Depreciation and amortization	5b		86,264			80,744			250,424			221,058
			277,367			260,624			822,079			713,792
Gross profit			85,282			119,557			298,514			264,188
Selling and administrative expenses			6,786			11,891			18,605			28,022
Exploration and evaluation			7,775			5,900			22,572			9,631
Other operating expense (income)	5d		5,122			(3,728	)		13,181			(7,128	)
Results from operating activities			65,599			105,494			244,156			233,663
Finance income	5e		(2,199	)		(547	)		(5,555	)		(1,652	)
Finance expenses	5e		37,906			44,053			113,618			129,904
Other finance (gain) losses	5e		(395	)		8,236			(17,094	)		12,085
Net finance expense			35,312			51,742			90,969			140,337
Profit before tax			30,287			53,752			153,187			93,326
Tax expense	16a		7,479			17,448			64,261			47,913
Profit for the period		$	22,808		$	36,304		$	88,926		$	45,413
Earnings per share
Basic and diluted		$	0.09		$	0.15		$	0.34		$	0.19
Weighted average number of common shares outstanding (note 18):
Basic and Diluted			261,271,942			238,053,797			261,271,441			237,533,962

3

HUDBAY MINERALS INC.

Condensed Consolidated Interim Statements of Comprehensive Income

(Unaudited and in thousands of US dollars)

		Three months ended					Nine months ended
		September 30,					September 30,
				2017						2017
		2018		Restated			2018			Restated
				(note 4	)					(note 4	)
Profit for the period	$	22,808	$	36,304		$	88,926		$	45,413
Other comprehensive income (loss):
Item that will be reclassified subsequently to profit or loss:
Recognized directly in equity:
Net exchange gain (loss) on translation of foreign currency balances		3,855		12,537			(10,085	)		23,059
		3,855		12,537			(10,085	)		23,059
Items that will not be reclassified subsequently to profit or loss:
Recognized directly in equity:
Remeasurement - actuarial gain		2,112		11,516			10,459			8,218
Tax effect		328		(1,594	)		(2,262	)		(2,389	)
		2,440		9,922			8,197			5,829
Transferred to income statement:
Wind up of subsidiaries		—		—			—			3,021
		—		—			—			3,021
Other comprehensive income (loss) net of tax, for the period		6,295		22,459			(1,888	)		31,909
Total comprehensive income for the period	$	29,103	$	58,763		$	87,038		$	77,322

4

HUDBAY MINERALS INC.

Condensed Consolidated Interim Statements of Changes in Equity

(Unaudited and in thousands of US dollars)

							Foreign currency
		Share capital			Other capital		translation reserve			Remeasurement			Retained earnings			Total equity
		(note 17	)		reserves		(Restated, note 4	)		reserve			(Restated, note 4	)		(Restated, note 4	)
Balance, January 1, 2017	$	1,588,319		$	28,837	$	(12,164	)	$	(70,306	)	$	225,393		$	1,760,079
Profit		—			—		—			—			45,413			45,413
Other comprehensive income (loss)		—			—		26,080			5,829			—			31,909
Total comprehensive income (loss)		—			—		26,080			5,829			45,413			77,322
Contributions by and distributions to owners:
Equity issuance (note 17b)		195,295			—		—			—			—			195,295
Share issue costs, net of tax		(6,234	)		—		—			—			—			(6,234	)
Dividends (note 17b)		—			—		—			—			(3,686	)		(3,686	)
Total contributions by and distributions to owners		189,061			—		—			—			(3,686	)		185,375
Balance, September 30, 2017	$	1,777,380		$	28,837	$	13,916		$	(64,477	)	$	267,120		$	2,022,776
Profit		—			—		—			—			94,279			94,279
Other comprehensive (loss) income		—			—		(1,364	)		(3,375	)		—			(4,739	)
Total comprehensive (loss) income		—			—		(1,364	)		(3,375	)		94,279			89,540
Contributions by and distributions to owners:
Share issue costs, net of tax		29			—		—			—			—			29
Dividends		—			—		—			—			—			—
Total contributions by and distributions to owners		29			—		—			—			—			29
Balance, December 31, 2017	$	1,777,409		$	28,837	$	12,552		$	(67,852	)	$	361,399		$	2,112,345

5

HUDBAY MINERALS INC.

Condensed Consolidated Interim Statements of Changes in Equity

(Unaudited and in thousands of US dollars)

		Share capital			Other capital		Foreign currency			Remeasurement
		(note 17	)		reserves		translation reserve			reserve			Retained earnings			Total equity
Balance, January 1, 2018	$	1,777,409		$	28,837	$	12,552		$	(67,852	)	$	361,399		$	2,112,345
Profit		—			—		—			—			88,926			88,926
Other comprehensive (loss) income		—			—		(10,085	)		8,197			—			(1,888	)
Total comprehensive (loss) income		—			—		(10,085	)		8,197			88,926			87,038
Contributions by and distributions to owners:
Share issue costs, net of tax (note 17b)		(80	)		—		—			—			—			(80	)
Warrants exercised (note 17b)		11			—		—			—			—			11
Dividends (note 17b)		—			—		—			—			(4,045	)		(4,045	)
Total contributions by and distributions to owners		(69	)		—		—			—			(4,045	)		(4,114	)
Balance, September 30, 2018	$	1,777,340		$	28,837	$	2,467		$	(59,655	)	$	446,280		$	2,195,269

6

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

1. Reporting entity

On January 1, 2017, HudBay Minerals Inc. amalgamated under the Canada Business Corporations Act with its subsidiaries Hudson Bay Mining and Smelting Co., Limited and Hudson Bay Exploration and Development Company Limited to form Hudbay Minerals Inc. (“HMI” or the “Company”). The address of the Company's principal executive office is 25 York Street, Suite 800, Toronto, Ontario. The unaudited condensed consolidated interim financial statements (“interim financial statements”) of the Company for the three and nine months ended September 30, 2018 and 2017 represent the financial position and the financial performance of the Company and its subsidiaries (together referred to as the “Group” or “Hudbay” and individually as “Group entities”).

Wholly owned subsidiaries as at September 30, 2018 include HudBay Marketing & Sales Inc. (“HMS”), HudBay Peru Inc., HudBay Peru S.A.C. ("Hudbay Peru"), HudBay (BVI) Inc., Hudbay Arizona Inc. and Rosemont Copper Company (“Rosemont”).

Hudbay is an integrated mining company primarily producing copper concentrate (containing copper, gold and silver), zinc concentrate, molybdenum concentrate and zinc metal. With assets in North and South America, the Group is focused on the discovery, production and marketing of base and precious metals. Directly and through its subsidiaries, Hudbay owns four polymetallic mines, four ore concentrators and a zinc production facility in northern Manitoba and Saskatchewan (Canada) and Cusco (Peru) and a copper project in Arizona (United States). The Group also has equity investments in a number of junior exploration companies. The Company is governed by the Canada Business Corporations Act and its shares are listed under the symbol "HBM" on the Toronto Stock Exchange, New York Stock Exchange and Bolsa de Valores de Lima.

Management does not consider the impact of seasonality on operations to be significant on the interim financial statements.

2. Basis of preparation

(a) Statement of compliance:

These interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting and do not include all of the information required for full annual financial statements by International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2017 which includes information necessary or useful to understanding the Company’s business and financial statement presentation. In particular, the Company’s significant accounting policies are presented as note 3 in the audited consolidated financial statements for the year ended December 31, 2017, and have been consistently applied in the preparation of these interim financial statements.

As a result of the application of IFRS 9, Financial Instruments (“IFRS 9”) and IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), the Group has amended the relevant accounting policies. Refer to the unaudited condensed consolidated interim financial statements for the three months ended March 31, 2018 for full disclosure.

The Board of Directors approved these interim financial statements on October 31, 2018.

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

(b) Functional and presentation currency:

The Group's interim financial statements are presented in US dollars, which is the Company’s and all material subsidiaries' functional currency, except the Company’s Manitoba Business Unit, which has a functional currency of Canadian dollars. All values are rounded to the nearest thousand ($000) except where otherwise indicated.

(c) Use of judgment:

The preparation of the interim financial statements in conformity with IFRS requires the Group to make judgements, apart from those involving estimations, in applying accounting policies that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements, as well as reported amounts of revenue and expenses during the reporting period.

The interim financial statements reflect the judgements outlined by the Group in its audited consolidated financial statements for the year ended December 31, 2017.

(d) Use of estimates and assumptions:

The preparation of the interim financial statements in conformity with IFRS requires the Group to make estimates and assumptions that affect the application of accounting policies, reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements, as well as reported amounts of revenue and expenses during the reporting period. Actual results may differ from these estimates.

The interim financial statements reflect the estimates outlined by the Group in its audited consolidated financial statements for the year ended December 31, 2017.

3. Significant accounting policies

These interim financial statements reflect the accounting policies applied by the Group in its audited consolidated financial statements for the year ended December 31, 2017 and comparative periods.

As a result of the application of IFRS 9, Financial Instruments (“IFRS 9”) and IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), the Group has amended the relevant accounting policies. For full disclosure of these policies, refer to the disclosure documented in Hudbay’s unaudited condensed consolidated interim financial statements for the three months ended March 31, 2018.

8

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

4. New standards

New standards and interpretations adopted

(a) IFRS 9, Financial Instruments (“IFRS 9”) and IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)

The Group applied these standards on January 1, 2018 retrospectively. Changes to previously reported balances are disclosed in Note 4(c).

(b) IFRIC Interpretation 22, Foreign Currency Transactions and Advance Consideration (“IFRIC 22”)

IFRIC 22 provides requirements about which exchange rate to use in reporting foreign currency transactions (such as revenue transactions) when payment is made or received in advance. The Interpretations Committee concluded that the exchange rate should be the rate used to initially measure the non-monetary asset (prepaid asset) or liability (deferred credit) when the advance was made. If there were multiple advances, each receipt or payment would be measured at the date the non-monetary asset or liability is recognized. This interpretation is effective for annual periods beginning on or after January 1, 2018, is consistent with the Group’s existing policies, and therefore does not have any effect on the Group’s financial results.

(c) New standards adopted - Impact Summary

Condensed Consolidated Interim Balance Sheet

				January 1, 2017
		As reported		IFRS 9			IFRS 15			Restated
Property, plant and equipment	$	3,865,823		-		$	87,929		$	3,953,752
Deferred tax assets 1		45,103		-			(4,941	)		40,162
Deferred revenue (current)		65,619		-			21,792			87,411
Deferred revenue (non-current)		472,233		-			56,602			528,835
Deferred tax liabilities 1		320,536		-			7,727			328,263
Reserves		(42,040	)	(5,025	)		(6,568	)		(53,633	)
Retained Earnings		216,933		5,025			3,435			225,393

¹ Refer to note 16(b) for further information

				December 31, 2017
		As reported		IFRS 9			IFRS 15			Restated
Property, plant and equipment	$	3,880,894		-		$	83,339		$	3,964,233
Deferred tax assets		35,989		-			(4,052	)		31,937
Deferred revenue (current)		49,907		-			57,287			107,194
Deferred revenue (non-current)		448,137		-			46,599			494,736
Deferred tax liabilities		302,092		-			7,311			309,403
Reserves		(10,300	)	(10,424	)		(5,739	)		(26,463	)
Retained Earnings		377,146		10,424			(26,171	)		361,399

9

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

Condensed Consolidated Interim Income Statement

		Three months ended September 30, 2017
		As reported	IFRS 9			IFRS 15			Restated
Revenue	$	370,356	-		$	9,825		$	380,181
Depreciation and amortization		79,511	-			1,233			80,744
Finance expense		27,318	-			16,735			44,053
Other finance loss		11,450	(3,214	)		-			8,236
Profit before tax		58,681	3,214			(8,143	)		53,752
Tax expense		17,739	-			(291	)		17,448
Profit for the period		40,942	3,214			(7,852	)		36,304
Other comprehensive income for the period		25,098	(3,214	)		575			22,459
Earnings per share - Basic and diluted		0.17	0.01			(0.03	)		0.15

		Nine months ended September 30, 2017
		As reported	IFRS 9			IFRS 15			Restated
Revenue	$	948,410	-		$	29,570		$	977,980
Depreciation and amortization		217,583	-			3,475			221,058
Finance expenses		80,146	-			49,758			129,904
Other finance loss		15,886	(3,801	)		-			12,085
Profit before tax		113,188	3,801			(23,663	)		93,326
Tax expense		48,965	-			(1,052	)		47,913
Profit for the period		64,223	3,801			(22,611	)		45,413
Other comprehensive income for the period		34,805	(3,801	)		905			31,909
Earnings per share - Basic and diluted		0.27	0.02			(0.10	)		0.19

Condensed Consolidated Interim Statement of Cash Flow

		Three months ended September 30, 2017
		As reported			IFRS 9			IFRS 15			Restated
Profit for the period	$	40,942		$	3,214		$	(7,852	)	$	36,304
Tax expense		17,739			-			(291	)		17,448
Depreciation and amortization		79,602			-			1,233			80,835
Net finance expense		26,771			-			16,735			43,506
Change in deferred revenue related to stream		(12,150	)		-			(9,825	)		(21,975	)
Gain on investments at FVTPL		-			(1,637	)		-			(1,637	)
Loss on available-for-sale investments		1,671			(1,671	)		-			-
Other and foreign exchange		995			94			-			1,089

10

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

		Nine months ended September 30, 2017
		As reported			IFRS 9			IFRS 15			Restated
Profit for the period	$	64,223		$	3,801		$	(22,611	)	$	45,413
Tax expense		48,965			-			(1,052	)		47,913
Depreciation and amortization		217,849			-			3,475			221,324
Net finance expense		78,494			-			49,758			128,252
Change in deferred revenue related to stream		(39,541	)		-			(29,570	)		(69,111	)
Gain on investments at FVTPL		-			(1,925	)		-			(1,925	)
Loss on available-for-sale
investments		1,896			(1,896	)		-			-
Other and foreign exchange		4,983			20			-			5,003

New standards and interpretations not yet adopted

(d) IFRS 16, Leases (“IFRS 16”)

In January 2016, the IASB issued this standard which is effective for periods beginning on or after January 1, 2019, which replaces the current guidance in IAS 17, Leases (“IAS 17”), and is to be applied either retrospectively or a modified retrospective approach. Early adoption is permitted, but only in conjunction with IFRS 15, Revenue from Contracts with Customers. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to recognize a lease liability reflective of future lease payments and a “right-of-use asset” for virtually all lease contracts, which will cause, with limited exceptions, most leases to be recorded ‘on balance sheet’.

Hudbay has selected the modified retrospective approach as a result of the non-significant impact expected to the financial statements. The Company is currently quantifying the effect of this standard on the financial statements. During the third quarter, the Company continued its scoping of contracts across its operations and commenced a detailed review of contracts. The Company also began developing calculation methodologies and draft financial statement disclosures. On the transition date of January 1, 2019, the expectation is to recognize additional leases on the consolidated balance sheet, which will increase liability and property, plant and equipment balances. As a result of recognizing additional finance leases, the expectation is a reduction in cost of sales, as operating lease expense will be replaced by depreciation expense and finance expense.

11

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

5. Revenue and expenses

(a) Revenue

The Group’s revenue by significant product types:

		Three months ended						Nine months ended
		September 30,						September 30,
		2018			2017			2018			2017
					(Restated)						(Restated)
Copper	$	237,567		$	263,999		$	737,205		$	646,089
Zinc		86,653			82,163			270,899			241,292
Gold		37,450			34,124			115,640			102,960
Silver		23,181			18,876			64,403			56,034
Other metals		6,750			4,383			12,419			11,647
		391,601			403,545			1,200,566			1,058,022
Adjustments from initial estimate 1		(826	)		6,768			(5,416	)		(5,019	)
		390,775			410,313			1,195,150			1,053,003
Treatment and refining charges		(28,126	)		(30,132	)		(74,557	)		(75,023	)
	$	362,649		$	380,181		$	1,120,593		$	977,980

¹ Adjustments from initial estimate represent mark-to-market adjustments on provisionally priced sales, realized and unrealized changes to fair value for non-hedge derivative contracts and adjustments to originally invoiced weights and assays.

(b) Depreciation and amortization

Depreciation of property, plant and equipment and amortization of intangible assets are reflected in the condensed consolidated interim income statements as follows:

		Three months ended				Nine months ended
		September 30,				September 30,
				(Restated)				(Restated)
		2018		2017		2018		2017
Cost of sales	$	86,264	$	80,744	$	250,424	$	221,058
Selling and administrative expenses		120		91		359		266
	$	86,384	$	80,835	$	250,783	$	221,324

12

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

(c) Share-based payment (recoveries) expenses

Share-based payment (recoveries) expenses are reflected in the condensed consolidated interim income statements as follows:

		Cash-settled						Total share-based
		RSUs			DSUs			payment expense
Three months ended September 30, 2018
Cost of sales	$	50		$	—		$	50
Selling and administrative		21			(257	)		(236	)
Other operating		30			—			30
	$	101		$	(257	)	$	(156	)
Nine months ended September 30, 2018
Cost of sales	$	(20		$	—		$	(20	)
Selling and administrative		(1,402	)		(2,081	)		(3,483	)
Other operating		(101	)		—			(101	)
	$	(1,523		$	(2,081	)	$	(3,604	)
Three months ended September 30, 2017
Cost of sales	$	635		$	—		$	635
Selling and administrative		3,917			1,397			5,314
Other operating		375			—			375
	$	4,927		$	1,397		$	6,324
Nine months ended September 30, 2017
Cost of sales	$	1,233		$	—		$	1,233
Selling and administrative		5,639			1,620			7,259
Other operating		952			—			952
	$	7,824		$	1,620		$	9,444

13

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

(d) Other operating income and expenses

		Three months ended					Nine months ended
		September 30,					September 30,
		2018		2017			2018		2017
Regional costs	$	1,798	$	653		$	3,711	$	3,389
Constancia insurance recovery		—		(4,150	)		—		(12,857	)
Pampacancha delivery obligation		—		—			7,218		—
Other (income) expense		3,324		(231	)		2,252		2,340
	$	5,122	$	(3,728	)	$	13,181	$	(7,128	)

During the first quarter of 2018, the Group recognized an obligation to deliver additional precious metal credits to Wheaton Precious Metals (“Wheaton”) as a result of the Group’s expectation that mining at the Pampacancha deposit will not begin until 2019.

During the first quarter of 2017, the Group accounted for amounts to be received from its insurers and counterparties to partially indemnify the Group for losses suffered as a result of an incident in 2015 that caused damage to Line 2 of the Constancia processing facilities and a delay in commissioning the process plant. These funds were received during 2017.

14

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

(e) Finance income and expenses

		Three months ended						Nine months ended
		September 30,						September 30,
		2018			2017			2018			2017
					(Restated)						(Restated)
Finance income	$	(2,199	)	$	(547	)	$	(5,555	)	$	(1,652	)
Finance expenses
Interest expense on long-term debt		19,531			20,845			58,245			65,978
Accretion on financial liabilities at amortized cost		313			326			940			979
Accretion on deferred revenue		16,108			16,735			48,427			49,758
Unwinding of discounts on provisions		1,171			1,038			3,447			3,043
Withholding taxes		2,373			2,437			7,074			7,244
Other finance expense		1,704			5,961			5,363			12,760
		41,200			47,342			123,496			139,762
Interest capitalized		(3,294	)		(3,289	)		(9,878	)		(9,858	)
		37,906			44,053			113,618			129,904
Other finance (gains) losses
Net foreign exchange losses (gains)		1,219			6,522			(8,472	)		14,522
Change in fair value of financial assets and liabilities at fair value through profit or loss:
Hudbay warrants		(86	)		1,974			(6,748	)		(1,765	)
Embedded derivatives		(1,422	)		1,377			(5,893	)		1,253
Investments		(106	)		(1,637	)		4,019			(1,925	)
		(395	)		8,236			(17,094	)		12,085
Net finance expense	$	35,312		$	51,742		$	90,969		$	140,337

Interest expense related to certain long-term debt has been capitalized to the Rosemont project until commercial production is reached.

Other finance expense relates primarily to fees on the Group’s revolving credit facilities.

15

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

6. Trade and other receivables

		Sep. 30, 2018		Dec. 31, 2017		Jan. 1, 2017
Current
Trade receivables	$	135,014	$	119,055	$	85,386
Fair value movements on provisionally priced receivables		3,680		17,427		12,538
Statutory receivables		9,091		13,961		43,808
Receivable from joint venture partners		758		2,808		—
Other receivables		2,997		2,271		10,835
		151,540		155,522		152,567
Non-current
Taxes receivable		17,782		14,394		12,424
Receivable from joint venture partners		19,303		16,414		18,681
Other receivables		1,600		1,651		1,543
		38,685		32,459		32,648
	$	190,225	$	187,981	$	185,215

As at September 30, 2018, $7,241 (December 31, 2017 and January 1, 2017 - $10,905 and $42,273, respectively) of the current statutory receivables relates to refundable sales taxes in Peru that Hudbay Peru has paid on capital expenditures and operating expenses.

The non-current receivable from joint venture partners is from the Group’s joint venture partner for the Rosemont project in Arizona.

7. Inventories

		Sep. 30, 2018		Dec. 31, 2017		Jan. 1, 2017
Current
Stockpile	$	21,654	$	13,468	$	9,368
Work in progress		14,094		14,552		9,100
Finished goods		63,263		71,906		54,583
Materials and supplies		47,562		41,756		39,413
		146,573		141,682		112,464
Non-current
Materials and supplies		5,840		5,809		4,537
	$	152,413	$	147,491	$	117,001

The cost of inventories recognized as an expense, including depreciation, and included in cost of sales amounted to $246,854 and $727,946 for the three and nine months ended September 30, 2018 (three and nine months ended September 30, 2017 - $225,608 and $623,721, respectively).

16

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

8. Other financial assets

		Sep. 30, 2018		Dec. 31, 2017		Jan. 1, 2017
Current
Derivative assets	$	6,175	$	2,841	$	3,397
Non-current
Investments at fair value through profit or loss		18,592		22,255		13,700
Restricted cash		-		206		17,148
		18,592		22,461		30,848
	$	24,767	$	25,302	$	34,245

Investments at fair value through profit or loss consist of securities in Canadian metals and mining companies, all of which are publicly traded.

17

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

9. Property, plant and equipment

				Accumulated
				depreciation
				and			Carrying
Sep. 30, 2018		Cost		amortization			amount
Exploration and evaluation assets	$	21,330	$	—		$	21,330
Capital works in progress		871,801		—			871,801
Mining properties		2,013,787		(778,084	)		1,235,703
Plant and equipment		2,644,420		(941,773	)		1,702,647
	$	5,551,338	$	(1,719,857	)	$	3,831,481

				Accumulated
				depreciation and
Dec. 31, 2017 (Restated)		Cost		amortization			Carrying amount
Exploration and evaluation assets	$	23,010	$	—		$	23,010
Capital works in progress		933,531		—			933,531
Mining properties		1,975,061		(683,183	)		1,291,878
Plant and equipment		2,536,019		(820,205	)		1,715,814
	$	5,467,621	$	(1,503,388	)	$	3,964,233

				Accumulated
				depreciation and
Jan.1, 2017 (Restated)		Cost		amortization			Carrying amount
Exploration and evaluation assets	$	15,015	$	—		$	15,015
Capital works in progress		844,759		—			844,759
Mining properties		1,852,705		(529,242	)		1,323,463
Plant and equipment		2,385,995		(615,480	)		1,770,515
	$	5,098,474	$	(1,144,722	)	$	3,953,752

10. Other liabilities

		Sep. 30, 2018		Dec. 31, 2017		Jan. 1, 2017
Current
Provisions (note 15)	$	14,409	$	27,370	$	14,367
Pension liability		13,196		19,401		24,635
Other employee benefits		2,847		2,756		2,356
Unearned revenue		1,860		2,435		849
	$	32,312	$	51,962	$	42,207

18

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

11. Other financial liabilities

		Sep. 30, 2018		Dec. 31, 2017		Jan. 1, 2017
Current
Derivative liabilities	$	5,730	$	16,140	$	10,682
Warrants at fair value through profit and loss		—		6,961		—
Contingent consideration - gold price option		—		732		—
Other financial liabilities at amortized cost		2,817		2,630		2,813
Embedded derivatives		2,113		297		—
		10,660		26,760		13,495
Non-current
Contingent consideration - gold price option		—		—		570
Warrants at fair value through profit and loss		—		—		7,588
Other financial liabilities at amortized cost		19,497		19,938		20,185
Embedded derivatives		4,460		863		—
		23,957		20,801		28,343
	$	34,617	$	47,561	$	41,838

Other financial liabilities at amortized cost relate to agreements with communities near the Constancia operation which allow Hudbay to extract minerals over the useful life of the Constancia operation, carry out exploration and evaluation activities in the area and provide Hudbay with community support to operate in the region.

The derivative liabilities include derivative and hedging transactions as well as warrants issued as consideration for the acquisition of Augusta Resource Corporation. Derivative liabilities are carried at their fair value with changes in fair value recorded to the consolidated income statements. The fair value adjustments for hedging type derivatives are recorded in revenue. Fair value adjustments for contract derivatives, warrants and the gold option derivatives are recorded in other finance (gain) loss. The fair value of derivative and hedging transactions are determined based on internal valuation models and the fair value of warrants issued are determined based on the quoted market prices for the listed warrants. A total of 22,391,490 warrants were issued which entitled the holders to acquire a common share of the Company at a price of C$15.00 per share on, but not prior to, July 20, 2018. As at September 30, 2018, all warrants had either been exercised or expired.

The purchase price of the acquisition of New Britannia Mine and Mill contained an option (European) that pays the seller $5,000 if the price of gold was equal to or above $1,400/oz on May 4, 2018. The option represented a financial liability and was recorded at fair value at the acquisition date of New Britannia and was remeasured at each reporting date with the change in the fair value being recognized as unrealized gains or losses in finance income and expense. This option expired, unexercised, on May 4, 2018.

19

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

12. Finance lease obligations

		Sep. 30, 2018			Dec. 31, 2017			Jan. 1, 2017
Total minimum lease payments	$	83,204		$	89,750		$	13,720
Effect of discounting		(4,430	)		(5,177	)		(788	)
Present value of minimum lease payments		78,774			84,573			12,932
Less: current portion		(20,377	)		(18,327	)		(3,172	)
		58,397			66,246			9,760
Minimum payments under finance leases
Less than 12 months		22,196			20,186			3,508
13 - 36 months		41,324			40,253			6,667
37 - 60 months		19,684			29,311			3,545
	$	83,204		$	89,750		$	13,720

The Group has entered into equipment leases for its South American and Manitoba business units which expire between 2020 and 2023 and with interest rates between 1.95% to 4.45%, per annum. The Group has the option to purchase the equipment and vehicles leased at the end of the terms of the leases. The Group’s obligations under finance leases are secured by the lessor’s title to the leased assets. The present value of the net minimum lease payments has been recognized as a finance lease asset, which was included as a non-cash addition to property plant and equipment, and a corresponding amount as a finance lease obligation. The fair value of the finance lease liabilities approximates their carrying amount.

13. Long-term debt

Long-term debt is comprised of the following:

		Sep. 30, 2018			Dec. 31, 2017			Jan. 1, 2017
Senior unsecured notes (a)	$	985,066		$	987,903		$	986,574
Equipment finance facility (b)		-			-			50,267
Senior secured revolving credit facilities (c)		-			-			202,075
Less: Unamortized transaction costs - revolving credit facilities (d)		(8,814	)		(8,328	)		(6,752	)
		976,252			979,575			1,232,164
Less: current portion		-			-			(16,490	)
	$	976,252		$	979,575		$	1,215,674

20

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

(a) Senior unsecured notes

Balance, January 1, 2017	$	986,574
Transaction costs		(133	)
Change in fair value of embedded derivative (prepayment option)		450
Accretion of transaction costs and premiums		1,012
Balance, December 31, 2017	$	987,903
Change in fair value of embedded derivative (prepayment option)		(3,645	)
Accretion of transaction costs and premiums		808
Balance, September 30, 2018	$	985,066

The senior notes are guaranteed on a senior unsecured basis by substantially all of the Company’s subsidiaries, other than HudBay (BVI) Inc. and certain excluded subsidiaries, which include the Company’s subsidiaries that own an interest in the Rosemont project and any newly formed or acquired subsidiaries that primarily hold or may develop non-producing mineral assets that are in the pre-construction phase of development.

(b) Equipment finance facility

Balance, January 1, 2017	$	50,267
Transaction costs		(326	)
Payments made		(54,364	)
Write-down of unamortized transaction costs		3,552
Accretion of transaction costs		871
Balance, December 31, 2017	$	—

The equipment finance facility was repaid and extinguished during the third quarter of 2017 resulting in the write-down of unamortized transaction costs.

(c) Senior secured revolving credit facilities

Balance, January 1, 2017	$	202,075
Addition to Principal		25,000
Payments made		(227,075	)
Balance, December 31, 2017	$	—

On June 15, 2018, the Group entered into amendments to its two senior credit facilities to extend the maturity dates from July 14, 2021 to July 14, 2022 and to incorporate various amendments to the terms and conditions of the facilities to provide greater flexibility. The two facilities have substantially similar terms and conditions.

The South American business unit has $77,567 in letters of credit issued under the Peru facility to support its reclamation obligations. The Manitoba business unit has $53,851 in letters of credit issued under the Canada facility to support its reclamation and pension obligations. Given that these letters of credit are issued under the senior credit facilities, no cash collateral is required to be posted.

21

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

(d) Unamortized transaction costs - revolving credit facilities

Balance, January 1, 2017	$	6,752
Accretion of transaction costs		(3,291	)
Transaction costs		4,867
Balance, December 31, 2017	$	8,328
Accretion of transaction costs		(1,375	)
Transaction costs		1,861
Balance, September 30, 2018	$	8,814

14. Deferred revenue

On August 8, 2012 and November 4, 2013, the Group entered into precious metals stream transactions with Wheaton whereby the Group has received aggregate deposit payments of $885,000 against delivery of (i) 100% of payable gold and silver from the 777 mine until the end of 2016, and delivery of 50% of payable gold and 100% of payable silver for the remainder of the 777 mine life; and (ii) 100% of payable silver and 50% of payable gold from the Constancia mine.

In addition to the deposit payments, as gold and silver is delivered to Wheaton, the Group receives cash payments equal to the lesser of (i) the market price and (ii) $400 per ounce (for gold) and $5.90 per ounce (for silver), subject to 1% annual escalation after three years.

The Group recorded the deposits received as deferred revenue and recognizes amounts in revenue as gold and silver are delivered to Wheaton. The Group determines the amortization of deferred revenue to the consolidated income statements on a per unit basis using the estimated total number of gold and silver ounces expected to be delivered to Wheaton over the life of the 777 and Constancia operations. The Group estimates the current portion of deferred revenue based on deliveries anticipated over the next twelve months.

In February 2010, Augusta Resource Corporation entered into a precious metals stream transaction with Wheaton whereby the Group will receive deposit payments of $230,000 against delivery of 100% of the payable silver and gold from the Rosemont project. The deposit will be payable upon the satisfaction of certain conditions precedent, including the receipt of permits for the Rosemont project and the commencement of construction. In addition to the deposit payments, as gold and silver is delivered to Wheaton, the Group receives cash payments equal to the lesser of (i) the market price and (ii) $450 per ounce (for gold) and $3.90 per ounce (for silver), subject to 1% annual escalation after three years. To date, no such deposit has been received under the terms of this contract.

With the implementation of IFRS 15 as of January 1, 2018, the Group has determined that precious metals stream contracts are subject to variable consideration and contain a significant financing component. As such, the Company now recognizes a financing charge at each reporting period and will gross up the deferred revenue balance to recognize the significant financing element that is part of these contracts. Furthermore, the Company now amortizes the deferred revenue balance using a higher base, by including the portion of mineral resources expected to be converted into mineral reserves over the life of the mine. Previously, deferred revenue was amortized over only proven and probable reserves.

The Group restated prior year comparative information to reflect the impact of the adoption of this standard in the Company’s interim financial statements.

22

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

The following table summarizes changes in deferred revenue:

Balance, January 1, 2017 (Restated)	$	616,246
Recognition of revenue		(88,744	)
Accretion		66,414
Effects of changes in foreign exchange		8,014
Balance, December 31, 2017 (Restated)	$	601,930
Recognition of revenue		(70,122	)
Accretion		48,427
Effects of changes in foreign exchange		(3,282	)
Balance, September 30, 2018	$	576,953

Deferred revenue is reflected in the condensed consolidated interim balance sheets as follows:

		Sep. 30, 2018		Dec. 31, 2017		Jan. 1, 2017
				(Restated)		(Restated)
Current	$	92,039	$	107,194	$	87,411
Non-current		484,914		494,736		528,835
	$	576,953	$	601,930	$	616,246

23

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

15. Provisions

Reflected in the condensed consolidated interim balance sheets as follows:

		Decommissioning,
		restoration and		Deferred		Restricted
Sep. 30, 2018		similar liabilities		share units		share units		Other		Total
Current (note 10)	$	1,372	$	4,305	$	8,369	$	363	$	14,409
Non-current		190,709		—		3,276		73		194,058
	$	192,081	$	4,305	$	11,645	$	436	$	208,467

		Decommissioning,
		restoration and		Deferred		Restricted
Dec. 31, 2017		similar liabilities		share units		share units		Other		Total
Current (note 10)	$	2,344	$	6,623	$	17,119	$	1,284	$	27,370
Non-current		197,697		—		2,290		151		200,138
	$	200,041	$	6,623	$	19,409	$	1,435	$	227,508

		Decommissioning,
		restoration and		Deferred		Restricted
Jan. 1, 2017		similar liabilities		share units		share units		Other		Total
Current (note 10)	$	1,054	$	3,933	$	8,451	$	929	$	14,367
Non-current		176,242		—		2,601		859		179,702
	$	177,296	$	3,933	$	11,052	$	1,788	$	194,069

24

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

16. Income and mining taxes

(a) Tax expense:

The tax expense is applicable as follows:

		Three months ended						Nine months ended
		September 30,						September 30,
		2018			2017			2018			2017
					(Restated)						(Restated)
Current:
Income tax expense	$	2,462		$	7,422		$	19,232		$	10,953
Mining tax expense		2,270			1,506			16,980			11,238
Adjustments in respect of prior years		—			—			707			(445	)
		4,732			8,928			36,919			21,746
Deferred:
Income tax - origination and reversal of temporary difference		3,937			9,185			28,814			25,355
Mining tax - origination and reversal of temporary difference		(555	)		(665	)		(534	)		210
Adjustments in respect of prior years		(635	)		—			(938	)		602
		2,747			8,520			27,342			26,167
	$	7,479		$	17,448		$	64,261		$	47,913

(b) Deferred tax assets and liabilities as represented on the condensed consolidated interim balance sheets

		Sep. 30, 2018			Dec. 31, 2017			Jan. 1, 2017
					(Restated)			(Restated)
Deferred income tax asset	$	13,252		$	31,937		$	40,162
Deferred income tax liability		(301,564	)		(291,665	)		(310,772	)
Deferred mining tax liability		(16,711	)		(17,738	)		(17,491	)
		(318,275	)		(309,403	)		(328,263	)
Net deferred tax liability balance, end of period	$	(305,023	)	$	(277,466	)	$	(288,101	)

As of January 1, 2017 the deferred tax assets and deferred tax liabilities attributable to Canada are disclosed as a net deferred tax asset. This follows from the amalgamation between HudBay Minerals Inc. and its former subsidiaries, Hudson Bay Mining and Smelting Co., Limited (“HBMS”) and Hudson Bay Exploration and Development Company Limited.

25

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

(c) Changes in deferred tax assets and liabilities:

		Nine months
		ended			Year ended
		September 30,			Dec. 31, 2017
		2018			(Restated)
Net deferred tax liability balance, beginning of year	$	(277,466	)	$	(288,101	)
Deferred tax (expense) recovery		(27,342	)		16,542
OCI transactions		(2,262	)		(3,845	)
Items charged directly to equity		-			2,238
Foreign currency translation on the deferred tax liability		2,047			(4,300	)
Net deferred tax liability balance, end of period	$	(305,023	)	$	(277,466	)

17. Share capital

(a) Preference shares:

Authorized: Unlimited preference shares without par value

(b) Common shares:

Authorized: Unlimited common shares without par value

Issued and fully paid:

	Nine months ended						Year ended
	Sep. 30, 2018						Dec. 31, 2017
	Common				Common
	shares		Amount		shares		Amount
Balance, beginning of year	261,271,188	$	1,777,409		237,271,188	$	1,588,319
Equity issuance	—		—		24,000,000		195,295
Share issue costs, net of tax	—		(80	)	—		(6,205	)
Warrants exercised	963		11		—		—
Balance, end of period	261,272,151	$	1,777,340		261,271,188	$	1,777,409

During the nine months ended September 30, 2018, the Company declared two semi-annual dividends of C$0.01 per share each. The Company paid $2,026 and $2,019 on March 29, 2018 and September 28, 2018 to shareholders of record as of March 9, 2018 and September 7, 2018, respectively.

On September 27, 2017, the Company issued 24,000,000 Hudbay common shares for net proceeds of $189,090 (net of tax and costs).

During the nine months ended September 30, 2017, the Company paid $1,774 and $1,912 on March 31, 2017 and September 29, 2017 to shareholders of record as of March 10, 2017 and September 8, 2017, respectively.

26

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

18. Earnings per share

	Three months ended		Nine months ended
	September 30,		September 30,
	2018	2017	2018	2017
Basic and diluted weighted average common shares outstanding	261,271,942	238,053,797	261,271,441	237,533,962

27

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

19. Financial instruments

(a) Fair value and carrying value of financial instruments:

The following presents the fair value ("FV") and carrying value ("CV") of the Group's financial instruments and non-financial derivatives:

		Sep. 30, 2018						Dec. 31, 2017						Jan. 1, 2017
											(Restated)						(Restated)
Recurring measurements		FV			CV			FV			CV			FV			CV
Loans and receivables
Cash and cash equivalents 1	$	459,863		$	459,863		$	356,499		$	356,499		$	146,864		$	146,864
Restricted cash1		—			—			206			206			17,148			17,148
Trade and other receivables1, 2		159,672			159,672			142,199			142,199			116,445			116,445
Fair value through profit or loss
FV movements on provisionally priced receivables3		3,680			3,680			17,427			17,427			12,538			12,538
Non-hedge derivative assets3		6,175			6,175			2,841			2,841			3,397			3,397
Prepayment option - embedded derivatives7		7,625			7,625			3,980			3,980			4,430			4,430
Investments at FVTPL4		18,592			18,592			22,255			22,255			13,700			13,700
Total financial assets		655,607			655,607			545,407			545,407			314,522			314,522
Financial liabilities at amortized cost
Trade and other payables1,2		147,933			147,933			192,448			192,448			163,027			163,027
Finance leases		78,774			78,774			84,573			84,573			12,932			12,932
Other financial liabilities5		18,818			22,314			19,625			22,568			17,231			22,998
Senior unsecured notes6		1,032,264			992,691			1,082,740			991,883			1,040,178			991,004
Equipment finance facility8		—			—			—			—			50,267			50,267
Senior secured revolving credit facilities8		—			—			—			—			202,075			202,075
Unamortized transaction costs8		(8,814	)		(8,814	)		(8,328	)		(8,328	)		(6,752	)		(6,752	)
Fair value through profit or loss
Embedded derivatives3		6,573			6,573			1,533			1,533			86			86
Warrant liabilities3		—			—			6,961			6,961			7,588			7,588
Option liabilities3		—			—			732			732			570			570
Non-hedge derivative liabilities3		5,730			5,730			16,140			16,140			10,682			10,682
Total financial liabilities		1,281,278			1,245,201			1,396,424			1,308,510			1,497,884			1,454,477
Net financial liability	$	(625,671	)	$	(589,594	)	$	(851,017	)	$	(763,103	)	$	(1,183,362	)	$	(1,139,955	)

1	Cash and cash equivalents, restricted cash, trade and other receivables and trade and other payables are recorded at carrying value, which approximates fair value due to their short-term nature and generally negligible credit losses.
2	Excludes embedded provisional pricing derivatives, as well as tax and other statutory amounts.
3	Derivatives and embedded provisional pricing derivatives are carried at their fair value, which is determined based on internal valuation models that reflect observable forward market commodity prices, currency exchange rates, and discount factors based on market US dollar interest rates adjusted for credit risk. For the warrant and option liabilities, fair value is determined based on quoted market closing price or the Black-Scholes model.
4	All investments are carried at their fair value, which is determined using quoted market bid prices in active markets for listed shares and determined using valuation models for shares of private companies.
5	These financial liabilities relate to agreements with communities near the Constancia project in Peru (note 11). Fair values have been determined using a discounted cash flow analysis based on expected cash flows and a credit adjusted discount rate.
6	Fair value of the senior unsecured notes (note 13) has been determined using the quoted market price at the period end.
7	Fair value of the prepayment option embedded derivative related to the long-term debt (note 13) has been determined using a binomial tree/lattice approach based on the Hull-White single factor interest rate term structure model.
8	The carrying value of the facilities approximates the fair value as the facilities are based on floating interest rates.

28

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

Fair value hierarchy

The table below provides an analysis by valuation method of financial instruments that are measured at fair value subsequent to recognition. Levels 1 to 3 are defined based on the degree to which fair value inputs are observable and have a significant effect on the recorded fair value, as follows:

–	Level 1:	Quoted prices in active markets for identical assets or liabilities;
–	Level 2:	Valuation techniques use significant observable inputs, either directly or indirectly, or valuations are based on quoted prices for similar instruments; and
–	Level 3:	Valuation techniques use significant inputs that are not based on observable market data.

September 30, 2018		Level 1		Level 2		Level 3		Total
Financial assets measured at fair value
Financial assets at FVTPL:
Movement of provisionally priced receivables	$	—	$	3,680	$	—	$	3,680
Non-hedge derivatives		—		6,175		—		6,175
Investments at FVTPL		18,592		—		—		18,592
Prepayment option embedded derivative		—		7,625		—		7,625
	$	18,592	$	17,480	$	—	$	36,072
Financial liabilities measured at fair value
Financial liabilities at FVTPL:
Embedded derivatives	$	—	$	6,573	$	—	$	6,573
Non-hedge derivatives		—		5,730		—		5,730
Warrant liabilities		—		—		—		—
	$	—	$	12,303	$	—	$	12,303

December 31, 2017 (Restated)		Level 1		Level 2		Level 3		Total
Financial assets measured at fair value
Financial assets at FVTPL:
Movement of provisionally priced receivables	$	—	$	17,427	$	—	$	17,427
Non-hedge derivatives		—		2,841		—		2,841
Investments at FVTPL		21,973		282		—		22,255
Prepayment option embedded derivative		—		3,980		—		3,980
	$	21,973	$	24,530	$	—	$	46,503
Financial liabilities measured at fair value
Financial liabilities at FVTPL:
Embedded derivatives	$	—	$	1,533	$	—	$	1,533
Non-hedge derivatives		—		16,140		—		16,140
Option liability		—		732		—		732
Warrant liabilities		6,961		—		—		6,961
	$	6,961	$	18,405	$	—	$	25,366

29

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

January 1, 2017 (Restated)		Level 1		Level 2		Level 3		Total
Financial assets measured at fair value
Financial assets at FVTPL:
Movement of provisionally priced receivables	$	—	$	12,538	$	—	$	12,538
Non-hedge derivatives		—		3,397		—		3,397
Investments at FVTPL		12,018		192		1,490		13,700
Prepayment option embedded derivative		—		4,430		—		4,430
	$	12,018	$	20,557	$	1,490	$	34,065
Financial liabilities measured at fair value
Financial assets at FVTPL:
Embedded derivatives	$	—	$	86	$	—	$	86
Non-hedge derivatives		—		10,682		—		10,682
Option liability		—		570		—		570
Warrant liability		7,588		—		—		7,588
	$	7,588	$	11,338	$	—	$	18,926

The Group's Level 3 investment relates to a minority investment in an unlisted junior mining company. During the year ended December 31, 2017, the Group concluded that the value of the investment was unlikely to be recoverable and revalued the investment to zero.

The Group’s policy is to recognize transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. During the nine months ended September 30, 2018, the Group did not make any transfers.

(b) Derivatives and hedging:

Copper fixed for floating swaps

Hudbay enters into copper fixed for floating swaps in order to manage the risk associated with provisional pricing terms in copper concentrate sales agreements. As at September 30, 2018, the Group had 40,000 tonnes of net copper swaps outstanding at an effective average price of $2.85/lb and settling across October 2018 to January 2019. At December 31, 2017, the Group had 34,500 tonnes of net copper swaps outstanding at an average fixed receivable price $3.10/lb, which settled across January 2018 to April 2018. The aggregate fair value of the transactions at September 30, 2018 was an asset position of $995 (December 31, 2017 and January 1, 2017 a liability position of $13,786 and $8,657, respectively).

30

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

Non-hedge derivative gold and silver contracts

From time to time, the Group enters into gold and silver forward sales contracts to hedge the commodity price risk associated with the future settlement of provisionally priced deliveries. At September 30, 2018 and December 31, 2017, the Group held no gold or silver forward sales contracts.

Non-hedge derivative zinc contracts

Hudbay enters into fixed price sales contracts with zinc customers and, to ensure that the Group continues to receive a floating or unhedged realized zinc price, Hudbay enters into forward zinc purchase contracts that effectively offset the fixed price sales contracts. At September 30, 2018, the Group held contracts for forward zinc purchased of 5,319 tonnes (December 31, 2017 – 2,808 tonnes) that related to forward customer sales of zinc. Prices range from $2,300 to $3,317 per tonne (December 31, 2017 – $2,534 to $3,292) and settlement dates extend to June 2019. The aggregate fair value of the transactions at September 30, 2018 was a net liability position of $550 (December 31, 2017 and January 1, 2017 – a net asset position of $487 and $1,372 respectively).

(c) Embedded derivatives

Changes in fair value of provisionally priced receivables

The Group records changes in fair value of provisionally priced receivables related to provisional pricing in concentrate purchase, concentrate sale and certain other sale contracts. Under the terms of these contracts, prices are subject to final adjustment at the end of a future period after title transfers based on quoted market prices during the quotation period specified in the contract. The period between provisional pricing and final pricing is typically up to three months.

Changes in fair value of provisionally priced receivables are presented in trade and other receivables when they relate to sales contracts and in trade and other payables when they relate to purchase contracts. At each reporting date, provisionally priced metals are marked-to-market based on the forward market price for the quotation period stipulated in the contract, with changes in fair value recognized in revenue for sales contracts and in cost of sales for purchase concentrate contracts. Cash flows related to changes in fair value of provisionally priced receivables are classified in operating activities.

As at September 30, 2018, the Group’s net position consisted of contracts awaiting final pricing for sales of 41,926 tonnes of copper (December 31, 2017 – 38,027 tonnes). As of September 30, 2018, there are also 479 tonnes of zinc (December 31, 2017 – 6,412 tonnes) awaiting final pricing. In addition, at September 30, 2018, the Group’s net position consisted of contracts awaiting final pricing for sales of 16,230 ounces of gold and 115,447 ounces of silver (December 31, 2017 – 24,553 ounces of gold and 172,886 ounces of silver).

As at September 30, 2018, the Group’s provisionally priced copper, zinc, gold and silver sales subject to final settlement were recorded at average prices of $2.83/lb (December 31, 2017 – $3.29/lb), $1.20/oz (December 31, 2017 – $1.51/oz), $1,202/oz (December 31, 2017 – $1,309/oz) and $14.64/oz (December 31, 2017 – $17.10/oz), respectively.

The aggregate changes in fair value of provisionally priced receivables within the copper and zinc concentrate sales contracts at September 30, 2018, was a liability position of $3,680 (December 31, 2017 and January 1, 2017 – an asset position of $17,427 and $12,538 respectively). The aggregate fair value of other embedded derivatives at September 30, 2018, was a liability position of $5 (December 31, 2017 and January 1, 2017 – a liability position of $1,533 and $86, respectively).

31

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

Prepayment option embedded derivative

The senior unsecured notes (note 13) contain prepayment options, which represent embedded derivatives that require bifurcation from the host contract. The prepayment options are measured at fair value, with changes in the fair value being recognized as unrealized gains or losses in finance income and expense (note 5e). The fair value of the embedded derivative at September 30, 2018 was an asset of $7,625 (December 31, 2017 and January 1, 2017 - an asset of $3,980 and $4,430, respectively).

Pampacancha delivery obligation

The Group has recognized an obligation to deliver additional precious metal credits to Wheaton as a result of the Group’s expectation that mining at the Pampacancha deposit will not begin until 2019. The fair value of the embedded derivative at September 30, 2018 was a liability of $6,568 (December 31, 2017 – nil).

(d) Warrants and option liabilities

A total of 22,391,490 warrants were issued as a result of the acquisition of Augusta Resource Corporation which entitled the holders to acquire a common share of the Company at a price of C$15.00 per share on, but not prior to, July 20, 2018. As at September 30, 2018, all warrants had either been exercised or expired.

20. Capital commitments

As at September 30, 2018, the Group had outstanding capital commitments in Canada of approximately $11,278 primarily related to committed long-lead orders for the paste plant and Stall concentrator, of which approximately $913 cannot be terminated by the Group, approximately $89,480 in Peru primarily related to sustaining capital costs, all of which can be terminated by the Group and approximately $163,152 in Arizona, primarily related to its Rosemont project, of which approximately $79,494 cannot be terminated by the Group.

21. Supplementary cash flow information

(a) Change in non-cash working capital:

		Three months ended						Nine months ended
		September 30,						September 30,
		2018			2017			2018			2017
Change in:
Trade and other receivables	$	(20,123	)	$	(23,307	)	$	(14,164	)	$	38,325
Other financial assets/liabilities		4,760			(207	)		(13,767	)		(4,060	)
Inventories		7,287			(3,284	)		(5,439	)		(14,339	)
Prepaid expenses		3,667			1,884			3,277			222
Trade and other payables		(3,551	)		17,923			(24,525	)		6,706
Change in taxes payable/receivable, net		762			4,984			11,565			9,420
Provisions and other liabilities		(1,073	)		15,961			(242	)		15,207
	$	(8,271	)	$	13,954		$	(43,295	)	$	51,481

32

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

(b) Non-cash transactions:

During the nine months ended September 30, 2018, the Group entered into the following non-cash investing and financing activities which are not reflected in the consolidated statements of cash flows:

– Remeasurements of the Group's decommissioning and restoration liabilities for the nine months ended September 30, 2018 led to a net decrease in related property, plant and equipment assets of $6,458 (nine months ended September 30, 2017 - $4,404) mainly as a result of higher discount rates.

– Property, plant and equipment included $10,093 of net additions related to capital additions under finance lease (September 30, 2017- $6,589).

33

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

22. Segmented information

Corporate and other activities include the Group's exploration activities in Greenfield projects worldwide. The exploration entities are not individually significant, as they do not meet the minimum quantitative thresholds. Corporate activities are not considered a segment and are included as a reconciliation to total consolidated results.

Three months ended September 30, 2018
									Corporate
									and other
		Manitoba		Peru		Arizona			activities			Total
Revenue from external customers	$	165,877	$	196,772	$	—		$	—		$	362,649
Cost of sales
Mine operating costs		107,002		84,101		—			—			191,103
Depreciation and amortization		32,881		53,383		—			—			86,264
Gross profit		25,994		59,288		—			—			85,282
Selling and administrative expenses		—		—		—			6,786			6,786
Exploration and evaluation		2,552		3,470		—			1,753			7,775
Other operating expense		3,033		1,815		154			120			5,122
Results from operating activities	$	20,409	$	54,003	$	(154	)	$	(8,659	)	$	65,599
Finance income												(2,199	)
Finance expenses												37,906
Other finance gains												(395	)
Profit before tax												30,287
Tax expense												7,479
Profit for the period											$	22,808

34

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

Three months ended September 30, 2017 (Restated)
											Corporate
											and other
		Manitoba			Peru			Arizona			activities			Total
Revenue from external customers	$	192,242		$	187,939		$	—		$	—		$	380,181
Cost of sales
Mine operating costs		100,990			78,890			—			—			179,880
Depreciation and amortization		32,374			48,370			—			—			80,744
Gross profit		58,878			60,679			—			—			119,557
Selling and administrative expenses		—			—			—			11,891			11,891
Exploration and evaluation		1,030			355			—			4,515			5,900
Other operating (income) and expenses		(544	)		(3,269	)		73			12			(3,728	)
Results from operating activities	$	58,392		$	63,593		$	(73	)	$	(16,418	)	$	105,494
Finance income														(547	)
Finance expenses														44,053
Other finance losses														8,236
Profit before tax														53,752
Tax expense														17,448
Profit for the period													$	36,304

Nine months ended September 30, 2018
								Corporate
								and other
		Manitoba		Peru		Arizona		activities			Total
Revenue from external customers	$	525,364	$	595,229	$	—		—		$	1,120,593
Cost of sales
Mine operating costs		315,182		256,473		—		—			571,655
Depreciation and amortization		91,782		158,642		—		—			250,424
Gross profit		118,400		180,114		—		—			298,514
Selling and administrative expenses		—		—		—		18,605			18,605
Exploration and evaluation		9,548		5,562		—		7,462			22,572
Other operating expense (income)		2,587		10,662		448		(516	)		13,181
Results from operating activities	$	106,265	$	163,890	$	(448	)$	(25,551	)	$	244,156
Finance income											(5,555	)
Finance expenses											113,618
Other finance gain											(17,094	)
Profit before tax											153,187
Tax expense											64,261
Profit for the period										$	88,926

35

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

Nine months ended September 30, 2017 (Restated)
											Corporate
											and other
		Manitoba			Peru			Arizona			activities			Total
Revenue from external customers	$	518,078		$	459,902		$	—		$	—		$	977,980
Cost of sales
Mine operating costs		286,924			205,810			—			—			492,734
Depreciation and amortization		94,927			126,131			—			—			221,058
Gross profit		136,227			127,961			—			—			264,188
Selling and administrative expenses		—			—			—			28,022			28,022
Exploration and evaluation		2,902			932			—			5,797			9,631
Other operating expense (income)		(54	)		(7,650	)		480			96			(7,128	)
Results from operating activities	$	133,379		$	134,679		$	(480	)	$	(33,915	)	$	233,663
Finance income														(1,652	)
Finance expenses														129,904
Other finance losses														12,085
Profit before tax														93,326
Tax expense														47,913
Profit for the period													$	45,413

September 30, 2018
								Corporate
								and other
		Manitoba		Peru		Arizona		activities		Total
Total assets	$	663,298	$	2,735,486	$	887,224	$	396,164	$	4,682,172
Total liabilities		444,126		909,996		114,435		1,018,346		2,486,903
Property, plant and equipment		594,953		2,372,706		860,715		3,107		3,831,481

December 31, 2017 (Restated)
								Corporate
								and other
		Manitoba		Peru		Arizona		activities		Total
Total assets	$	738,967	$	2,750,114	$	856,589	$	382,346	$	4,728,016
Total liabilities		510,506		932,423		110,945		1,061,797		2,615,671
Property, plant and equipment		619,476		2,503,900		836,759		4,098		3,964,233

January 1, 2017 (Restated)
								Corporate
								and other
		Manitoba		Peru		Arizona		activities		Total
Total assets	$	730,240	$	2,808,370	$	822,498	$	144,056	$	4,505,164
Total liabilities		475,644		980,479		158,236		1,130,726		2,745,085
Property, plant and equipment		606,348		2,540,846		800,542		6,016		3,953,752

36

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2018 and 2017

23. Events after the reporting period

On October 31, 2018, Hudbay entered into an agreement pursuant to which it will acquire the remaining 86% of the issued and outstanding common shares of Mason Resources Corp. ("Mason") that it does not already own. Under the agreement, Mason shareholders will receive $C0.40 in cash for each Mason common share owned. The transaction is expected to close in December 2018, subject to the approval of Mason shareholders and court approval of a plan of arrangement.

37