0001062993-22-011972.txt : 20220510 0001062993-22-011972.hdr.sgml : 20220510 20220510153549 ACCESSION NUMBER: 0001062993-22-011972 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220510 DATE AS OF CHANGE: 20220510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Hudbay Minerals Inc. CENTRAL INDEX KEY: 0001322422 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 980485558 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-34244 FILM NUMBER: 22909225 BUSINESS ADDRESS: STREET 1: 25 YORK STREET, SUITE 800 CITY: TORONTO STATE: A6 ZIP: M5J 2V5 BUSINESS PHONE: 416-362-8181 MAIL ADDRESS: STREET 1: 25 YORK STREET, SUITE 800 CITY: TORONTO STATE: A6 ZIP: M5J 2V5 FORMER COMPANY: FORMER CONFORMED NAME: HudBay Minerals Inc. DATE OF NAME CHANGE: 20050331 6-K 1 form6k.htm FORM 6-K Hudbay Minerals Inc.: Form 6-K - Filed by newsfilecorp.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 2022

Commission File Number: 001-34244

HUDBAY MINERALS INC.
(Translation of registrant’s name into English)

25 York Street, Suite 800
Toronto, Ontario
M5J 2V5, Canada
(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 [X]

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 the registrant by furnishing the information contained in this Form 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): 82- _____________________________


EXPLANATORY NOTE

On May 9, 2022, Hudbay Minerals Inc. (“Hudbay”) filed on the Canadian Securities Administrators’ System for Electronic Document Analysis and Retrieval (SEDAR) website at www.sedar.com the following documents: (1) Unaudited Condensed Consolidated Interim Financial Statements for the period ended March 31, 2022, (2) Management's Discussion and Analysis of Results of Operations and Financial Condition for the period ended March 31, 2022, (3) Form 52-109F2 Certification of Interim Filings Full Certificate - CEO, (4) Form 52-109F2 Certification of Interim Filings Full Certificate - CFO, and (5) News Release dated May 9, 2022.

 

Copies of the filings are attached to this Form 6-K and incorporated herein by reference, as follows:

  • Exhibit 99.1 — Unaudited Condensed Consolidated Interim Financial Statements for the period ended March 31, 2022

  • Exhibit 99.2 — Management's Discussion and Analysis of Results of Operations and Financial Condition for the period ended March 31, 2022

  • Exhibit 99.3 — Form 52-109F2 Certification of Interim Filings Full Certificate - CEO

  • Exhibit 99.4 — Form 52-109F2 Certification of Interim Filings Full Certificate - CFO
  • Exhibit 99.5 — News Release dated May 9, 2022

2


SIGNATURE

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.
  (registrant)
     
  By: /s/ Steve Douglas
  Name: Steve Douglas
  Title: Senior Vice President and Chief Financial Officer

Date: May 10, 2022

3


EXHIBIT INDEX

The following exhibits are furnished as part of this Form 6-K:

Exhibit   Description
     
99.1   Unaudited Condensed Consolidated Interim Financial Statements for the period ended March 31, 2022
99.2   Management's Discussion and Analysis of Results of Operations and Financial Condition for the period ended March 31, 2022
99.3   Form 52-109F2 Certification of Interim Filings Full Certificate - CEO
99.4   Form 52-109F2 Certification of Interim Filings Full Certificate - CFO
99.5   News Release dated May 9, 2022

4


EX-99.1 2 exhibit99-1.htm EXHIBIT 99.1 Hudbay Minerals Inc.: Exhibit 99.1 - Filed by newsfilecorp.com

 

 

Unaudited Condensed Consolidated Interim Financial Statements

(In US dollars)

HUDBAY MINERALS INC.

For the three months ended March 31, 2022 and 2021

 

 

 


HUDBAY MINERALS INC.
Condensed Consolidated Interim Balance Sheets
(Unaudited and in thousands of US dollars)

 

      Mar. 31,     Dec. 31,  
  Note   2022     2021  
Assets              
Current assets              
Cash   $ 213,359   $ 270,989  
Trade and other receivables 6   185,231     204,081  
Inventories 7   199,239     158,453  
Prepaid expenses and other current assets     15,760     15,338  
Other financial assets 8   6,643     7,867  
      620,232     656,728  
Receivables 6   16,805     16,084  
Inventories 7   23,438     37,573  
Other financial assets 8   13,210     11,158  
Intangibles and other assets 9   19,800     20,138  
Property, plant and equipment 10   3,713,732     3,740,966  
Deferred tax assets     130,997     133,584  
    $ 4,538,214   $ 4,616,231  
Liabilities              
Current liabilities              
Trade and other payables   $ 185,082   $ 207,777  
Taxes payable     8,371     15,243  
Other liabilities 11   54,460     63,002  
Other financial liabilities 12   107,712     100,702  
Lease liabilities 13   29,518     33,529  
Deferred revenue 15   73,243     88,963  
      458,386     509,216  
Other financial liabilities 12   106,945     120,972  
Lease liabilities 13   47,507     44,473  
Long-term debt 14   1,181,119     1,180,274  
Deferred revenue 15   418,939     426,363  
Pension obligations     10,770     6,252  
Other employee benefits     108,674     128,588  
Environmental and other provisions 16   368,800     461,501  
Deferred tax liabilities     275,096     261,764  
      2,976,236     3,139,403  
Equity              
Share capital 18b   1,780,182     1,778,848  
Reserves     21,894     (182 )
Retained earnings     (240,098 )   (301,838 )
      1,561,978     1,476,828  
    $ 4,538,214   $ 4,616,231  
Commitments (note 21)  


HUDBAY MINERALS INC.
Condensed Consolidated Interim Income Statements
(Unaudited and in thousands of US dollars)

 

  Note   Three months ended March 31,  
  2022     2021  
Revenue 5a $ 378,619   $ 313,624  
Cost of sales              
Mine operating costs     212,260     178,430  
Depreciation and amortization 5b   81,091     82,682  
      293,351     261,112  
               
Gross profit     85,268     52,512  
               
Selling and administrative expenses     11,841     9,945  
Exploration expenses     18,630     6,847  
Evaluation expenses 3, 5c   7,036     267  
Environmental obligation adjustment 3, 16   (79,856 )   (4,499 )
Other expenses 3, 5d   2,012     1,091  
Results from operating activities     125,605     38,861  
Net interest expense on long term debt 5e   16,898     21,232  
Accretion on streaming arrangements 5e   4,836     15,528  
Change in fair value of financial instruments 5e   7,216     39,007  
Other net finance costs 5e   7,794     32,686  
Net finance expense     36,744     108,453  
Profit (loss) before tax     88,861     (69,592 )
Tax expense (recovery) 17   25,046     (9,490 )
Profit (loss) for the period   $ 63,815   $ (60,102 )
               
Profit (loss) per share              
Basic and diluted   $ 0.24   $ (0.23 )
               
Weighted average number of common shares outstanding:              
Basic 19   261,689,263     261,321,074  
Diluted 19   262,267,240     261,321,074  


HUDBAY MINERALS INC.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited and in thousands of US dollars)

 

  Note   Three months ended March 31,  
  2022     2021  
Cash generated from operating activities:              
Profit (loss) for the period   $ 63,815   $ (60,102 )
Tax expense (recovery) 17   25,046     (9,490 )
Items not affecting cash:              
Depreciation and amortization 5b   81,533     83,162  
Share-based compensation     3,303     1,786  
Net interest expense on long term debt 5e   16,898     21,232  
Accretion on streaming arrangements 5e   4,836     15,528  
Change in fair value of financial instruments 5e   7,216     39,007  
Other net finance costs 5e   7,794     32,686  
Inventory adjustments 7   (461 )   (723 )
Amortization of deferred revenue and variable consideration 5a   (28,219 )   (15,227 )
Pension and other employee benefit payments, net of accruals     (708 )   2,641  
Environmental obligation adjustment 3, 16   (79,856 )   (4,499 )
Decommissioning and restoration payments 16   (3,341 )   (4,637 )
Other 22a   (4,614 )   (6,311 )
Taxes paid     (16,189 )   (4,397 )
Operating cash flow before change in non-cash working capital     77,053     90,656  
Change in non-cash working capital 22b   (13,746 )   (38,859 )
      63,307     51,797  
Cash used in investing activities:              
Acquisition of property, plant and equipment     (55,894 )   (82,950 )
Interest received     162     438  
      (55,732 )   (82,512 )
Cash used in financing activities:              
Issuance of senior unsecured notes, net of transaction costs 14a   -     591,928  
Principal repayments 14a   -     (600,000 )
Premium paid on redemption of notes 14a   -     (22,878 )
Interest paid on long-term debt     (31,875 )   (50,835 )
Financing costs     (3,151 )   (3,586 )
Lease payments 13   (9,863 )   (9,773 )
Gold prepayment repayments 12   (18,623 )   -  
Net proceeds from exercise of stock options     868     443  
Dividends paid 18b   (2,075 )   (2,090 )
      (64,719 )   (96,791 )
Effect of movement in exchange rates on cash     (486 )   (1,065 )
Net decrease in cash     (57,630 )   (128,571 )
Cash, beginning of the period     270,989     439,135  
Cash, end of the period   $ 213,359   $ 310,564  


HUDBAY MINERALS INC.
Condensed Consolidated Interim Statements of Comprehensive Profit (Loss)
(Unaudited and in thousands of US dollars)

 

    Three months ended March 31,  
    2022     2021  
Profit (loss) for the period $ 63,815   $ (60,102 )
             
Other comprehensive income:            
Item that will be reclassified subsequently to profit or loss:            
Recognized directly in equity:            
Net gain on translation of foreign currency balances   3,308     3,461  
    3,308     3,461  
             
Items that will not be reclassified subsequently to profit or loss:            
Recognized directly in equity:            
Gold prepayment revaluation   175     (1,547 )
Tax effect   (46 )   416  
Remeasurement - actuarial gain   18,017     20,549  
Tax effect   790     (1,109 )
    18,936     18,309  
             
Other comprehensive income net of tax, for the period   22,244     21,770  
Total comprehensive profit (loss) for the period $ 86,059   $ (38,332 )


HUDBAY MINERALS INC.
Condensed Consolidated Interim Statements of Changes in Equity
(Unaudited and in thousands of US dollars)

 

    Share capital
(note 18)
    Other capital
reserves
    Foreign currency
translation reserve
    Remeasurement
reserve
    Retained
earnings
    Total equity  
Balance, January 1, 2021 $ 1,777,340   $ 55,937   $ 1,571   $ (81,708 ) $ (53,334 ) $ 1,699,806  
Loss   -     -     -     -     (60,102 )   (60,102 )
Other comprehensive income   -     -     3,461     18,309     -     21,770  
Total comprehensive income (loss)   -     -     3,461     18,309     (60,102 )   (38,332 )
Contributions by and distributions to owners:                                    
Dividends (note 18b)   -     -     -     -     (2,090 )   (2,090 )
Stock options   -     423     -     -     -     423  
Issuance of shares related to stock options redeemed   681     (238 )   -     -     -     443  
Total contributions by and distributions to owners   681     185     -     -     (2,090 )   (1,224 )
Balance, March 31, 2021 $ 1,778,021   $ 56,122   $ 5,032   $ (63,399 ) $ (115,526 ) $ 1,660,250  
Loss   -     -     -     -     (184,256 )   (184,256 )
Other comprehensive (loss) income   -     -     (2,125 )   2,982     -     857  
Total comprehensive (loss) income   -     -     (2,125 )   2,982     (184,256 )   (183,399 )
Contributions by and distributions to owners:                                    
Dividends (note 18b)   -     -     -     -     (2,056 )   (2,056 )
Stock options   -     1,496     -     -     -     1,496  
Issuance of shares related to stock options redeemed   827     (290 )   -     -     -     537  
Total contributions by and distributions to owners   827     1,206     -     -     (2,056 )   (23 )
Balance, December 31, 2021 $ 1,778,848   $ 57,328   $ 2,907   $ (60,417 ) $ (301,838 ) $ 1,476,828  


HUDBAY MINERALS INC.
Condensed Consolidated Interim Statements of Changes in Equity
(Unaudited and in thousands of US dollars)

 

    Share capital
(note 18)
    Other capital
reserves
    Foreign currency
translation reserve
    Remeasurement
reserve
    Retained earnings     Total equity  
Balance, January 1, 2022 $ 1,778,848   $ 57,328   $ 2,907   $ (60,417 ) $ (301,838 ) $ 1,476,828  
Profit   -     -     -     -     63,815     63,815  
Other comprehensive income   -     -     3,308     18,936     -     22,244  
Total comprehensive income   -     -     3,308     18,936     63,815     86,059  
Contributions by and distributions to owners:                                    
Dividends (note 18b)   -     -     -     -     (2,075 )   (2,075 )
Stock options   -     298     -     -     -     298  
Issuance of shares related to stock options redeemed   1,334     (466 )   -     -     -     868  
Total contributions by and distributions to owners   1,334     (168 )   -     -     (2,075 )   (909 )
Balance, March 31, 2022 $ 1,780,182   $ 57,160   $ 6,215   $ (41,481 ) $ (240,098 ) $ 1,561,978  


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

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 months ended March 31, 2022 and 2021 represent the financial position and the financial performance of the Company and its subsidiaries (together referred to as "Hudbay").

Wholly owned subsidiaries as at March 31, 2022 and 2021 include HudBay Marketing & Sales Inc. ("HMS"), HudBay Peru Inc., HudBay Peru S.A.C. ("Hudbay Peru"), HudBay (BVI) Inc., Hudbay Arizona Inc, Rosemont Copper Company ("Rosemont") and Mason Resources (US) Inc. ("Mason").

Hudbay is an integrated mining company primarily producing copper concentrate (containing copper, gold and silver), silver/gold doré, molybdenum concentrate and zinc metal. With assets in North and South America, Hudbay is focused on the discovery, production and marketing of base and precious metals. Directly and through its subsidiaries, Hudbay owns three polymetallic mines, four ore concentrators and a zinc production facility in northern Manitoba and Saskatchewan (Canada) and Cusco (Peru) and copper projects in Arizona and Nevada (United States). Hudbay 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.

2. Basis of preparation

(a) Statement of compliance:

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

These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2021 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, 2021 and have been consistently applied in the preparation of these interim financial statements.

The Board of Directors approved these interim financial statements on May 9, 2022.


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

(b) Use of judgements and estimates:

The preparation of the interim financial statements in conformity with IFRS requires Hudbay to make judgements, estimates and assumptions, 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. Actual results may differ from these judgements, estimates and assumptions. The interim financial statements reflect the judgements and estimates outlined by Hudbay in its audited consolidated financial statements for the year ended December 31, 2021.

(c) Estimation uncertainty:

The Company has assessed the economic impacts of the novel coronavirus pandemic and Russia's invasion of Ukraine on its interim financial statements. As at March 31, 2022, management has determined that the Company's ability to execute its medium and longer term plans and the economic viability of its assets (including the carrying value of its long-lived assets and inventory valuations) are not materially  impacted.

In making this judgment, the Company has assessed various criteria including, but not limited to, existing laws, regulations, orders, disruptions and potential disruptions in our supply chain, disruptions in the markets for our products, commodity prices and foreign exchange prices and the actions that the Company has taken at its operations to protect the health and safety of its workforce and local community.

3. Reclassification of comparative amounts

Certain prior period amounts have been reclassified for consistency with the current period presentation. Evaluation expenses (note 5c) and environmental obligation adjustment (note 16) have been reclassified to their own financial statement line items within the condensed consolidated interim income statements due to the significant increases in these balances. These balances were previously included in exploration and evaluation expenses and other expenses respectively. Environmental obligation adjustment was previously included within Other in the operating activities section of the condensed consolidated interim statements of cash flows and has now been reclassified to its own line within operating activities. These reclassifications had no effect on the previous reported net loss or cash generated from operating activities.

4. New standards

New standards and interpretations not yet adopted

Amendment to IAS 1 - Presentation of Financial Statements

The amendments to IAS 1 promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current or non-current (based on a substantive right to defer settlement). This amendment is in effect January 1, 2023 with early adoption permitted.  The Company has not yet determined the effect of adoption of this amendment on its consolidated financial statements.


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

5. Revenue and expenses

(a) Revenue

Hudbay's revenue by significant product types:

    Three months ended March 31,  
    2022     2021  
Copper $ 208,989   $ 173,686  
Zinc   66,426     82,103  
Gold   67,552     42,193  
Silver   6,621     6,397  
Molybdenum   9,194     6,970  
Other   2,437     1,559  
Revenue from contracts   361,219     312,908  
             
Non-cash streaming arrangement items 1            
Amortization of deferred revenue - gold   13,202     4,873  
Amortization of deferred revenue - silver   11,772     8,737  
Amortization of deferred revenue - variable consideration adjustments - prior periods   3,245     1,617  
    28,219     15,227  
Pricing and volume adjustments 2   1,264     (2,575 )
    390,702     325,560  
Treatment and refining charges   (12,083 )   (11,936 )
  $ 378,619   $ 313,624  
1 See note 15.  
2 Pricing and volume adjustments represent mark-to-market adjustments on initial estimate of provisionally priced sales, realized and unrealized changes to fair value for non-hedge derivative contracts and adjustments to originally invoiced weights and assays.  

Consideration from the Company's stream agreements is considered variable (note 15). Gold and silver stream revenue can be subject to cumulative adjustments when the amount of precious metals to be delivered under the contract changes. As a result of changes in the Company's mineral reserve and resource estimate in the first quarter of 2022, the amortization rate by which deferred revenue is drawn down into income was adjusted and, as required, a catch up adjustment was made for all prior year stream revenues since the stream agreement inception date. This variable consideration adjustment resulted in an increase of revenue of $3,245 for the three months ended March 31, 2022 (March 31, 2021 - increase of revenue of $1,617).


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

(b) Depreciation and amortization

Depreciation of PP&E and amortization of intangible assets are reflected in the condensed consolidated interim income statements as follows:

    Three months ended March 31,  
    2022     2021  
Cost of sales $ 81,091   $ 82,682  
Selling and administrative expenses   442     480  
  $ 81,533   $ 83,162  

(c) Evaluation expenses

Evaluation expenses primarily relate to Arizona's Copper World Preliminary Economic Assessment study costs.

(d) Other expenses

    Three months ended March 31,  
    2022     2021  
Regional costs $ 1,219   $ 820  
Gain on disposal of property, plant and equipment   (532 )   (303 )
Amortization of community costs (other assets)   562     353  
Restructuring - Manitoba   748     -  
Other   15     221  
  $ 2,012   $ 1,091  

During the first quarter of 2022, there were costs incurred related to the restructuring of the Manitoba operations in preparation for the closure of 777 mine of $748. These costs were related to activities performed in advance of the mine's expected closure in June 2022.


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

(e) Net finance expense

    Three months ended March 31,  
    2022     2021  
Net interest expense on long-term debt            
Interest expense on long-term debt $ 16,898   $ 21,232  
Accretion on streaming arrangements (note 15)            
Additions   7,363     14,934  
Variable consideration adjustments - prior periods   (2,527 )   594  
    4,836     15,528  
Change in fair value of financial assets and liabilities at fair value through profit or loss            
Embedded derivatives (note 14)   -     49,754  
Gold prepayment liability   9,108     (12,500 )
Investments   (1,892 )   1,753  
    7,216     39,007  
Other net finance costs            
Net foreign exchange gains   1,506     1,670  
Accretion on community agreements measured at amortized cost   610     653  
Accretion on environmental provisions   1,892     861  
Withholding taxes   1,563     2,023  
Premium paid on redemption of notes   -     22,878  
Write-down of unamortized transaction costs (note 14)   -     2,480  
Other finance expense   2,325     2,484  
Interest income   (102 )   (363 )
    7,794     32,686  
Net finance expense $ 36,744   $ 108,453  

Other finance expense relates primarily to fees on Hudbay's revolving credit facilities and leases.


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

6. Trade and other receivables

    Mar. 31, 2022     Dec. 31, 2021  
Current            
Trade receivables $ 140,450   $ 166,524  
Statutory receivables   39,502     31,191  
Other receivables   5,279     6,366  
    185,231     204,081  
Non-current            
Taxes receivable   16,805     16,084  
  $ 202,036   $ 220,165  

The decrease in trade receivables for the three months ended March 31, 2022 primarily relates to three shipments, representing approximately 30,000 tonnes of copper, which occurred late in fiscal 2021 for which payment occurred in early 2022.

7. Inventories

    Mar. 31, 2022     Dec. 31, 2021  
Current            
Stockpile $ 28,571   $ 12,768  
Work in progress   6,650     5,647  
Finished goods   106,402     78,958  
Materials and supplies   57,616     61,080  
    199,239     158,453  
Non-current            
Stockpile   18,553     34,156  
Materials and supplies   4,885     3,417  
    23,438     37,573  
  $ 222,677   $ 196,026  

The cost of inventories recognized as an expense, including depreciation, and included in cost of sales amounted to $261,174 for the three months ended March 31, 2022 (three months ended March 31, 2021 - $237,398).

During the three months ended March 31, 2022, Hudbay recognized a recovery of $461 in cost of sales related to adjustments of the carrying value of Peru inventories to net realizable value (three months ended March 31, 2021 - recovery $723). Adjustments of the carrying value of inventories to net realizable value were related to changes in commodity prices.


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

8. Other financial assets

    Mar. 31, 2022     Dec. 31, 2021  
Current            
Derivative assets $ 6,206   $ 7,430  
Restricted cash   437     437  
    6,643     7,867  
             
Non-current            
Investments at fair value through profit or loss   13,210     11,158  
  $ 19,853   $ 19,025  

9. Intangibles and other assets

Intangibles and other assets of $19,800 (December 31, 2021 - $20,138) includes $14,039 of other assets (December 31, 2021 - $14,240) and $5,761 of intangibles (December 31, 2021 - $5,898).

Other assets represent the carrying value of certain future community costs that relate to original agreements with communities for the Constancia operation which allow Hudbay to extract minerals over the useful life of the Constancia operation. The liability remaining for these costs is recorded in agreements with communities recorded at amortized cost (note 12). Amortization of the carrying amount is recorded in the condensed consolidated interim income statements within other expenses (note 5d) or exploration expense, depending on the nature of the agreement.

Intangibles mainly represent computer software costs.


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

10. Property, plant and equipment

Mar. 31, 2022   Cost     Accumulated
depreciation
and
amortization
    Carrying
amount
 
Exploration and evaluation assets $ 90,284   $ -   $ 90,284  
Capital works in progress   873,384     -     873,384  
Mining properties   2,470,651     (1,332,432 )   1,138,219  
Plant and equipment   3,004,363     (1,499,697 )   1,504,666  
Plant and equipment-ROU Assets1   264,783     (157,604 )   107,179  
  $ 6,703,465   $ (2,989,733 ) $ 3,713,732  
                   
Dec. 31, 2021   Cost     Accumulated
depreciation and
amortization
    Carrying amount  
Exploration and evaluation assets $ 88,207   $ -   $ 88,207  
Capital works in progress   858,230     -     858,230  
Mining properties   2,434,000     (1,284,369 )   1,149,631  
Plant and equipment   2,983,919     (1,445,122 )   1,538,797  
Plant and equipment - ROU Assets1   259,726     (153,625 )   106,101  
  $ 6,624,082   $ (2,883,116 ) $ 3,740,966  
1 Includes $4,871 of capital works in progress - ROU assets (cost) that relate to the Arizona segment (December 31, 2021 - $5,112 related to the Arizona segment).  

11. Other liabilities

    Mar. 31, 2022     Dec. 31, 2021  
Current            
Environmental and other provisions (note 16) $ 41,502   $ 41,017  
Pension liability   8,998     10,472  
Other employee benefits   3,631     3,530  
Unearned revenue   329     7,983  
  $ 54,460   $ 63,002  


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

12. Other financial liabilities

    Mar. 31, 2022     Dec. 31, 2021  
Current            
Derivative liabilities $ 15,873   $ 12,451  
Deferred Rosemont acquisition consideration   9,855     9,713  
Gold prepayment liability   75,744     71,394  
Agreements with communities recorded at amortized cost   6,240     7,144  
    107,712     100,702  
             
Non-current            
Deferred Rosemont acquisition consideration   18,068     17,805  
Gold prepayment liability   54,574     68,614  
Agreements with communities recorded at amortized cost   28,757     29,129  
Wheaton refund liability (note 15)   5,546     5,424  
    106,945     120,972  
  $ 214,657   $ 221,674  

The changes to agreements with communities recorded at amortized cost during the three months ended March 31, 2022 primarily relates to disbursements, partially offset by changes in estimates and effects of changes in foreign exchange.

The following table summarizes changes in the gold prepayment liability:

Balance, January 1, 2021 $ 137,031  
Change in fair value recorded in profit or loss   293  
Change in fair value recorded in other comprehensive income   2,684  
Balance, December 31, 2021 $ 140,008  
Change in fair value recorded in profit or loss (note 5e)   9,108  
Change in fair value recorded in other comprehensive income   (175 )
Repayments   (18,623 )
Balance, March 31, 2022 $ 130,318  


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

13. Lease liability

Balance, January 1, 2021 $ 63,514  
Additional capitalized leases   49,695  
Lease payments   (37,719 )
Accretion and other movements 1   2,512  
Balance, December 31, 2021 $ 78,002  
Additional capitalized leases   7,772  
Lease payments   (9,863 )
Accretion and other movements   1,114  
Balance, March 31, 2022 $ 77,025  
1 Includes $1,844 of sale lease back additions to ROU leases.  

Lease liabilities are reflected in the condensed consolidated interim balance sheets as follows:

    Mar. 31, 2022     Dec. 31, 2021  
Current $ 29,518   $ 33,529  
Non-current   47,507     44,473  
  $ 77,025   $ 78,002  

Hudbay has entered into leases which expire between 2022 and 2043. The interest rates on leases which were capitalized have interest rates between 2.50% and 7.43%, per annum. The range of interest rates utilized for discounting varies depending mostly on the Hudbay entity acting as lessee and duration of the lease. For certain leases, Hudbay has the option to purchase the equipment and vehicles leased at the end of the terms of the leases. Hudbay's obligations under these leases are secured by the lessor's title to the leased assets. The present value of applicable lease payments has been recognized as an ROU asset, which was included as a non-cash addition to property, plant and equipment, and a corresponding amount as a lease liability.

There are no restrictions placed on Hudbay by entering into these leases.

The following outlines expenses recognized within the Company's condensed consolidated interim income statements, relating to leases for which a recognition exemption was applied.

    Three months ended
March 31,
 
    2022     2021  
Short-term leases $ 11,770   $ 8,539  
Low value leases   204     93  
Variable leases   10,437     8,083  
Total $ 22,411   $ 16,715  

Payments made for short-term, low value and variable leases would mostly be captured as expenses in the condensed consolidated interim income statements, however, certain amounts may be capitalized to PP&E for the Arizona segment during its development phase and certain amounts may be reported in inventories given the timing of sales. Variable consideration leases include equipment used for heavy civil works at Constancia.


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

14. Long-term debt

Long-term debt is comprised of the following:

    Mar. 31, 2022     Dec. 31, 2021  
Senior unsecured notes (a) $ 1,186,375   $ 1,185,805  
Less: Unamortized transaction costs -
revolving credit facilities (b)
  (5,256 )   (5,531 )
  $ 1,181,119   $ 1,180,274  

(a) Senior unsecured notes

Balance, January 1, 2021 $ 1,139,695  
Addition to Principal, net of $8,078 transaction costs   591,922  
Principal repayments   (600,000 )
Write-down of fair value of embedded derivative (prepayment option)   49,754  
Write-down of unamortized transaction costs   2,480  
Accretion of transaction costs and premiums   1,954  
Balance, December 31, 2021 $ 1,185,805  
Accretion of transaction costs and premiums   570  
Balance, March 31, 2022 $ 1,186,375  

As at March 31, 2022, $1,200,000 aggregate principal amount of senior notes were outstanding in two series: (i) a series of 4.50% senior notes due 2026 in an aggregate principal amount of $600,000 and (ii) a series of 6.125% senior notes due 2029 in an aggregate principal amount of $600,000.

(b) Unamortized transaction costs - revolving credit facilities

Balance, January 1, 2021 $ 4,020  
Accretion of transaction costs   (2,816 )
Transaction costs   4,327  
Balance, December 31, 2021 $ 5,531  
Accretion of transaction costs   (391 )
Transaction costs   116  
Balance, March 31, 2022 1 $ 5,256  
1 Balance, representing deferred transaction costs, is in an asset position.

As at March 31, 2022, the Peru segment had nil in letters of credit issued under the Peru revolving credit facility to support its reclamation obligations and the Manitoba segment had $92,543 in letters of credit issued under the Canada revolving credit facility to support its reclamation and pension obligations. As at March 31, 2022, there were no cash advances under the credit facilities.

Surety bonds

The Arizona segment had $28,291 in surety bonds issued to support future reclamation and closure obligations. No cash collateral is required to be posted under these surety bonds.


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

Other letters of credit

The Peru segment had $107,920 in letters of credit issued with various Peruvian financial institutions to support future reclamation and other operating matters. No cash collateral is required to be posted under these letters of credit.

15. Deferred revenue

777 Stream Agreement

For the three months ended March 31, 2022, the drawdown rates for the 777 stream agreement for gold and silver were C$1,584 and C$31.28 per ounce, respectively (year ended December 31, 2021 - C$1,578 and CA$30.38 per ounce, respectively).

As part of the streaming agreement for the 777 mine, Hudbay must repay, with precious metals credits, the stream deposit by August 1, 2052, the expiry date of the agreement. If the stream deposit is not fully repaid with precious metals credits from 777 production by the expiry date, a payment for the remaining amount will be due at the expiry date of the agreement. Given the remaining mine life is less than 12 months, Hudbay estimates that a portion of the stream deposit will not be repaid by means of precious metals credits from 777 production. As at March 31, 2022, the estimated repayment amount was reclassified to a refund liability (note 12), which is and will be discounted at the 9.0% rate inherent in the original 777 stream agreement and accreted over the remaining term of the agreement.

Peru Stream Agreement

For the three months ended March 31, 2022, the drawdown rates for the Peru stream agreement for gold and silver were $734 and $14.95 per ounce, respectively (year ended December 31, 2021 - $791 and $17.47 per ounce, respectively).


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

The following table summarizes changes in deferred revenue:

Balance, January 1, 2021 $ 546,684  
Amortization of deferred revenue      
Liability drawdown   (71,519 )
Variable consideration adjustments - prior periods   (1,617 )
Accretion on streaming arrangements      
Current year additions   42,060  
Variable consideration adjustments - prior periods   594  
Reclass of refund liability (note 12)   (5,424 )
Stream deposit   4,000  
Effects of changes in foreign exchange   548  
Balance, December 31, 2021 $ 515,326  
Amortization of deferred revenue (note 5a)      
Liability drawdown   (24,974 )
Variable consideration adjustments - prior periods   (3,245 )
Accretion on streaming arrangements (note 5e)      
Current year-to-date additions   7,363  
Variable consideration adjustments - prior periods   (2,527 )
Effects of changes in foreign exchange   239  
Balance, March 31, 2022 $ 492,182  

Consideration from the Company's stream agreement is considered variable. Gold and silver stream revenue can be subject to cumulative adjustments when the number of ounces to be delivered under the contract changes. As a result of changes in the Company's mineral reserve and resource estimate in the first quarter of 2022, the amortization rate by which deferred revenue is drawn down into income was adjusted and, as required, a current period catch up adjustment was made for all prior period stream revenues since the stream agreement inception date. This variable consideration adjustment resulted in an increase in revenue of $3,245 and a decrease of finance expense of $2,527 for the three months ended March 31, 2022 (December 31, 2021 - increase in revenue of $1,617 and an increase of finance expense of $594).

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

    Mar. 31, 2022     Dec. 31, 2021  
Current $ 73,243   $ 88,963  
Non-current   418,939     426,363  
  $ 492,182   $ 515,326  


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

16. Environmental and other provisions

Reflected in the condensed consolidated interim balance sheets as follows:

Mar. 31, 2022   Decommissioning,
restoration and
similar liabilities
    Deferred
share units
    Restricted
share units
    Performance
share units
    Other     Total  
Current (note 11) $ 15,136   $ 9,124   $ 5,646   $ 5,034   $ 6,562   $ 41,502  
Non-current   362,435     -     1,405     1,048     3,912     368,800  
  $ 377,571   $ 9,124   $ 7,051   $ 6,082   $ 10,474   $ 410,302  
                                     
Dec. 31, 2021   Decommissioning,
restoration and
similar liabilities
    Deferred
share units
    Restricted
share units
    Performance
share units
    Other     Total  
Current (note 11) $ 16,759   $ 8,107   $ 5,061   $ 4,622   $ 6,468   $ 41,017  
Non-current   451,041     -     5,828     780     3,852     461,501  
  $ 467,800   $ 8,107   $ 10,889   $ 5,402   $ 10,320   $ 502,518  

The other category mainly consists of restructuring provisions related to the closure of the Flin Flon operations and other miscellaneous obligations primarily in the Arizona segment.

The following table summarizes changes in decommissioning, restoration and similar liabilities ("DRO"):

Balance, December 31, 2021 $ 467,800  
Net increase in provisions   3,187  
Disbursements   (3,341 )
Unwinding of discount (note 5e)   1,892  
Effect of change in discount rate   (97,225 )
Effect of foreign exchange   5,258  
Balance, March 31, 2022 $ 377,571  


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

The following summarizes net increase in provision and effect of change in discount rates for the three months ended March 31, 2022 on decommissioning, restoration and similar assets:

 

 

  Net increase
(decrease) in
provision
    Effect of change
in discount rate
    DRO Adjustment  
Producing properties                  
Peru $ 3,534   $ (14,245 )      
Manitoba   (313 )   (81,312 )      
Non-producing properties                  
Manitoba   (34 )   (1,668 )      
    3,187     (97,225 ) $ (94,038 )
Less: DRO asset, remaining carrying value 1               14,182  
Environmental obligation adjustment             $ (79,856 )
1 Includes effects of foreign exchange.  

DRO are remeasured at each reporting date to reflect changes in discount rates, exchange rates, and timing and extent of cash outflows which can significantly affect the liabilities. This provision has been recorded based on estimates and assumptions that management believes are reasonable; however, actual decommissioning and restoration costs may differ from expectations.

During the first quarter of 2022, we recorded a non-cash gain of $79,856 in the condensed consolidated income statements mainly related to a revaluation adjustment to the Flin Flon operation's environmental reclamation provision. The first quarter revaluation was substantially impacted by an increase in long term, risk-free discount rates based on changes in Canadian bond yields. Typically, an operating location will reflect any revaluation adjustments to the environmental reclamation provision against its reclamation assets. However, as the Flin Flon operations are set to close in June of this year, the corresponding Flin Flon assets have been nearly fully depreciated and cannot be reduced below zero resulting in the remaining impact being recorded as a gain in the condensed consolidated income statements.

During the first quarter of 2021, we recorded a non-cash gain of $4,499 related to a revaluation adjustment of certain non-producing properties. For non-producing properties with such reclamation obligations, the revaluation of the corresponding liability is recorded through the condensed consolidated interim income statements.

These estimates have been discounted to their present value at rates ranging from 1.36% to 2.46% per annum (December 31, 2021: 0.39% to 1.94%), using pre-tax, risk-free interest rates that reflect the estimated maturity of each specific liability.


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

17. Income and mining taxes

The tax expense (recoveries) is applicable as follows:

    Three months ended
March 31,
 
    2022     2021  
Current:            
Income taxes $ 5,477   $ 967  
Mining taxes   4,978     4,244  
    10,455     5,211  
Deferred:            
Income tax expense (recoveries) - origination, revaluation and/or reversal of temporary differences   9,601     (26,492 )
Mining tax expense - origination, revaluation and/or reversal of temporary difference   4,990     11,699  
Adjustments in respect of prior years   -     92  
    14,591     (14,701 )
  $ 25,046   $ (9,490 )

Adjustments in respect of prior years refers to amounts changing due to the filing of tax returns and assessments from government authorities as well as any change identified that would result in a difference to our current or deferred tax balances as reported in the prior fiscal year end.

18. Share capital

(a) Preference shares:

Authorized: Unlimited preference shares without par value.

Issued and fully paid: Nil.

(b) Common shares:

Authorized: Unlimited common shares without par value.

Issued and fully paid:

    Three months ended
March 31, 2022
    Year ended
Dec. 31, 2021
 
    Common
shares
    Amount     Common
shares
    Amount  
Balance, beginning of year   261,598,312   $ 1,778,848     261,272,151   $ 1,777,340  
Exercise of options   288,343     1,334     326,161     1,508  
Balance, end of period   261,886,655   $ 1,780,182     261,598,312   $ 1,778,848  

During the three months ended March 31, 2022, the Company declared a dividend of C$0.01 per share. The Company paid $2,075 in dividends on March 25, 2022 to shareholders of record as of March 8, 2022.


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

During the year ended December 31, 2021, the Company declared two semi-annual dividends of C$0.01 per share each. The Company paid $2,090 and $2,056 in dividends on March 26, 2021 and September 24, 2021 to shareholders of record as of March 9, 2021 and September 3, 2021.

(c) Equity-settled share-based compensation - stock options:

The Company's stock option plan was approved in June 2005 and amended in May 2008 (the "Plan"). Under the amended Plan, the Company may grant to employees, officers, directors or consultants of the Company or its affiliates options to purchase up to a maximum of 13 million common shares of Hudbay. The Company has determined that the appropriate accounting treatment is to classify the stock options as equity settled transactions.

The following table outlines the changes in the number of stock options outstanding:

    Mar. 31, 2022     Dec. 31, 2021  
    Number of
shares subject
to option
    Weighted-
average
exercise price
C$
    Number of
shares subject
to option
    Weighted
average
exercise price
C$
 
Balance, beginning of year   1,659,288   $ 5.71     1,563,189   $ 3.77  
Number of units granted   572,331   $ 9.92     509,385   $ 10.42  
Exercised   (288,343 ) $ 3.76     (326,161 ) $ 3.76  
Forfeited   (127,962 ) $ 6.04     (87,125 ) $ 5.79  
Balance, end of period   1,815,314   $ 7.32     1,659,288   $ 5.71  

The following table presents the weighted average fair value assumptions used in the Black-Scholes valuation of these options:

For options granted during the period   Mar. 31, 2022     Dec. 31, 2021  
Weighted average share price at grant date (CAD) $ 9.92   $ 10.42  
Risk-free rate   1.75%     1.02%  
Expected dividend yield   0.20%     0.20%  
Expected stock price volatility (based on historical volatility)   55.9%     60.5%  
Expected life of option (months)   84     84  
Weighted average per share fair value of stock options granted (CAD) $ 5.53   $ 6.06  


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

The following table outlines stock options outstanding and exercisable:

Mar. 31, 2022  
Range of
exercise prices
C$
  Number of
options
outstanding
    Weighted average
remaining
contractual life
(years)
    Weighted
average
exercise price
C$
    Number of
options
exercisable
    Weighted
average share
price at exercise
date C$
 
$3.76 - $3.92   803,908     4.9   $ 3.78     353,789   $ 3.79  
$9.92 - $9.92   571,770     6.9   $ 9.92     -   $ -  
$10.42 - $10.42   439,636     5.9   $ 10.42     146,615   $ 10.42  

Dec. 31, 2021  
Range of
exercise prices
C$
  Number of
options
outstanding
    Weighted average
remaining
contractual life
(years)
    Weighted
average exercise
price C$
    Number of
options
exercisable
    Weighted
average share
price at exercise
date C$
 
$3.76 - $3.92   1,176,399     5.15   $ 3.78     191,651   $ 3.79  
$10.42 - $10.42   482,889     6.15   $ 10.42     -   $ -  

Hudbay estimates expected life of options and expected volatility based on historical data, which may differ from actual outcomes.

19. Earnings per share

    Three months ended  
    Mar. 31, 2022     Mar. 31, 2021  
Weighted average common shares outstanding            
Basic   261,689,263     261,321,074  
Plus net incremental shares from:            
Assumed conversion: stock options   577,977     -  
Diluted weighted average common shares outstanding   262,267,240     261,321,074  

For periods where Hudbay records a loss, Hudbay calculates diluted loss per share using the basic weighted average number of shares. If the diluted weighted average number of shares were used, the result would be a reduction in the loss, which would be anti-dilutive.

The determination of the diluted weighted-average number of common shares excludes the impact of 590,385 weighted-average stock options outstanding that were anti-dilutive for the three months ended March 31, 2021 as the Company recorded a loss in the financial period.


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

20. Financial instruments

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

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

    Mar. 31, 2022     Dec. 31, 2021  
    FV     CV     FV     CV  
Financial assets at amortized cost                        
Cash1 $ 213,359   $ 213,359   $ 270,989   $ 270,989  
Restricted cash1   437     437     437     437  
Fair value through profit or loss                        
Trade and other receivables 1, 2, 3   145,729     145,729     172,890     172,890  
Non-hedge derivative assets 4   6,206     6,206     7,430     7,430  
Investments 5   13,210     13,210     11,158     11,158  
Total financial assets $ 378,941   $ 378,941   $ 462,904   $ 462,904  
Financial liabilities at amortized cost                        
Trade and other payables1, 2   169,040     169,040     189,179     189,179  
Deferred Rosemont acquisition consideration 8   27,923     27,923     27,518     27,518  
Agreements with communities 6   31,474     34,997     33,947     36,273  
Wheaton refund liability10   11,914     5,546     5,424     5,424  
Senior unsecured notes 7   1,204,740     1,186,375     1,239,018     1,185,805  
Fair value through profit or loss                        
Gold prepayment liability 9   130,318     130,318     140,008     140,008  
Non-hedge derivative liabilities 4   15,873     15,873     12,451     12,451  
Total financial liabilities $ 1,591,282   $ 1,570,072   $ 1,647,545   $ 1,596,658  
1 Cash, 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 tax and other statutory amounts.  
3 Trade and other receivables contain receivables including provisionally priced receivables classified as FVTPL and various other items at amortized cost. The fair value of provisionally priced receivables is determined using forward metals prices which is a level 2 valuation method.  
4 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.  
5 All investments are carried at their fair value, which is determined using quoted market bid prices in active markets for listed shares.  
6 These financial liabilities relate to agreements with communities near the Constancia project in Peru (note 12). Fair values have been determined using a discounted cash flow analysis based on expected cash flows and a credit adjusted discount rate.  
7 Fair value of the senior unsecured notes (note 14) has been determined using the quoted market price at period end.  
8 Discounted value based on a risk adjusted discount rate.  
9 The gold prepayment liability (note 12) is designated as fair value through profit or loss under the fair value option. Gains and losses related to the Company's own credit risk have been recorded at fair value through other comprehensive income. The fair value adjustment recorded in other comprehensive income for the three months ended March 31, 2022 was a gain of $175 (year ended December 31, 2021 was a loss of $2,684).  
10 Discounted value based on a market rate at inception of the applicable Wheaton contract (note 15).  


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

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.

March 31, 2022   Level 1     Level 2     Level 3     Total  
Financial assets measured at fair value                        
Financial assets at FVTPL:                        
Non-hedge derivatives $ -   $ 6,206   $ -   $ 6,206  
Investments   13,210     -     -     13,210  
  $ 13,210   $ 6,206   $ -   $ 19,416  
Financial liabilities measured at fair value                        
Financial liabilities at FVTPL:                        
Non-hedge derivatives $ -   $ 15,873   $ -   $ 15,873  
Gold prepayment liability   -     130,318     -     130,318  
Financial liabilities at amortized cost:                        
Agreements with communities   -     -     31,474     31,474  
Wheaton refund liability   -     -     11,914     11,914  
Senior unsecured notes   1,204,740     -     -     1,204,740  
  $ 1,204,740   $ 146,191   $ 43,388   $ 1,394,319  

December 31, 2021   Level 1     Level 2     Level 3     Total  
Financial assets measured at fair value                        
Financial assets at FVTPL:                        
Non-hedge derivatives $ -   $ 7,430   $ -   $ 7,430  
Investments   11,158     -     -     11,158  
  $ 11,158   $ 7,430   $ -   $ 18,588  
Financial liabilities measured at fair value                        
Financial liabilities at FVTPL:                        
Non-hedge derivatives $ -   $ 12,451   $ -   $ 12,451  
Gold prepayment liability   -     140,008     -     140,008  
Financial liabilities at amortized cost:                        
Agreements with communities   -     -     33,947     33,947  
Wheaton refund liability   -     -     5,424     5,424  
Senior unsecured notes   1,239,018     -     -     1,239,018  
  $ 1,239,018   $ 152,459   $ 39,371   $ 1,430,848  


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

The Company'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 three months  ended March 31, 2022 and year ended December 31, 2021, Hudbay did not make any such transfers.

Valuation techniques used for instruments categorized in Levels 2 and 3 are consistent with the year ended December 31, 2021.

(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 March 31, 2022, Hudbay had 63.5 million pounds of net copper swaps outstanding at an effective average price of $4.55/lb and settling across April to August 2022. As at December 31, 2021, Hudbay had 72.8 million pounds of net copper swaps outstanding at an effective average price of $4.34/lb and settling across January to April 2022. The aggregate fair value of the transactions at March 31, 2022 was a liability of $10,165 (December 31, 2021 - a liability position of $5,440).

Transactions involving derivatives are with large multi-national financial institutions that Hudbay believes to be credit worthy.

Non-hedge derivative zinc contracts

Hudbay enters into future dated fixed price sales contracts with zinc customers and, to ensure that the Company 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 March 31, 2022, Hudbay held contracts for forward zinc purchased of 1.8 million pounds (December 31, 2021 - 3.1 million pounds) that related to forward customer sales of zinc. Prices range from $1.44/lb to $1.95/lb (December 31, 2021 - $1.44/lb to $1.52/lb) and settlement dates extend to June 2022. The aggregate fair value of the transactions at March 31, 2022 was a net asset position of $498 (December 31, 2021 - a net asset position of $419).

(c) Provisionally priced receivables

Changes in fair value of provisionally priced receivables

Hudbay 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 inventory or cost of sales for purchase concentrate contracts. Cash flows related to changes in fair value of provisionally priced receivables are classified in operating activities.


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

As at March 31, 2022 and December 31, 2021, Hudbay's net position consisted of contracts awaiting final pricing which are as indicated below:

Metal in concentrate     Sales awaiting final pricing     Average YTD price ($/unit)  
Unit   Mar. 31, 2022     Dec. 31, 2021     Mar. 31, 2022     Dec. 31, 2021  
Copper pounds
(in thousands)
  56,999     75,681     4.71     4.42  
Gold oz   18,573     27,304     1,950     1,828  
Silver oz   76,697     125,800     25.13     23.33  

The aggregate fair value of provisionally priced receivables within the copper and refined zinc sales contracts at March 31, 2022, was an asset position of $17,306 (December 31, 2021 - an asset position of $6,500).

(d) Other financial liabilities

Gold prepayment liability

The gold prepayment liability (note 12) requires settlement by physical delivery of gold ounces or equivalent gold credits. The fair value of the financial liability at March 31, 2022 was a liability of $130,318 (December 31, 2021 - $140,008).

21. Commitments

Capital commitments

As at March 31, 2022, Hudbay had outstanding capital commitments in Canada of approximately $29,129 of which $19,456 can be terminated, approximately $37,232 in Peru, all of which can be terminated, and approximately $180,103 in Arizona, primarily related to the Rosemont project, of which approximately $87,928 can be terminated by Hudbay.

22. Supplementary cash flow information

(a) Other cash generated from / (used in) operating activities:

    Three months ended
March 31,
 
    2022     2021  
Gain on disposal of property, plant & equipment (note 5d) $ (532 ) $ (303 )
Share based compensation paid   (5,111 )   (6,626 )
Restructuring - Manitoba (note 5d)   748     -  
Other   281     618  
  $ (4,614 ) $ (6,311 )


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

(b) Change in non-cash working capital:

    Three months ended
March 31,
 
    2022     2021  
Change in:            
Trade and other receivables $ 20,715   $ (14,950 )
Other financial assets/liabilities   4,726     190  
Inventories   (18,723 )   (21,489 )
Prepaid expenses   (313 )   (396 )
Trade and other payables   (11,258 )   (20,798 )
Provisions and other liabilities   (8,893 )   18,584  
  $ (13,746 ) $ (38,859 )

(c) Non-cash transactions:

During the three months ended March 31, 2022 and 2021, Hudbay entered into the following non-cash investing and financing activities which are not reflected in the condensed consolidated interim statements of cash flows:

- Remeasurement of Hudbay's decommissioning and restoration liabilities for the three months ended March 31, 2022 led to a net decrease in related property, plant and equipment assets of $14,182 (three months ended March 31, 2021 - a net decrease of $64,504), mainly related to  changes to discount rates associated with remeasurement of the liabilities.

- Property, plant and equipment included $7,772 (three months ended March 31, 2021 - $1,321) of capital additions related to the recognition of ROU assets. Property, plant and equipment and other assets include $1,225 of capital additions related to agreements with communities (three months ended March 31, 2021 - $18,757).


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

23. Segmented information

Corporate and other activities include the Company's exploration activities in Chile, Canada and the State of Nevada. These exploration entities are not individually significant, as they do not meet the minimum quantitative thresholds for standalone segment disclosure. Corporate and other activities are not considered a segment and are included as a reconciliation to total consolidated results.

Three months ended March 31, 2022  
    Manitoba     Peru     Arizona     Corporate
and other
activities
    Total  
Revenue from external customers $ 177,239   $ 201,380   $ -   $ -   $ 378,619  
Cost of sales                              
Mine operating costs   114,907     97,353     -     -     212,260  
Depreciation and amortization   32,729     48,362     -     -     81,091  
Gross profit   29,603     55,665     -     -     85,268  
Selling and administrative expenses   -     -     -     11,841     11,841  
Exploration expenses   6,006     2,603     9,830     191     18,630  
Evaluation expenses   525     -     6,511     -     7,036  
Environmental obligation adjustment   (79,856 )   -     -     -     (79,856 )
Other expenses   237     1,651     72     52     2,012  
Results from operating activities $ 102,691   $ 51,411   $ (16,413 ) $ (12,084 ) $ 125,605  
Net interest expense on long term debt     16,898  
Accretion on streaming arrangements     4,836  
Change in fair value of financial instruments     7,216  
Other net finance costs     7,794  
Profit before tax     88,861  
Tax expense     25,046  
Profit for the period   $ 63,815  


HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(in thousands of US dollars, except where otherwise noted)
For the three months ended March 31, 2022 and 2021

 

Three months ended March 31, 2021  
    Manitoba     Peru     Arizona     Corporate
and other
activities
    Total  
Revenue from external customers $ 177,956   $ 135,668   $ -   $ -   $ 313,624  
Cost of sales                              
Mine operating costs   100,577     77,853     -     -     178,430  
Depreciation and amortization   42,247     40,435     -     -     82,682  
Gross profit   35,132     17,380     -     -     52,512  
Selling and administrative expenses   -     -     -     9,945     9,945  
Exploration expenses   1,853     871     4,383     (260 )   6,847  
Evaluation expenses   205     -     62     -     267  
Environmental obligation adjustment   (4,499 )   -     -     -     (4,499 )
Other expenses   (152 )   1,077     (8 )   174     1,091  
Results from operating activities $ 37,725   $ 15,432   $ (4,437 ) $ (9,859 ) $ 38,861  
Net interest expense on long term debt     21,232  
Accretion on streaming arrangements     15,528  
Change in fair value of financial instruments     39,007  
Other net finance costs     32,686  
Loss before tax     (69,592 )
Tax recovery     (9,490 )
Loss for the period   $ (60,102 )

March 31, 2022  
    Manitoba     Peru     Arizona     Corporate
and other
activities
    Total  
Total assets $ 800,830   $ 2,591,013   $ 750,237   $ 396,134   $ 4,538,214  
Total liabilities   560,758     974,724     75,353     1,365,401     2,976,236  
Property, plant and equipment1   712,015     2,220,230     738,924     42,563     3,713,732  
1 Included in Corporate and other activities are $28.3 million of property, plant and equipment that is located in Nevada.  

December 31, 2021  
    Manitoba     Peru     Arizona     Corporate
and other
activities
    Total  
Total assets $ 812,137   $ 2,624,251   $ 745,371   $ 434,472   $ 4,616,231  
Total liabilities   655,095     1,023,186     75,782     1,385,340     3,139,403  
Property, plant and equipment1   706,330     2,265,687     735,127     42,822     3,740,966  
1 Included in Corporate and other activities are $28.3 million of property, plant and equipment that is located in Nevada.  

 


EX-99.2 3 exhibit99-2.htm EXHIBIT 99.2 Hudbay Minerals Inc.: Exhibit 99.2 - Filed by newsfilecorp.com

 

 

Management's Discussion and Analysis of

Results of Operations and Financial Condition

 

For the three months ended

March 31, 2022

May 9, 2022



TABLE OF CONTENTS

Page

   
Introduction 1
Our Business 1
Summary of Results 2
Key Financial Results 5
Key Production Results 6
Key Costs Results 7
Recent Developments 8
Peru Operations Review 10
Manitoba Operations Review 15
Financial Review 22
Liquidity and Capital Resources 32
Financial Risk Management 36
Trend Analysis and Quarterly Review 36
Non-IFRS Financial Performance Measures 39
Accounting Changes and Critical Estimates 51
Changes in Internal Control Over Financial Reporting 52
Notes to Reader 52
Summary of Historical Results 55


INTRODUCTION

This Management's Discussion and Analysis ("MD&A") dated May 9, 2022 is intended to supplement Hudbay Minerals Inc.'s unaudited condensed consolidated interim financial statements and related notes for the three months ended March 31, 2022 (the "consolidated interim financial statements"). The consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), including International Accounting Standard 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB").

References to "Hudbay", the "Company", "we", "us", "our" or similar terms refer to Hudbay Minerals Inc. and its direct and indirect subsidiaries as at March 31, 2022.

Readers should be aware that:

- This MD&A contains certain "forward-looking statements" and "forward-looking information" (collectively, "forward-looking information") that are subject to risk factors set out in a cautionary note contained in our MD&A. Please also refer to the risks discussed under the heading "Financial Risk Management" in this MD&A.

- This MD&A has been prepared in accordance with the requirements of the securities laws in effect in Canada, which may differ materially from the requirements of United States securities laws applicable to US issuers.

- We use a number of non-IFRS financial performance measures in our MD&A.

- The technical and scientific information in this MD&A has been approved by qualified persons based on a variety of assumptions and estimates.

For a discussion of each of the above matters, readers are urged to review the "Notes to Reader" discussion beginning on page 52 of this MD&A.

Additional information regarding Hudbay, including the risks related to our business and those that are reasonably likely to affect our consolidated financial statements in the future, is contained in our continuous disclosure materials, including our most recent Annual Information Form ("AIF"), consolidated financial statements and Management Information Circular available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

All amounts are in US dollars unless otherwise noted.

OUR BUSINESS

We are a diversified mining company primarily producing copper concentrate (containing copper, gold, and silver), gold/silver doré, molybdenum concentrate and zinc metal. Directly and through our subsidiaries, we own three polymetallic mines, four ore concentrators and a zinc production facility in northern Manitoba and Saskatchewan (Canada) and Cusco (Peru), and copper projects in Arizona and Nevada (United States). Our growth strategy is focused on the exploration, development, operation, and optimization of properties we already control, as well as other mineral assets we may acquire that fit our strategic criteria. We are governed by the Canada Business Corporations Act and our shares are listed under the symbol "HBM" on the Toronto Stock Exchange, New York Stock Exchange and Bolsa de Valores de Lima.


SUMMARY

First Quarter Operating and Financial Results

- Consolidated production in the first quarter was 24,702 tonnes of copper and 53,956 ounces of gold. Cash cost and sustaining cash cost per pound of copper produced, net of by-product credits1, were $1.11 and $2.29, respectively.

- Full year 2022 production and cost guidance reaffirmed as first quarter production was in line with quarterly cadence expectations and Hudbay achieved strong unit operating cost performance despite the inflationary environment.

- Peru's operations in the first quarter were impacted by COVID-19 related employee absenteeism and high rainfalls resulting in reduced Pampacancha production relative to the fourth quarter of 2021, as well as a semi-annual scheduled mill maintenance period in January.

- Manitoba achieved first quarter gold production of 43,167 ounces at a cash cost per ounce of gold produced, net of by-product credits1, of $416 as New Britannia's gold metallurgical recoveries improved significantly relative to previous months. Manitoba sales volumes were impacted by the availability of railcars during the quarter, with excess inventory of approximately 7,000 tonnes of copper concentrate containing high gold content and 6 million pounds of refined zinc at the end of the quarter, collectively valued at approximately $45 million.

- First quarter net earnings and earnings per share were $63.8 million and $0.24, respectively. After adjusting for a non-cash gain of $79.9 million mostly related to a quarterly revaluation of our Flin Flon environmental provision given higher long-term risk-free discount rates, amongst other items, first quarter adjusted net earnings1 per share were $0.02.

- Operating cash flow before change in non-cash working capital was $77.1 million and adjusted EBITDA1 was $110.2 million in the first quarter of 2022, benefiting from strong realized base metals prices but negatively impacted by the temporary buildup of unsold inventory in Manitoba.

- Cash and cash equivalents decreased during the first quarter to $213.4 million, as at March 31, 2022, mainly as a result of $55.9 million of sustaining capital investments, $31.9 million of interest payments and an $18.6 million partial repayment of the gold prepay liability, partially offset by cash generated from operations, which was negatively impacted by limited railcar availability leading to an inventory buildup in Manitoba.

Executing on Growth Initiatives

- The Copper World preliminary economic assessment is nearing completion and is expected to reflect a two- phase mine plan contemplating the development of the Copper World deposits in conjunction with an alternative plan for the Rosemont deposit.

- In April 2022, the New Britannia mill consistently achieved throughput greater than 1,500 tonnes per day after scheduled rod mill liner maintenance was completed in the first quarter.

- Announced annual reserve and resource update with mineral reserve growth replacing close to 100% of 2021 mining depletion and extending the mine life at each of Constancia and Snow Lake by one year to 2038.

- Significant exploration activity continues across the business with seven drill rigs now turning at the Copper World site to conduct infill and extension drilling and to support future economic studies, winter drilling campaigns recently completed in the Snow Lake region and at the Flin Flon tailings facility, and the advancement of exploration initiatives in Peru.

Summary of First Quarter Results

Cash generated from operating activities in the first quarter of 2022 increased to $63.3 million compared to $51.8 million in the same quarter of 2021. The increase in cash generated from operating activities is primarily the result of higher realized base metal prices and higher gold and silver sales volumes, partially offset by lower zinc sales volumes. Operating cash flow before change in non-cash working capital was $77.1 million during the first quarter of 2022, reflecting a decrease of $13.6 million compared to the same period of 2021. The lower operating cash flow before changes in non-cash working capital in the first quarter of 2022 was largely due to $11.8 million in higher tax payments as compared to the first quarter of 2021.


In the first quarter of 2022, Peru and Manitoba maintained steady operations with unit operating cost performance of $12.37 per tonne and C$176 per tonne, respectively, in line with the 2022 guidance ranges. This strong cost performance was achieved despite continuing to experience broad based inflationary pressures caused by higher input prices for many services and consumables, such as power, fuel, grinding media, freight and insurance, leading to higher than budgeted operating costs during the first quarter of 2022. We also continue to face intermittent operational, labour and travel disruptions with periodic waves of COVID-19 cases.

Despite operating challenges caused by high levels of COVID-19 absenteeism in Peru and Manitoba, consolidated copper production in the first quarter of 2022 was relatively unchanged compared to the first quarter of 2021. Consolidated gold production in the first quarter of 2022 increased by 52% compared to the first quarter of 2021, due to significantly higher gold grades from Pampacancha and higher gold recoveries in Peru, along with higher gold grades at Lalor coupled with significantly higher gold recoveries at New Britannia. Consolidated silver production in the first quarter increased by 13% compared to the same period in 2021, as a result of higher grades from Pampacancha partially offset by lower recoveries in Peru and lower grades in Manitoba. Consolidated zinc production in the quarter decreased by 20%, versus the comparative quarter in 2021, primarily due to the transition of mining toward the gold lenses at Lalor and a corresponding decrease of production from the base metal zones, along with lower zinc recoveries at Stall.

As previously announced, first quarter Manitoba sales were impacted by limited railcar availability resulting in approximately 7,000 tonnes of copper concentrate inventory containing high gold content, and 6 million pounds of refined zinc inventory in excess of normal operating levels. Had the excess copper concentrate and zinc inventory been sold during the first quarter, we would have realized approximately $45 million of incremental revenue, assuming end of quarter commodity prices. The above quantities are expected to be recognized as revenue and converted to cash as inventory levels are drawn down over the next several months with increased railcar access as weather conditions improve.

Net earnings and earnings per share in the first quarter of 2022 were $63.8 million and $0.24, respectively, compared to a net loss and loss per share of $60.1 million and $0.23, respectively, in the first quarter of 2021. First quarter earnings benefited from a non-cash gain of $79.9 million mostly related to the quarterly revaluation of our Flin Flon environmental provision which was impacted by rising long-term risk-free discount rates. With Flin Flon operations closing in June of this year and given the long-term nature of the reclamation cash flows, quarterly revaluation of the corresponding environmental provision remains highly sensitive to changes in long-term risk-free discount rates and, as such, we expect to continue to experience quarterly environmental provision revaluations. The quarterly financial results were also negatively impacted by $10.5 million in non-cash mark-to-market losses arising from the revaluation of the gold prepayment liability, investments and share-based compensation.

Adjusted net earnings1 and adjusted net earnings per share1 in the first quarter of 2022 were $5.2 million and $0.02 per share, respectively, after adjusting for the non-cash gain related to the revaluation of our environmental provision, among other items. This compares to an adjusted net loss and adjusted net loss per share of $16.1 million, and $0.06 per share in the same period of 2021. First quarter adjusted EBITDA1 was $110.2 million, compared to $104.2 million in the same period of 2021.

In the first quarter of 2022, consolidated cash cost per pound of copper produced, net of by-product credits1, was $1.11, compared to $1.04 in the same period in 2021. This increase was a result of higher operating costs in Peru and Manitoba, partially offset by higher precious metal by-product credits. Consolidated sustaining cash cost per pound of copper produced, net of by-product credits1, was $2.29 in the first quarter of 2022 compared to $2.16 in the same period in 2021. This increase was primarily due to the same reasons outlined above and higher sustaining costs in Peru and Manitoba. Both measures were slightly above our 2022 guidance ranges primarily as a result of the impact from lower sales volumes in the first quarter, and therefore, consolidated cash cost and sustaining cash cost are expected to decline in future quarters to within our 2022 guidance ranges with higher expected copper production and contributions from precious metal by-product credits.

As at March 31, 2022, our liquidity includes $213.4 million in cash as well as undrawn availability of $357.5 million under our revolving credit facilities. We expect that our current liquidity combined with cash flow from operations will be sufficient to meet our liquidity needs for the foreseeable future. Given the elevated inventory levels in Manitoba at the end of the first quarter and the positive expected quarterly production cadence, the Company projects its cash balance to grow throughout the remainder of the year based on current commodity prices.


________________________________________________

1 Adjusted net earnings (loss) and adjusted net earnings (loss) per share, adjusted EBITDA, cash cost, sustaining cash cost, all-in sustaining cash cost per pound of copper produced, net of by-product credits, cash cost, sustaining cash cost per ounce of gold produced, net of by-product credits, and net debt are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.


KEY FINANCIAL RESULTS

Financial Condition   Mar. 31, 2022     Dec. 31, 2021  
(in $ thousands)
Cash $ 213,359   $ 270,989  
Total long-term debt   1,181,119     1,180,274  
Net debt1   967,760     909,285  
Working capital2   161,846     147,512  
Total assets   4,538,214     4,616,231  
Equity   1,561,978     1,476,828  
1 Net debt is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation, please see discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.  
2 Working capital is determined as total current assets less total current liabilities as defined under IFRS and disclosed on the consolidated financial statements.  

Financial Performance   Three months ended  
(in $ thousands, except per share amounts)   Mar. 31, 2022     Mar. 31, 2021  
Revenue $ 378,619   $ 313,624  
Cost of sales   293,351     261,112  
Earnings (loss) before tax   88,861     (69,592 )
Net earnings (loss)   63,815     (60,102 )
Basic and diluted earnings (loss) per share   0.24     (0.23 )
Adjusted earnings (loss) per share1   0.02     (0.06 )
Operating cash flow before changes in non-cash working capital2   77.1     90.7  
Adjusted EBITDA1,2   110.2     104.2  
1 Adjusted earnings (loss) per share and adjusted EBITDA are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.  
2 In millions.  


KEY PRODUCTION RESULTS

 

Three months ended

Three months ended

Mar. 31, 2022

Mar. 31, 2021

Peru

Manitoba

Total

Peru

Manitoba

Total

Contained metal in concentrate and doré produced 1

 

 

 

 

 

Copper

tonnes

19,166

5,536

24,702

17,827

6,726

24,553

Gold

oz

10,789

43,167

53,956

4,638

30,862

35,500

Silver

oz

505,568

278,789

784,357

405,714

290,959

696,673

Zinc

tonnes

-

22,252

22,252

-

27,940

27,940

Molybdenum

tonnes

207

-

207

294

-

294

Payable metal sold

 

 

 

 

 

 

Copper

tonnes

16,825

3,784

20,609

14,836

6,093

20,929

Gold2

oz

14,452

33,891

48,343

2,963

22,420

25,383

Silver2

oz

636,133

228,458

864,591

337,612

172,148

509,760

Zinc3

tonnes

-

17,306

17,306

-

28,343

28,343

Molybdenum

tonnes

213

-

213

284

-

284

1 Metal reported in concentrate is prior to deductions associated with smelter contract terms.

2 Includes total payable gold and silver in concentrate and in doré sold.

3 Includes refined zinc metal and payable zinc in concentrate sold.



KEY COST RESULTS

 

 

Three months ended

 

Guidance

 

 

Mar. 31,
2022

Mar. 31,
2021

 

Annual

2022

Consolidated copper cash cost per pound of copper produced

 

 

Cash cost 1

$/lb

1.11

1.04

 

0.60 - 1.05

Peru

$/lb

1.54

1.82

 

1.10 - 1.40

Manitoba

$/lb

(0.40)

(1.04)

 

-

Sustaining cash cost 1

$/lb

2.29

2.16

 

1.60 - 2.25

Peru

$/lb

2.27

2.36

 

 

Manitoba

$/lb

2.33

1.62

 

 

All-in sustaining cash cost1

$/lb

2.54

2.37

 

 

Manitoba gold cash cost per ounce of gold produced

 

 

Cash cost 1,4

$/oz

416

-

 

300 - 550

Sustaining cash cost 1,4

$/oz

1,187

-

 

 

Combined mine/mill unit operating cost per tonne of copper processed 1,2

 

Peru 3

$/tonne

12.37

11.74

 

10.10 - 12.90 5

Manitoba

C$/tonne

176

151

 

170 - 185

1 Cash cost, sustaining cash cost, all-in sustaining cash cost per pound of copper produced, net of by-product credits, gold cash cost, sustaining cash cost per ounce of gold produced, net of by-product credits, and unit operating cost are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.

2 Reflects combined mine, mill and G&A costs per tonne of milled ore. Peru costs reflect the deduction of expected capitalized stripping costs.

3 Excludes approximately $2.3 million, or $0.32 per tonne, of COVID-related costs during the three months ended March 31, 2022, and $4.6 million, or $0.72 per tonne during the three months ended March 31, 2021.

4 Cash cost and sustaining cash cost per ounce of gold produced, net of by-product credits were introduced in 2022 and do not have a published comparative.

5 Combined unit cost guidance for 2022 excludes COVID-19 related costs.



RECENT DEVELOPMENTS

Supply Chain and Cost Inflation

We continue to experience higher operating costs as a result of higher input prices for many services and consumables, such as power, fuel and grinding media, due to global supply chain disruptions. We also continue to face intermittent operational labour and travel disruptions with periodic waves of COVID-19 cases. However, we are effectively managing these external challenges and have been able to maintain steady operations during the first quarter while continuing to track in line with our 2022 unit operating cost guidance.

Copper World Preliminary Economic Assessment Nearing Completion

The initial technical studies for Copper World have been completed and the results are being incorporated into a Preliminary Economic Assessment ("PEA") contemplating the development of the Copper World deposits in conjunction with an alternative plan for the Rosemont deposit to capitalize on regional synergies. The PEA is expected to incorporate a two-phase mine plan with the first phase reflecting a standalone operation utilizing Hudbay's private land for processing infrastructure and contemplating mining portions of Copper World and Rosemont located on patented mining claims. The first phase is designed as an economically viable standalone plan, requiring only state and local permits and is expected to reflect an approximate 15-year mine life. The second phase of the mine plan is expected to extend the mine life and incorporate an expansion onto federal lands to mine the entire Rosemont and Copper World deposits. The second phase of the mine plan would be subject to the federal NEPA permitting process. We expect the PEA to demonstrate positive economics for this low-cost, long-life copper project and we are on track to publish the results in a NI 43-101 Technical Report in the second quarter of 2022.

In April, we commenced early site works at Copper World with initial grading and clearing activities taking place on our private land. We have also increased the number of drill rigs at site to seven to conduct infill drilling and to support future feasibility studies.

Rosemont / Copper World Litigation Update

In April, two groups of project opponents provided separate notices of their intent to bring citizen suits against Rosemont under the Clean Water Act. In each case, project opponents have alleged that Copper World contains jurisdictional waters of the United States ("WOTUS") and that Rosemont requires a Section 404 Clean Water Act permit to advance the project. The Army Corps of Engineers has never determined that there are WOTUS on the site and Hudbay has independently concluded that none of the dry washes in the area are WOTUS.

In addition to the citizen suits under the Clean Water Act, the same groups subsequently filed motions for a preliminary injunction in the two lawsuits challenging the 404 permit for the Rosemont project. These lawsuits had been stayed following the suspension of the 404 permit in 2019. Hudbay is in the process of relinquishing the suspended 404 Permit and has a filed a motion to dismiss these cases as moot on that basis.

We continue to await a decision from the U.S. Court of Appeals for the Ninth Circuit relating to the District Court's 2019 ruling to vacate the final record of decision ("FROD") in respect of the Rosemont project. The FROD was issued by the U.S. Forest Service and is based upon a standalone development plan for the Rosemont project, as set forth in Hudbay's 2017 feasibility study.

Mineral Reserve and Resource Growth at Constancia and Snow Lake

We provided our annual mineral reserve and resource update on March 28, 2022. In Peru, mine planning gains and economic re-evaluations have resulted in additional mineral reserves at Constancia which have largely offset 2021 mining depletion. Current mineral reserve estimates at Constancia total 521 million tonnes at 0.31% copper with over 1.6 million tonnes of contained copper. As a result, Constancia's expected mine life has been extended one year to 2038. The inferred mineral resources have also increased in 2022 due to the inclusion of the Constancia Norte underground mineral resource estimates.


In 2021, we completed a positive scoping study which resulted in an inferred mineral resource estimate of 6.5 million tonnes at 1.2% copper in two high grade skarn lenses located below the open pit in the Constancia Norte area. The study concluded these two lenses could be mined by underground methods starting in 2029 to supplement the open pit production. We intend to conduct infill drilling and an internal pre-feasibility study in hopes of converting the underground mineral resources to mineral reserves for inclusion in the mine plan for the Constancia operations.

As a result of exploration success in Manitoba in 2021, additional mineral reserves were identified at Lalor and the 1901 deposit, which are expected to extend the mine life of the Snow Lake operations by one year until 2038, maintaining the 17-year mine life. Resource to reserve conversion has more than offset 2021 mining depletion with a net gain for all metals, including an additional 218,000 ounces of gold contained in reserves after adjusting for 2021 mining depletion.

Inferred mineral resources at Lalor and 1901 increased by 1.1 million tonnes despite delays in underground drill programs caused by COVID-19 related restrictions. This increases the total inferred mineral resources at Lalor and 1901 to 8.1 million tonnes. These inferred mineral resources have the potential to maintain the 5,300 tonnes per day production level in Snow Lake beyond 2028 and further extend the mine life.

Other Exploration Updates

Peru Regional Exploration

We control a large, contiguous block of mineral rights with the potential to hold mineable deposits within trucking distance of the Constancia processing facility, including the past producing Caballito property and the highly prospective Maria Reyna and Kusiorcco properties. Exploration agreement discussions with the communities of Uchucarcco and Anahuichi on the Maria Reyna, Kusiorcco and Caballito properties are in progress.

Drilling continues at the Llaguen copper porphyry target in northern Peru with a total of 9,250 metres in 21 holes completed to-date. Assays have been received for eight holes and all holes have intersected mineralization. Based on the positive results from the initial drilling, a second phase of drilling has been initiated aimed at defining an initial inferred mineral resource estimate for Llaguen in the third quarter of 2022.

Snow Lake Regional Exploration

We have been actively conducting surface and underground winter drilling activities in the Snow Lake area, primarily focused on the copper-gold rich feeder zone at the 1901 deposit, the drilling gap between 1901 and lens 17 at Lalor, and a high-priority geophysical target located immediately north of Lalor. In addition, we continue to compile results from ongoing infill drilling programs at Lalor and 1901.

Arizona Regional Exploration

In addition to infill drilling to support feasibility studies at Copper World, we continue to test regional exploration targets. There remain several opportunities to further extend economic mineralization within the private land limits at Copper World and Rosemont, including to the north and south of Bolsa through infill drilling to bridge the gaps.

Flin Flon Tailings Reprocessing Opportunity

We are exploring the concept to potentially reprocess the Flin Flon tailings in the future. In early January 2022, we commenced a confirmatory drill program on the tailings facility in Flin Flon to support the evaluation of the tailings reprocessing opportunity. This opportunity could utilize the Flin Flon concentrator, with modifications, after the closure of the 777 mine, creating operating and economic benefits in northern Manitoba and Saskatchewan. It could also provide the opportunity to redesign the closure plans, increase metal production, defer or reduce certain closure costs and reduce the environmental impacts of the tailings facility.


PERU OPERATIONS REVIEW

 

Three months ended

Guidance

Mar. 31, 2022

Mar. 31, 2021

Annual

2022

Constancia ore mined 1

tonnes

6,908,151

7,747,466

 

Copper

%

0.32

0.30

 

Gold

g/tonne

0.04

0.04

 

Silver

g/tonne

3.22

2.90

 

Molybdenum

%

0.01

0.01

 

Pampacancha ore mined 1

tonnes

847,306

-

 

Copper

%

0.27

-

 

Gold

g/tonne

0.43

-

 

Silver

g/tonne

4.06

-

 

Molybdenum

%

0.01

-

 

Ore milled

tonnes

7,213,833

6,362,752

 

Copper

%

0.31

0.33

 

Gold

g/tonne

0.08

0.04

 

Silver

g/tonne

3.26

2.84

 

Molybdenum

%

0.01

0.01

 

Copper concentrate

tonnes

81,608

77,960

 

Concentrate grade

% Cu

23.48

22.87

 

Copper recovery

%

85.3

84.1

 

Gold recovery

%

59.8

52.0

 

Silver recovery

%

66.9

69.9

 

Molybdenum recovery

%

21.1

33.4

 

Combined unit operating costs 2.3,4

$/tonne

12.37

11.74

10.10 - 12.90 5

1 Reported tonnes and grade for ore mined are estimates based on mine plan assumptions and may not reconcile fully to ore milled.

2 Reflects combined mine, mill and general and administrative ("G&A") costs per tonne of ore milled. Reflects the deduction of expected capitalized stripping costs.

3 Combined unit costs is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.

4 Excludes approximately $2.3 million, or $0.32 per tonne, of COVID-19 related costs during the three months ended March 31, 2022 and $4.6 million, or $0.72 per tonne, of COVID-19 related costs during the three months ended March 31, 2021.

5 Combined unit cost guidance for 2022 excludes COVID-19 related costs.

The Peru operations were impacted by the COVID-19 Omicron variant during January and February of 2022, resulting in high employee absenteeism which had a direct impact on the quarter's production. Despite the high absenteeism, COVID-19 containment costs have decreased considerably as the severity of the variant appears lower and COVID-19 protocols have been modified to align with recommended public health measures. Full year production of all metals and costs in Peru are expected to be within guidance ranges for 2022.

Total ore mined declined in the first quarter of 2022, relative to the fourth quarter of 2021, due to high rainfalls and labour shortages, which resulted in delays affecting our water management system and lower production from

Pampacancha. Ore milled during the first quarter of 2022 was 13% higher than the same period in 2021. Milled copper grades in the first quarter of 2022 decreased in comparison to the same period in 2021, as the early Pampacancha ore contains lower copper grades. Milled gold grades increased significantly in the first quarter of 2022, compared to the same period in 2021, mainly due to contribution of higher gold grades from Pampacancha.

Copper recoveries in the first quarter increased marginally over the comparative 2021 period due to operational improvements in the cleaning circuit and lower oxide levels in the Constancia ore. Gold recoveries in the first quarter of 2022 were 15% higher than the comparative 2021 period, mainly due to higher gold grades from Pampacancha, while silver recoveries decreased by 4% over the same time frame due to less favorable metallurgical characteristics of the earlier Pampacancha ores containing higher levels of contaminants.


Combined unit operating costs in the first quarter of 2022 were 5% higher than the same period in 2021 primarily due to inflationary pressures on consumables and energy costs, offset in part by additional tonnes milled. Unit operating costs were near the upper end of our 2022 cost guidance range, which was expected, given our scheduled semi-annual mill maintenance shutdown that occurred during the quarter. We experienced unbudgeted inflationary pressure on costs in the first quarter of 2022 as a result of higher fuel prices, higher power prices, higher steel prices affecting grinding media costs, higher community costs and higher insurance costs. Despite these inflationary cost pressures, full year unit operating costs in Peru are expected to be within the 2022 guidance range.

Contained metal in concentrate produced

Three months ended

Guidance

Mar. 31, 2022

Mar. 31, 2021

Annual

2022

Copper

tonnes

19,166

17,827

89,000 - 115,000

Gold

oz

10,789

4,638

70,000 - 90,000

Silver

oz

505,568

405,714

1,620,000 - 2,100,000

Molybdenum

tonnes

207

294

1,100 - 1,400

Compared to the same period in 2021, copper, gold and silver production was higher in the first quarter of 2022 by 8%, 133% and 25%, respectively, due to an increase in throughput, recoveries, and, in the case of gold and silver, significantly higher head grades from Pampacancha. As previously disclosed, full year production in Peru is expected to benefit from significantly higher grades in the fourth quarter of 2022. Molybdenum production in the first quarter of 2022 was lower than the same period in 2021 due to lower recoveries.


 

         


Peru Cash Cost and Sustaining Cash Cost

 

Three months ended

Guidance

Mar. 31, 2022

Mar. 31, 2021

Annual

2022

Cash cost per pound of copper produced, net of by-product credits1

$/lb

1.54

1.82

1.10 - 1.40

Sustaining cash cost per pound of copper produced, net of by-product credits1

$/lb

2.27

2.36

 

1 Cash cost and sustaining cash costs per pound of copper produced, net of by-product credits, are not recognized under IFRS. For more detail on these non-IFRS financial performance measures, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.

Cash cost per pound of copper produced, net of by-product credits, in the first quarter of 2022 was $1.54, a decrease of 15% compared to the same period in 2021 due to higher copper production and higher precious metal by-product credits, partially offset by higher overall mining, milling and general and administrative costs. Cash costs in the first quarter were above the upper end of our 2022 guidance range in part due to lower production and higher costs related to the scheduled semi-annual mill maintenance shutdown in the quarter. Cash cost per pound of copper produced, net of by-product credits, is expected to decline and full year cash costs are expected to remain within the 2022 guidance range with higher expected copper production and contributions from precious metal by-product credits later this year.

Sustaining cash cost per pound of copper produced, net of by-product credits, for the first quarter of 2022 was $2.27, which decreased by 4% compared to the same period of 2021 mainly due to the same factors affecting cash costs noted above partially offset by higher sustaining expenditures.


Metal Sold

 

Three months ended

Mar. 31, 2022

Mar. 31, 2021

Payable metal in concentrate

 

 

 

Copper

tonnes

16,825

14,836

Gold

oz

14,452

2,963

Silver

oz

636,133

337,612

Molybdenum

tonnes

213

284

Quantities of payable metal sold for the three months ended March 31, 2022 were primarily affected by the same factors as contained metal production and closing inventories from the prior quarter.


MANITOBA OPERATIONS REVIEW

Mines

 

Three months ended

Mar. 31, 2022

Mar. 31, 2021

Lalor

 

 

 

Ore

tonnes

386,752

421,602

Copper

%

0.80

0.57

Zinc

%

4.06

5.20

Gold

g/tonne

3.76

2.67

Silver

g/tonne

22.94

22.75

777

 

 

 

Ore

tonnes

258,069

275,260

Copper

%

1.19

2.06

Zinc

%

4.12

4.00

Gold

g/tonne

1.69

2.39

Silver

g/tonne

21.05

29.32

Total Mines

 

 

 

Ore

tonnes

644,821

696,862

Copper

%

0.96

1.16

Zinc

%

4.08

4.73

Gold

g/tonne

2.93

2.56

Silver

g/tonne

22.19

25.34


Unit Operating Costs 1,2 Three months ended
Mar. 31, 2022 Mar. 31, 2021
Mines      
Lalor C$/tonne 126.42 109.55
777 C$/tonne 102.17 82.59
Total Mines C$/tonne 116.72 98.90
1 Reflects costs per tonne of ore mined.
2 Unit costs is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.

Ore mined at our Manitoba operations during the first quarter of 2022 was 7% lower than the same period in 2021 mainly due to employee absenteeism caused by COVID-19, unplanned maintenance requirements of the ore handling system that temporarily affected hoisting ability at Lalor and planned lower production at 777 as the mine approaches closure in June 2022. Copper and gold grades mined at Lalor during the first quarter of 2022 were 41% and 40% higher, respectively, compared to the same period in 2021, mainly due to increased mining of gold and copper-gold stopes. Zinc grades mined during the first quarter of 2022 were 22% lower than the same period in 2021, in line with the mine plan. Copper, gold and silver grades at 777 were 42%, 29% and 28% lower than the same period in 2021 as challenging ground conditions are resulting in excessive dilution as the mine approaches the end of life.

Lalor production processes to separate gold and base metal ores are fully established to optimally provide feed for both the New Britannia and Stall mills based on the ore metal content. Higher gold content ore is processed at the New Britannia facility and higher base metal content ore is directed towards Stall. A production ramp-up strategy to achieve 5,300 tonnes per day at Lalor by the end of 2022 is underway and includes advancing development for new mining fronts, additions to the mine equipment fleet, transition of workforce from the 777 mine upon closure, and expansion of change house and office facilities. A planned Lalor maintenance period has been advanced to the second quarter of 2022 in order to allow for increased availability during the third quarter after 777 has closed and the additional workforce and equipment have transitioned to Lalor. The 777 equipment relocation strategy will commence in the second quarter of 2022, ahead of expected timeframes to advance the production ramp-up to 5,300 tonnes per day.


The 777 mine is within months of closure and the focus continues to be on safely mining out the remaining reserves by completing the necessary ground rehabilitation to access remnant and pillar stoping blocks. Challenging ground conditions continue to cause delays in the production sequence and result in higher dilution than planned. These challenges are expected to continue until the end of the mine life in June 2022. Pre-closure activities are well underway in mined out areas to decommission stationary equipment of value for redeployment at Lalor. As development requirements wind down, personnel and equipment are being redeployed to Lalor as part of the Lalor ramp-up strategy.

Total mine unit operating costs for the mines during the first quarter of 2022 increased by 18% compared to the same period in 2021 mainly due to higher propane usage caused by a colder winter coupled with inflationary cost pressures for bulk commodities and fuel, lower capitalized development at 777 as all costs are operating in nature and higher contractor costs at Lalor partially offset by increases in Lalor capitalized development.


Processing Facilities

 

 

Three months ended

 

Mar. 31, 2022

Mar. 31, 2021

Stall & New Britannia Concentrator Combined

 

 

 

Ore

tonnes

 

397,301

361,344

Copper

%

 

0.82

0.60

Zinc

%

 

4.24

5.53

Gold

g/tonne

 

3.87

2.57

Silver

g/tonne

 

23.16

23.40

Copper concentrate

tonnes

 

16,280

10,347

Concentrate grade

% Cu

 

17.61

18.09

Zinc concentrate

tonnes

 

26,469

35,694

Concentrate grade

% Zn

 

51.06

50.98

Copper recovery - concentrate

%

 

87.5

85.7

Zinc recovery - concentrate (Stall)

%

 

85.7

91.1

Gold recovery - concentrate

%

 

58.4

57.5

Silver recovery - concentrate

%

 

60.0

56.2

Contained metal in concentrate produced

 

Copper

tonnes

 

2,867

1,872

Zinc

tonnes

 

13,516

18,196

Gold

oz

 

28,882

17,207

Silver

oz

 

177,645

152,906

Metal in doré produced

 

Gold

oz

 

6,280

-

Silver

oz

 

10,046

-

Flin Flon Concentrator

 

 

 

 

Ore

tonnes

 

254,032

283,386

Copper

%

 

1.20

1.88

Zinc

%

 

4.13

4.20

Gold

g/tonne

 

1.70

2.34

Silver

g/tonne

 

21.23

28.01

Copper concentrate

tonnes

 

13,104

22,312

Concentrate grade

% Cu

 

20.37

21.75

Zinc concentrate

tonnes

 

17,267

19,113

Concentrate grade

% Zn

 

50.59

50.98

Copper recovery

%

 

87.6

91.3

Zinc recovery

%

 

83.2

81.8

Gold recovery

%

 

57.7

64.0

Silver recovery

%

 

52.5

54.1

Contained metal in concentrate produced

 

Copper

tonnes

 

2,669

4,854

Zinc

tonnes

 

8,736

9,744

Gold

oz

 

8,005

13,655

Silver

oz

 

91,098

138,053




Unit Operating Costs 1   Three months ended     Guidance  
  Mar. 31, 2022     Mar. 31, 2021     Annual  
  2022  
Concentrators                    
Stall & New Britannia C$/tonne   50.07     23.12        
Flin Flon C$/tonne   28.89     27.08        
Combined mine/mill unit operating costs 2,3        
Manitoba C$/tonne   176     151     170 - 185  
1 Reflects costs per tonne of milled ore.
2 Reflects combined mine, mill and G&A costs per tonne of milled ore.
3 Combined unit costs is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.

The combined Snow Lake mills processed 10% more ore in the first quarter of 2022 compared to the same period in 2021. Stall recoveries were consistent with the metallurgical model for the head grades delivered. Compared to the same period in 2021, unit operating costs at the Snow Lake mills were higher in the first quarter of 2022 as a result of the higher costs at New Britannia and due to scheduled mill maintenance during the quarter.

The New Britannia mill averaged approximately 1,400 tonnes per day in the first quarter of 2022, slightly below the targeted 1,500 tonnes per day as a result of completing scheduled rod mill liner maintenance during the quarter. Since completing the mill maintenance, New Britannia has consistently achieved greater than 1,500 tonnes per day in April. With the inclusion of doré, the gold and silver recoveries at the New Britannia mill have also improved significantly with metallurgical recoveries in March higher in relation to previous months. Additional initiatives are planned in the second quarter to further improve recoveries to be in line with metallurgical models.

The Flin Flon concentrator consumed the available ore feed from the 777 mine in the first quarter of 2022. Recoveries were consistent with the metallurgical model for the head grades delivered. Unit operating costs at the Flin Flon concentrator increased by 7% during the first quarter compared to the same period in 2021 primarily as a result of increased grinding media used to fulfill paste requirements at the 777 mine.

Combined unit operating costs in the first quarter of 2022 increased by 17% compared to the same period in 2021, due to higher overall operating costs for the reasons described above, partially offset by an increase in ore milled. Full year combined unit costs are expected to remain within 2022 guidance ranges.

 

 

Three months ended

Guidance

Contained metal in concentrate produced 1

Mar. 31, 2022

Mar. 31, 2021

Annual

2022

Copper

tonnes

5,536

6,726

12,000 - 16,000

Gold 2

oz

36,887

30,862

-

Silver 3

oz

268,743

290,959

-

Zinc

tonnes

22,252

27,940

50,000 - 70,000

Metal in doré produced 1

 

Gold 2

oz

6,280

-

-

Silver 3

oz

10,046

-

-

Contained metal in concentrate and doré produced

 

Gold 2

oz

43,167

30,862

150,000 - 185,000

Silver 3

oz

278,789

290,959

800,000 - 1,100,000

1 Metal reported in concentrate is prior to deductions associated with smelter terms.

 

2 Gold production guidance includes gold contained in concentrate produced and gold in doré.

3 Silver production guidance includes silver contained in concentrate produced and silver in doré.



Compared to the same period in 2021, gold production in the first quarter of 2022 increased by 40%. This increase is primarily due to the processing of higher volumes of gold ore from Lalor at the New Britannia mill, offset by lower gold grades at the 777 mine. Copper, silver and zinc production decreased by 18%, 4% and 20% in the first quarter of 2022 compared to the same period in 2021 as grades at 777 were significantly lower as the mine approaches the end of life.

Full year production of all metals and costs are on track to achieve guidance ranges for 2022.

Zinc Plant

Zinc Production

Three months ended

Mar. 31, 2022

Mar. 31, 2021

Zinc Concentrate Treated

 

Domestic

tonnes

41,723

54,489

Refined Metal Produced

 

Domestic

tonnes

20,063

26,508


Unit Operating Costs

Three months ended

Mar. 31, 2022

Mar. 31, 2021

Zinc Plant 1,2

C$/lb

0.62

0.51

1 Zinc unit operating costs include G&A costs.

2 Zinc unit costs is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.



The zinc plant production was constrained by the availability of concentrate for processing, resulting from Lalor transitioning production to the gold lenses and the mine plan limitations at 777 as it nears closure in June 2022. The zinc plant will continue to be constrained by zinc concentrate availability in its final operating quarter.

Manitoba Cash Cost and Sustaining Cash Cost

    Three months ended     Guidance  
              Annual  
  Mar. 31, 2022     Mar. 31, 2021     2022  
Cost per pound of copper produced                    
Cash cost per pound of copper produced, net of by-product credits 1 $/lb   (0.40)     (1.04)        
Sustaining cash cost per pound of copper produced, net of by-product credits 1 $/lb   2.33     1.62        
                     
Cost per ounce of gold produced                    
Cash cost per ounce of gold produced, net of by-product credits 1 $/oz   416     -     300 - 550  
Sustaining cash cost per ounce of gold produced, net of by-product credits 1 $/oz   1,187     -        
1 Cash cost and sustaining cash cost per pound of copper and per ounce of gold produced, net of by-product credits, are not recognized under IFRS. For more detail on this non-IFRS financial performance measure, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.  
   
2 Cash cost and sustaining cash cost per ounce of gold produced, net of by-product credits were introduced in 2022 and do not have a published comparative.  

Cash cost per pound of copper produced, net of by-product credits, in the first quarter of 2022 was negative $0.40. These costs were higher compared to the same period in 2021, as a result of higher mining, milling and G&A costs in part due to inflationary pressures and lower copper production, partially offset by higher by-product revenues.

Sustaining cash cost per pound of copper produced, net of by-product credits, in the first quarter of 2022 was $2.33. These costs were higher compared to the same period in 2021, primarily due to the reasons listed above partially offset by significantly lower sustaining capital expenditures compared to the same period in 2021.

Cash cost per ounce of gold produced, net of by-product credits, in the first quarter of 2022 was in line with our 2022 guidance range.


Metal Sold

 

Three months ended

Mar. 31,
2022

Mar. 31,
2021

Payable metal in concentrate and doré

 

 

 

Copper

tonnes

3,784

6,093

Gold

oz

33,891

22,420

Silver

oz

228,458

172,148

Refined zinc

tonnes

17,306

28,343

Manitoba copper, gold, zinc and silver sales in the first quarter of 2022 were impacted by limited railcar availability, and when coupled with lower copper and silver production, resulted in lower sales volumes in the quarter versus the comparative 2021 period, which also experienced a similar lack of railcar availability. The resulting excess copper concentrate and refined zinc inventory buildup is expected to normalize over the next several months with increased access to railcars as weather conditions improve. Due to increased production of gold from Lalor and New Britannia's improved precious metal recoveries, sales of gold in the first quarter were higher than in the comparative period in 2021.


FINANCIAL REVIEW

Financial Results

In the first quarter of 2022, we recorded a net profit of $63.8 million compared to a net loss of $60.1 million in the first quarter of 2021.

The following table provides further details on these variances:

(in $ millions)

Three months ended

March 31, 2022

Increase (decrease) in components of profit or loss:

 

Revenues

65.0

Cost of sales

 

Mine operating costs

(33.8)

Depreciation and amortization

1.6

Selling and administrative expenses

(1.9)

Exploration expenses

(11.8)

Evaluation expenses

(6.8)

Environmental obligation adjustment

75.4

Other expenses

(1.0)

Net finance expense

71.7

Tax

(34.5)

Decrease in loss for the period

123.9

Revenue

Revenue for the first quarter of 2022 was $378.6 million, $65.0 million higher than the same period in 2021, primarily as a result of higher realized base metal prices as well as higher sales volumes of gold and silver. The significantly increased sales volumes of gold is mainly the result of the recent commencement of operations at the high-grade Pampacancha deposit in Peru and the copper-gold circuit at New Britannia mill in Manitoba, neither of which were operational in the comparative period. Offsetting this increase were lower zinc metal sales volumes from Lalor primarily due to the transition of mining toward the gold lenses at Lalor and a corresponding decrease of production from the base metal zones and production constraints at the zinc plant mainly due to a declining production from 777 as it nears the end of mine life.

The following table provides further details on these variances:



(in $ millions)

Three months ended

March 31, 2022

 

 

Metals prices1

 

Higher copper prices

37.9

Higher zinc prices

16.7

Lower gold prices

(0.4)

Lower silver prices

(7.0)

Sales volumes

 

Lower copper sales volumes

(2.5)

Lower zinc sales volumes

(32.2)

Higher gold sales volumes

39.4

Higher silver sales volumes

10.5

Other

 

Change in derivative mark-to-market on zinc

0.3

Molybdenum and other volume and pricing differences

0.8

Variable consideration adjustments

1.6

Effect of higher treatment and refining charges

(0.1)

Increase in revenue in 2022 compared to 2021

65.0

1 See discussion below for further information regarding metals prices.

 

Our revenue by significant product type is summarized below:

 

Three months ended

(in $ millions)

Mar. 31, 2022

Mar. 31, 2021

Copper

209.0

173.7

Zinc

66.4

82.1

Gold

67.6

42.2

Silver

6.6

6.4

Molybdenum

9.2

7.0

Other metals

2.5

1.6

Revenue from contracts

361.3

313.0

Amortization of deferred revenue - gold

13.2

4.9

Amortization of deferred revenue - silver

11.8

8.7

Amortization of deferred revenue - variable consideration adjustments - prior periods

3.2

1.6

Pricing and volume adjustments1

1.2

(2.6)

Treatment and refining charges

(12.1)

(12.0)

Revenue

378.6

313.6

1 Pricing and volume adjustments represents mark-to-market adjustments on provisionally prices sales, realized and unrealized changes to fair value for non-hedge derivative contracts and adjustments to originally invoiced weights and assays.

For further detail on variable consideration adjustments, refer to note 15 of our consolidated interim financial statements.


Realized sales prices

This measure is intended to enable management and investors to understand the average realized price of metals sold to third parties in each reporting period. The average realized price per unit sold does not have any standardized meaning prescribed by IFRS, is unlikely to be comparable to similar measures presented by other issuers and should not be considered in isolation or a substitute for measures of performance prepared in accordance with IFRS.

For sales of copper, gold and silver we may enter into non-hedge derivatives ("QP hedges") which are intended to manage the provisional pricing risk arising from quotational period terms in concentrate sales agreements. The QP hedges are not removed from the calculation of realized prices. We expect that gains and losses on QP hedges will offset provisional pricing adjustments on concentrate sales contracts.

Our realized prices for the first quarter of 2022 and 2021, respectively, are summarized below:

 

Realized prices1 for the

Three months ended

 

LME QTD

20222

Mar. 31,
2022

Mar. 31,
2021

Prices

 

 

 

 

Copper

$/lb

4.53

4.53

3.69

Zinc3

$/lb

1.70

1.76

1.32

Gold4

$/oz

 

1,741

1,778

Silver4

$/oz

 

21.56

29.69

1 Realized prices exclude refining and treatment charges and are on the sale of finished metal or metal in concentrate. Realized prices include the effect of provisional pricing adjustments on prior period sales.

2 London Metal Exchange average for copper and zinc prices.

3 All sales for the three months ended March 31, 2022 and 2021 were cast zinc metal. Zinc realized prices include premiums paid by customers for delivery of refined zinc metal, but exclude unrealized gains and losses related to non-hedge derivative contracts that are included in zinc revenues.

4 Sales of gold and silver from our 777 and Constancia mines are subject to our precious metals stream agreement with Wheaton, pursuant to which we recognize deferred revenue for precious metals deliveries and also receive cash payments. Stream sales are included within realized prices and their respective deferred revenue and cash payment rates can be found on page 26.


The following tables provide a reconciliation of average realized price per unit sold, by metal, to revenues as shown in the consolidated financial statements.

Three months ended March 31, 2022

(in $ millions) 1

Copper

Zinc

Gold

Silver

Molybdenum

Other

Total

Revenue from contracts 2

209.0

66.4

67.6

6.6

9.2

2.5

361.3

Amortization of deferred revenue

-

-

13.2

11.8

-

-

25.0

Pricing and volume adjustments 3

(3.2)

0.7

3.4

0.2

0.1

-

1.2

By-product credits 4

205.8

67.1

84.2

18.6

9.3

2.5

387.5

Derivative mark-to-market 5

-

(0.1)

-

-

-

-

(0.1)

Revenue, excluding mark-to-market on non-QP hedges

205.8

67.0

84.2

18.6

9.3

2.5

387.4

Payable metal in concentrate sold 6

20,609

17,306

48,343

864,591

213

-

-

Realized price 7

9,985

3,875

1,741

21.56

43,635

-

-

Realized price 8

4.53

1.76

-

-

-

-

-

Three months ended March 31, 2021

(in $ millions) 1

Copper

Zinc

Gold

Silver

Molybdenum

Other

Total

Revenue from contracts 2

173.7

82.1

42.2

6.4

7.0

1.6

313.0

Amortization of deferred revenue

-

-

4.9

8.7

-

-

13.6

Pricing and volume adjustments 3

(3.3)

0.2

(1.9)

-

2.4

-

(2.6)

By-product credits 4

170.4

82.3

45.2

15.1

9.4

1.6

324.0

Derivative mark-to-market 5

-

0.2

-

-

-

-

0.2

Revenue, excluding mark-to-market on non-QP hedges

170.4

82.5

45.2

15.1

9.4

1.6

324.2

Payable metal in concentrate sold 6

20,929

28,343

25,383

509,760

284

-

-

Realized price 7

8,143

2,910

1,778

29.69

33,040

-

-

Realized price 8

3.69

1.32

-

-

-

-

-

1 Average realized price per unit sold may not calculate based on amounts presented in this table due to rounding.

2 As per financial statements.

3 Pricing and volume adjustments represents 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.

4 By-product credits subtotal is used in the calculated of cash cost per pound of copper and zinc produced, net of by-product credits. Cash cost per pound of copper and per ounce of gold produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.

5 Derivative mark-to-market excludes mark-to-market on QP hedges.

6 Copper, zinc and molybdenum shown in metric tonnes and gold and silver shown in ounces.

7 Realized price for copper, zinc and molybdenum in $/metric tonne and realized price for gold and silver in $/oz.

8 Realized price for copper and zinc in $/lb.

The price, quantity and mix of metals sold, affect our revenue, operating cash flow and profit. Revenue from metals sales can vary from quarter to quarter due to production levels, shipping volumes and transfer of risk and title to customers.


Stream Sales

The following table shows stream sales included within realized prices and their respective deferred revenue and cash payment rates:

 

 

Three months ended

 

 

Mar. 31, 2022

 

 

Manitoba

Peru 4

Gold

oz

4,388

10,494

Silver

oz

86,912

643,636

Gold deferred revenue drawdown rate1,2

$/oz

1,252

734

Gold cash rate3

$/oz

429

412

Total  gold stream realized price

$/oz

1,681

1,146

Silver deferred revenue drawdown rate1,2

$/oz

24.73

14.95

Silver cash rate3

$/oz

6.33

6.08

Total silver stream realized price

$/oz

31.06

21.03

 

 

 

 

Three months ended

Mar. 31, 2021

Manitoba

Peru

Gold

oz

2,577

1,676

Silver

oz

48,763

346,138

Gold deferred revenue drawdown rate1,2

$/oz

1,248

990

Gold cash rate 3

$/oz

425

408

Total gold stream realized price

$/oz

1,673

1,398

Silver deferred revenue drawdown rate1,2

$/oz

23.99

21.86

Silver cash rate 3

$/oz

6.26

6.02

Total silver stream realized price

$/oz

30.25

27.88

1Subsequent to the variable consideration adjustment recorded on January 1, 2022, the deferred revenue amortization is recorded in Manitoba at C$1,584/oz gold and C$31.28/oz silver (for the three months ended March 31, 2021- C$1,578/oz gold and C$30.38/oz silver) and converted to US dollars at the exchange rate in effect at the time of revenue recognition.

2 Deferred revenue drawdown rates for gold and silver do not include variable consideration adjustments.

3 The gold and silver cash rate for Manitoba increased by 1% from $400/oz and $5.90/oz effective August 1, 2015. Subsequently every year, on August 1, the cash rate will increase by 1% compounded. The weighted average cash rate is disclosed. The gold and silver cash rate for Peru increased by 1% from $400/oz and $5.90/oz effective July 1, 2019. Subsequently every year, on July 1, the cash rate will increase by 1% compounded. The weighted average cash rate is disclosed.

4 Subsequent to the variable consideration adjustment recorded on January 1, 2022, the deferred revenue amortization is recorded in Peru at $734/oz gold and $14.95/oz silver.



Cost of Sales

Our detailed cost of sales is summarized as follows:

(in $ thousands)

Three months ended

Mar. 31, 2022

Mar. 31, 2021

Peru

 

 

Mining

28,402

21,539

Milling

47,655

43,320

Changes in product inventory

(4,772)

(10,575)

Depreciation and amortization1

48,362

40,435

G&A

16,198

14,439

Inventory adjustments

(461)

(723)

Freight, royalties and other charges

10,331

9,853

Total Peru cost of sales

145,715

118,288

Manitoba

 

 

Mining

59,433

54,420

Milling

21,509

12,662

Zinc plant

18,376

19,607

Changes in product inventory

(16,148)

(12,289)

Depreciation and amortization1

32,729

42,247

G&A

23,243

15,952

Freight, royalties and other charges

8,494

10,225

Total Manitoba cost of sales

147,636

142,824

Cost of sales

293,351

261,112

1 Includes depreciation and amortization from property, plant, and equipment and decommissioning and restoration assets.

Total cost of sales for the first quarter of 2022 was $293.4 million, reflecting an increase of $32.2 million from the first quarter of 2021. Peru cost of sales increased by $27.4 million in the first quarter of 2022, compared to the same period of 2021. The main driver of this increase were higher overall mining, milling and general and administrative costs, as well as higher depreciation and lower relative buildup in product inventory. The increases in mining and milling costs were mainly driven by higher production as well as higher prices for consumables. Manitoba cost of sales were relatively consistent, increasing by $4.8 million in the first quarter of 2022, compared to the same period of 2021. Contributing to this increase were higher overall mining, milling and general administrative costs, mainly driven by increases in consumable costs. Partially offsetting these increases was a larger relative buildup in product inventory caused by an increase in copper concentrate and zinc inventories due to limited railcar availability and lower decommissioning and restoration obligations ("DRO") depreciation. As most of Manitoba's environmental provision is attributed to the 777 mine and Flin Flon operations, the closure of which is expected to commence during the second quarter of 2022, we expect lower amortization of Manitoba's DRO asset relative to previous levels.

For details on unit operating costs refer to the respective tables in the "Operations Review" section of this MD&A.

For the first quarter of 2022, other significant variances in expenses from operations, compared to the same period in 2021, include the following:

- Exploration expenses increased by $11.8 million, as the Copper World drilling program continued during the first quarter of 2022.


- Evaluation expenses increased by $6.8 million, largely related to hydrogeological and geotechnical studies to advance the Copper World Project. Upon completion of a positive preliminary economic assessment for Copper World, we expect to begin capitalizing evaluation expenditures.

- Environmental obligation adjustments increased by $75.4 million, largely as a result of gains on the revaluation of the environmental obligation on our Flin Flon and non-producing sites in Manitoba. Specifically, an increase in long term risk-free discount rates resulted in a large decline in the closure cost provision. The offsetting reclamation asset had only a minimal net book value due to the upcoming closure of 777 and Flin Flon operations, and so the remaining reclamation adjustment was recorded as a gain in the income statement.

Given the upcoming closure of 777 and Flin Flon and the long term nature of the reclamation cash flows, the related environmental provision is highly sensitive to changes in long-term risk-free discount rates and, as such, we will continue to experience quarterly closure cost provision revaluations.


Net finance expense

(in $ thousands)

Three months ended

Mar. 31, 2022

Mar. 31, 2021

 

 

 

Finance costs - accrued or payable:

 

 

Interest expense on long-term debt

16,898

21,232

Withholding taxes

1,563

2,023

Tender premium on senior unsecured notes

-

22,878

Other accrued/payable costs (income)1

2,223

2,121

Total finance costs - accrued or payable

20,684

48,254

 

 

 

Finance costs - non-cash:

 

 

Accretion on streaming agreements2

4,836

15,528

Change in fair value of financial assets and liabilities at fair value through profit or loss

7,216

39,007

Write off unamortized transaction costs

-

2,480

Other non-cash costs3

4,008

3,184

Total finance costs - non-cash

16,060

60,199

Net finance expense

36,744

108,453

1 Includes interest income and other finance expense.

2 Includes variable consideration adjustment (prior periods).

3 Includes accretion on community agreements, accretion on Wheaton refund liability, unwinding of discount on provisions, and net foreign exchange losses (gains).

During the quarter ended March 31, 2022, net finance expense decreased by $71.7 million compared to the first quarter of 2021 due to a $27.6 million decrease in payable finance costs and a $44.1 million decrease in non-cash finance costs.

The reduction in net finance expense was primarily driven by the refinancing of senior unsecured notes in the comparative period. The prior year refinancing included a $49.8 million write-off of a non-cash embedded derivative on the early redemption option associated with our extinguished senior unsecured notes as well as a call premium of $22.9 million, with no corresponding charges recorded in 2022. Contributing to the decline in non-cash finance costs is a $10.7 million reduction in the accretion on streaming arrangements due to a lower interest rate following the amended Peru streaming arrangement in the second quarter of 2021 and a reduction in interest expense of $4.3 million, mainly due to lower interest rates on our long term debt. Offsetting these reductions is a higher non-cash loss of $21.6 million on the revaluation of the gold prepayment liability due to a higher gold price.


Tax Expense

For the three months ended March 31, 2022, tax expense increased by $34.5 million compared to the same period in 2021. The following table provides further details:

 

Three months ended

Mar. 31, 2022

Mar. 31, 2021

(in $ thousands)

Deferred tax expense (recovery) - income tax 1

9,601

(26,400)

Deferred tax expense - mining tax 1

4,990

11,699

Total deferred tax expense (recovery)

14,591

(14,701)

Current tax expense - income tax

5,477

967

Current tax expense - mining tax

4,978

4,244

Total current tax expense

10,455

5,211

Tax expense (recovery)

25,046

(9,490)

1 Deferred tax expense (recovery) represents our draw down/increase of non-cash deferred income and mining tax assets/liabilities.

Income Tax Expense

Applying the estimated Canadian statutory income tax rate of 26.4% to our profit before taxes of $88.9 million for the first quarter of 2022 would have resulted in a tax expense of approximately $23.5 million; however, we recorded an income tax expense of $15.1 million. The significant items causing our effective income tax rate to be different than the 26.4% estimated Canadian statutory income tax rate include:

- Deductible temporary differences with respect to Peru, relating to the decommissioning and restoration liabilities, were not recognized as we have determined that it is not probable that we will realize the recovery of these deferred tax assets based on the timing of the reversals of the deductible temporary differences and the future projected taxable profit of the Peruvian operations. This has resulted in a deferred tax expense of $1.5 million.

- Deductible temporary differences with respect to Manitoba, and relating to the decommissioning and restoration liabilities, were recognized as we have determined that it is probable that we will realize the recovery of these deferred tax assets based on the timing of the reversals of the deductible temporary differences and the future projected taxable profit of the Manitoba operations. This resulted in a deferred tax recovery of $9.6 million.

- Temporary income tax differences not recognized as we have determined that it is not probable that we will realize the recovery of these deferred tax assets. This resulted in a deferred tax expense of $3.4 million.

- Foreign exchange on the translation of deferred tax balances to group currency resulted in a deferred tax recovery of $6.2 million.

- The tax expense with respect to our foreign operations are recorded using an income tax rate other than the Canadian statutory income tax rate of 26.4%, resulting in a tax expense of $3.7 million.

Mining Tax Expense

Applying the estimated Manitoba mining tax rate of 10.0% to our profit before taxes of $88.9 million for the first quarter of 2022 would have resulted in a tax expense of approximately $8.8 million; however, we recorded a mining tax expense of $9.9 million. Effective mining tax rates can vary significantly based on the composition of our earnings and the expected amount of mining taxable profits. Corporate costs and other costs not related to mining operations are not deductible in computing mining profits. A brief description of how mining taxes are calculated in our various business units is discussed below.

Manitoba

The Province of Manitoba imposes mining tax on profit related to the sale of mineral products mined in the Province of Manitoba (mining taxable profit) at the following rates:

- 10% of total mining taxable profit if mining profit is C$50 million or less;


- Between mining profit of C$50 and $C55 million, mining tax is equal to a minimum of C$5 million plus mining profit less C$50 million multiplied by 65%;

- 15% of total mining taxable profit if mining profits are between C$55 million and C$100 million;

- Between mining profit of C$100 million and C$105 million, mining tax is equal to a minimum of C$15 million plus mining profit less C$100 million multiplied by 57%; and

- 17% of total mining taxable profit if mining profits exceed C$105 million.

We estimate that the tax rate that will be applicable when temporary differences reverse will be approximately 10.0%.

Peru

The Peruvian government imposes two parallel mining tax regimes, the Special Mining Tax and the Modified Royalty, on companies' operating mining income on a sliding scale, with progressive rates ranging from 2.0% to 8.4% and 1.0% to 12.0%, respectively. Based on financial forecasts, we have recorded a deferred tax liability as at March 31, 2022, at the tax rate we expect to apply when temporary differences reverse.


LIQUIDITY AND CAPITAL RESOURCES

Senior Unsecured Notes

We have $600.0 million aggregate principal amount of 4.5% senior notes due April 2026 and $600.0 million aggregate principal amount of 6.125% senior notes due April 2029.

Senior Secured Revolving Credit Facilities and Surety Bonds

We have two senior secured revolving credit facilities ("the Credit Facilities") for our Canadian and Peruvian businesses, with combined total availability of $450.0 million and substantially similar terms and conditions. As at March 31, 2022, our liquidity includes $213.4 million in cash as well as undrawn availability of $357.5 million under our Credit Facilities. As at March 31, 2022, we were in compliance with our covenants under the Credit Facilities and had drawn $92.5 million in letters of credit under the Credit Facilities.

As at March 31, 2022, the Arizona business unit had $28.3 million in surety bonds issued to support future reclamation and closure obligations. The Peru business unit also had $107.9 million in letters of credit issued with various Peruvian financial institutions to support future reclamation and other operating matters. No cash collateral is required to be posted under these letters of credit or surety bonds.

Financial Condition

Financial Condition as at March 31, 2022 compared to December 31, 2021

Cash decreased by $57.6 million during the quarter to $213.4 million as at March 31, 2022. This decrease was mainly the result of $55.9 million of capital investments primarily at our Peru and Manitoba operations, interest payments of $31.9 million, partial repayment of our gold prepayment liability of $18.6 million, lease payments of $9.9 million, other finance payments of $3.2 million as well as paid dividends of $2.1 million. Offsetting these cash outflows was cash flow from operating activities of $63.3 million. We hold the majority of our cash in low-risk, liquid investments with major Canadian and Peruvian financial institutions.

Working capital increased by $14.3 million to $161.8 million from December 31, 2021 to March 31, 2022, primarily due to an increase in inventories of $40.8 million mainly due to a buildup of finished goods inventory at our Manitoba operations caused by a limited availability of rail cars, a decrease in trade and other payables of $22.7 million arising mainly from timing of payments, and a decrease in deferred revenue liabilities of $15.7 million due to the upcoming closure of 777. Offsetting these items was the cash decrease of $57.6 million and a decrease in trade and other receivables of $18.9 million due to timing of sales deliveries.


Cash Flows

The following table summarizes our cash flows for the three months ended March 31, 2022 and March 31, 2021:

(in $ thousands)

Three months ended

Mar. 31, 2022

Mar. 31, 2021

Operating cash flow before change in non-cash working capital

77,053

90,656

Change in non-cash working capital

(13,746)

(38,859)

Cash generated from operating activities

63,307

51,797

Cash used in investing activities

(55,732)

(82,512)

Cash used in financing activities

(64,719)

(96,791)

Effect of movement in exchange rates on cash

(486)

(1,065)

Decrease in cash

(57,630)

(128,571)

Cash Flow from Operating Activities

Cash generated from operating activities was $63.3 million during the first quarter of 2022, an increase of $11.5 million compared with the same period in 2021. Operating cash flow before change in non-cash working capital was $77.1 million during the first quarter of 2022, reflecting a decrease of $13.6 million compared to the first quarter of 2021. The decrease in operating cash flows before changes in working capital is mostly attributable to the timing of current tax payments which increased by $11.8 million compared to the first quarter of 2021 as well as lower sales volumes of zinc metal. This was partially offset by higher realized prices, and higher gold and silver sales volumes compared to the first quarter of 2021.

Cash Flow from Investing and Financing Activities

During the first quarter of 2022, we spent $120.5 million in investing and financing activities, primarily driven by $55.9 million in capital expenditures, $31.9 million in interest payments, $18.6 million in partial settlement of our gold prepayment liability, $9.9 million in capitalized lease payments, $3.2 million in other finance payments and $2.1 million in dividend payments.


Capital Expenditures

The following summarizes accrued and cash additions to capital assets for the periods indicated:

 

Three months ended

Guidance

Mar. 31, 2022

Mar. 31, 2021

Annual

(in $ millions)

2022

Manitoba sustaining capital expenditures

30.6

20.9

115.0

Peru sustaining capital expenditures 1

20.1

12.9

105.0

Total sustaining capital expenditures

50.7

33.8

220.0

Arizona capitalized costs

3.1

3.2

35.0

Peru growth capitalized expenditures

0.1

19.9

10.0

Manitoba growth capitalized expenditures

4.9

42.0

50.0

Other capitalized costs

1.6

1.0

-

Capitalized exploration

3.1

1.1

25.0

Total other capitalized expenditures

12.8

67.2

 

Total capital additions

63.5

101.0

 

 

 

 

 

Reconciliation to cash capital additions:

 

 

 

Right-of-use asset additions

(7.8)

(1.3)

 

Change in community agreement accruals

(0.9)

(12.6)

 

Change in capital accruals and other

1.1

(4.1)

 

Total cash capital additions

55.9

83.0

 

1 Peru sustaining capital expenditures includes capitalized stripping costs.

For the first quarter of 2022, total capital additions declined by 37% compared to the first quarter of 2021 as a result of lower growth spending partially offset by higher sustaining capital expenditures in both Peru and Manitoba.

Sustaining capital expenditures in Manitoba for the three months ended March 31, 2022 increased by $9.7 million to $30.6 million, compared to the same period in 2021. The increased expenditures are due to higher planned capital development and lease additions at Lalor, partially offset by reduced spending on the upgrades at the Anderson tailings facility as the project nears completion and cessation of capitalizing development costs at 777 given its upcoming closure. Sustaining capital expenditures in Peru for the three months ended March 31, 2022 were $20.1 million, representing an increase of $7.2 million compared to the same period in 2021. The increase was a result of new mobile equipment capital additions and increased deferred stripping.

Growth capital expenditures in Manitoba for the three months ended March 31, 2022 of $4.9 million comprises expenditures for the Lalor expansion and recovery improvement projects at both New Britannia and Stall. Compared to the same quarter of 2021, growth capital expenditures decreased by $37.1 million as the comparative period included significant costs related to the New Britannia refurbishment project, which was completed in the fourth quarter of 2021. Growth capital expenditures in Peru for the three months ended March 31, 2022 decreased by $19.8 million to $0.1 million, compared to prior period, as there were significant costs incurred to bring Pampacancha to commercial production in the comparative period, which was achieved in the second quarter of 2021.

Arizona's growth capital of $3.1 million in the first quarter of 2022 relates primarily to land acquisition costs, permitting and other costs associated with Copper World and Rosemont. Other capitalized costs for the three months ended March 31, 2022 were $1.6 million, which are mostly made up of non-cash capitalized costs.

We expect consolidated sustaining and growth capital expenditures in 2022 to be in line with our full year guidance.


Capital Commitments

As at March 31, 2022, we had outstanding capital commitments in Canada of approximately $29.1 million, of which $19.5 million can be terminated, approximately $37.2 million in Peru primarily related to exploration option agreements, all of which can be terminated, and approximately $180.1 million in Arizona, primarily related to our Rosemont project, of which approximately $87.9 million can be terminated.

We expect that our financing costs will increase as we anticipate increasing the letters of credit advanced under our Credit Facilities to support new closure plans.

Contractual Obligations

The following table summarizes our significant contractual obligations as at March 31, 2022:



 

Less than

12 months

13 - 36

months

37 - 60

months

More than

60 months

Payment Schedule (in $ millions)

Total

Long-term debt obligations1

1,578.3

66.5

134.8

703.5

673.5

Gold prepayment obligation2

130.3

75.6

54.7

-

-

Lease obligations

158.1

64.3

58.1

17.9

17.8

Purchase obligation - capital commitments

246.4

52.5

17.2

26.0

150.7

Purchase obligation - other commitments3

1,009.8

378.1

362.7

138.8

130.2

Pension and other employee future benefits obligations2

181.3

12.6

13.4

35.2

120.1

Community agreement obligations4

57.7

9.0

11.7

4.4

32.6

Decommissioning and restoration obligations5

439.9

15.1

7.8

8.2

408.8

Total

3,801.8

673.7

660.4

934.0

1,533.7

1 Long-term debt obligations include scheduled interest payments, as well as principal repayments.

2 Discounted.

3 Primarily made up of long-term agreements with operational suppliers, obligations for power purchase, concentrate handling, fleet and port services, as well as deferred consideration arising from the acquisition of Rosemont's minority interest.

4 Represents community agreement obligations and various finalized land user agreements, including Pampacancha.

5 Undiscounted before inflation.

In addition to the contractual obligations included in the above payment schedule, we also have the following commitments which impact our financial position:

- A profit-sharing plan with most Manitoba employees;

- A profit-sharing plan with all Peru employees;

- Wheaton precious metals stream agreements for the 777 mine and Constancia mines;

- A net smelter returns royalty agreement related to the 777 mine; and,

- Government royalty payments related to the Constancia mine.

Outstanding Share Data

As of May 8, 2022, there were 261,886,665 common shares of Hudbay issued and outstanding. In addition, there were 1,780,471 stock options outstanding.

FINANCIAL RISK MANAGEMENT

Implication of Copper World Preliminary Economic Assessment on Rosemont Project

As with any change in mine plan, or new technical report or preliminary economic assessment, there is a risk that the timing and extent of operating and capital expenditures may result in an indicator of impairment or impairment reversal. In the case of the forthcoming Copper World PEA, management will assess impairment considerations with respect to changes in timing and expenditures to support the development of Copper World, and the alternative development plan for Rosemont as a stand-alone project.

TREND ANALYSIS AND QUARTERLY REVIEW

A detailed quarterly and annual summary of financial and operating performance can be found in the "Summary of Results" section at the end of this MD&A. The following table sets forth selected consolidated financial information for each of our eight most recently completed quarters:



(in $ millions, except per share amounts)

 

2021

2020

2022

Q1

Q4

Q33

Q2

Q1

Q4

Q3

Q2

Revenue

378.6

425.2

359.0

404.2

313.6

322.3

316.1

208.9

Gross earnings (loss)

85.3

81.7

(85.4)

82.2

52.5

34.4

39.3

(12.7)

Profit (loss) before tax

88.9

(0.2)

(147.8)

14.8

(69.6)

0.9

(23.9)

(74.6)

Profit (loss)

63.8

(10.5)

(170.4)

(3.4)

(60.1)

7.4

(24.0)

(51.9)

Adjusted net earnings (loss)1,3

5.2

32.7

0.9

5.4

(16.1)

(16.4)

(25.4)

(39.7)

Earnings (loss) per share:

 

 

 

 

 

 

 

 

Basic and diluted

0.24

(0.04)

(0.65)

(0.01)

(0.23)

0.03

(0.09)

(0.20)

Adjusted net earnings (loss)1,3

per share

0.02

0.13

0.00

0.02

(0.06)

(0.06)

(0.10)

(0.15)

Operating cash flow2

77.1

156.9

103.5

132.8

90.7

86.1

84.4

29.5

Adjusted EBITDA1

110.2

180.3

119.3

143.2

104.2

106.9

96.1

49.1

1 Adjusted net earnings (loss), adjusted net earnings (loss) per share, and adjusted EBITDA are non-IFRS financial performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.

 

2 Operating cash flow before changes in non-cash working capital.

 

3 The adjusted net earnings (loss) and adjusted net earnings (loss) per share in respect of the third quarter of 2021 were adjusted in our management's discussion and analysis of financial results for the year ended December 31, 2021 due to a change in the computed tax effect on certain adjustments. The adjusted net earnings changed from $38.2 million to an adjusted net earnings of $0.9 million and the adjusted net earnings per share changed from $0.15/share to an adjusted net earnings per share of $0.00/share.

Results in the first quarter of 2022 have continued to benefit from a trend of higher realized base metal prices, but have also been impacted by rising operating costs caused by inflation. While we have achieved increased gold production from the higher grade Pampacancha deposit and the higher recovery New Britannia gold mill, we experienced increased levels of COVID-related absenteeism in the workforce, impacting production, and also experienced limited availability of rail cars leading to reduced sales and an inventory build-up. The first quarter results were also impacted by a revaluation gain of $78.2 million pertaining mostly to the environmental obligation on our Flin Flon site and $1.7 million for our non-producing sites in Manitoba caused by an increase in long-term risk-free interest rates.

Results for the fourth quarter of 2021 benefited from higher realized metal prices. This strength in commodity prices combined with higher gold production following the commencement of commercial production at New Britannia and improving copper recoveries led to record revenue of $425.2 million in the fourth quarter of 2021. Adjusted EBITDA and operating cash flow both reached record highs. Notwithstanding these records, continued inflationary pressures along with lower copper grades caused operating costs to climb and put pressure on gross margins, compared to earlier quarters. A revaluation of our environmental obligation for the Flin Flon closure plan resulted in a $46.2 million non-cash charge, which negatively impacted net income for the quarter.

During the third quarter of 2021, increasing base metal prices contributed to strong revenues and operating cash flow. Mining at Pampacancha continued to ramp-up, contributing significantly to gold production during the quarter. As a result of the planned closure of Flin Flon operations in mid-2022 and an updated Flin Flon closure plan, non-cash charges totaling $156.3 million were incurred, which negatively impacted gross profit for the quarter. In Peru, ongoing COVID-19 costs, along with lower copper grades, put pressure on operating costs.

Financial results in the second quarter of 2021 benefited from initial production at the Pampacancha pit but were negatively impacted by higher operating costs in Peru and lower Manitoba metal production caused by COVID-19 related impacts as well as lower copper and zinc grades and lower precious metal recoveries.

The first quarter of 2021 saw lower revenues compared to the fourth quarter of 2020 due to a delayed Peru shipment for which revenue could not be recognized, and lower sales volumes from Manitoba related to a buildup of finished goods inventory during the quarter as a result of a lack of rail car availability. First quarter results were negatively impacted by $75.2 million of various finance expenses related to the refinancing of our senior notes.


We experienced production disruptions during the first half of 2020 due to an eight-week suspension of Constancia operations in Peru from a government declared state of emergency and at the 777 mine during the fourth quarter of 2020 due to a six-week interruption to perform repairs following a skip hoist incident. However, the deferral of production and sales that arose from these disruptions allowed us to benefit from increasing commodity prices. The reduced copper production from Constancia and 777 in 2020 was partially offset by increased production from Lalor. Earnings in the fourth quarter of 2020 were negatively impacted by the 777 production interruption which resulted in $11.7 million in certain overhead costs being expensed. Earnings in the first and second quarter of 2020 were impacted by the temporary suspension of operations at Constancia, which resulted in $31.9 million in certain overhead costs being expensed.

For information on previous trends and quarterly reviews, refer to our MD&A for the year ended December 31, 2021, dated February 23, 2022.


NON-IFRS FINANCIAL PERFORMANCE MEASURES

Adjusted net earnings (loss), adjusted net earnings (loss) per share, adjusted EBITDA, net debt, cash cost, sustaining and all-in sustaining cash cost per pound of copper produced, cash cost and sustaining cash cost per ounce of gold produced and combined unit cost are non-IFRS performance measures. These measures do not have a meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS and are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently.

Management believes adjusted net earnings (loss) and adjusted net earnings (loss) per share provides an alternate measure of the Company's performance for the current period and gives insight into its expected performance in future periods. These measures are used internally by the Company to evaluate the performance of its underlying operations and to assist with its planning and forecasting of future operating results. As such, the Company believes these measures are useful to investors in assessing the Company's underlying performance. We provide adjusted EBITDA to help users analyze our results and to provide additional information about our ongoing cash generating potential in order to assess our capacity to service and repay debt, carry out investments and cover working capital needs. Net debt is shown because it is a performance measure used by the Company to assess our financial position. Cash cost, sustaining and all-in sustaining cash cost per pound of copper produced are shown because we believe they help investors and management assess the performance of our operations, including the margin generated by the operations and the Company. Cash cost and sustaining cash cost per ounce of gold produced are shown because we believe they help investors and management assess the performance of our Manitoba operations. Combined unit cost is shown because we believe it helps investors and management assess our cost structure and margins that are not impacted by variability in by-product commodity prices.

During 2021, there were non-recurring adjustments for Manitoba operations, including severance, past service pension costs, write-downs of certain machinery and equipment, and inventory supplies write-downs as well as non-cash impairment charges related to an updated Flin Flon closure plan and lower long-term discount rates in the fourth quarter, none of which management believes are indicative of ongoing operating performance and have therefore been excluded from the calculations of adjusted net earnings (loss) and adjusted EBITDA.

Cash cost and sustaining cash cost per pound of zinc produced was a previously disclosed non-IFRS measure, most recently published in our MD&A for the year ended December 31, 2021, dated February 23, 2022. With the planned closure of 777 mine and Flin Flon operations, including the zinc plant, in the second quarter of 2022, the production profile of Manitoba has shifted from zinc to gold and therefore we have ceased providing this measure on a go forward basis.

In the first quarter of 2022, we recorded a non-cash gain of $79.9 million mostly related to the quarterly revaluation of our Flin Flon environmental provision, which was impacted by rising long-term risk-free discount rates. With Flin Flon operations closing in June 2022 and given the long-term nature of the reclamation cash flows, quarterly revaluation of the corresponding environmental provision remains highly sensitive to changes in long-term risk-free discount rates and, as such, we expect to continue to experience quarterly environmental provision revaluations, which is not indicative of our ongoing operating performance. This item has been included prospectively in our calculation of adjusted earnings.


Adjusted Net Earnings (Loss)

Adjusted net earnings (loss) represents net earnings (loss) excluding certain impacts, net of taxes, such as mark-to-market adjustments, impairment charges and reversal of impairment charges, write-down of assets, and foreign exchange (gain) loss. These measures are not necessarily indicative of net earnings (loss) or cash flows as determined under IFRS.

The following table provides a reconciliation of earnings (loss) per the consolidated interim income statements, to adjusted net earnings (loss) for the three months ended March 31, 2022 and 2021.

 

Three months ended

(in $ millions)

Mar. 31, 2022

Mar. 31, 2021

Profit (loss) for the period

63.8

(60.1)

Tax expense (recovery)

25.0

(9.5)

Profit (loss) before tax

88.8

(69.6)

Adjusting items:

 

 

Mark-to-market adjustments 1

10.5

40.8

Peru inventory reversal

(0.5)

(0.7)

Variable consideration adjustment - stream revenue and accretion

(5.8)

(1.0)

Foreign exchange loss (gain)

1.5

1.7

Environmental obligation adjustments 2

(79.9)

-

Evaluation expenses

7.0

-

Write-down of unamortized transaction costs

-

2.5

Premium paid on redemption of notes

-

22.9

Restructuring charges - Manitoba 3

0.7

-

Adjusted earnings (loss) before income taxes

22.3

(3.4)

Tax (expense) recovery

(25.0)

9.5

Tax impact of adjusting items

7.9

(22.2)

Adjusted net earnings (loss)

5.2

(16.1)

Adjusted net earnings (loss) ($/share)

0.02

(0.06)

Basic weighted average number of common shares outstanding (millions)

261.7

261.3

1 Includes changes in fair value of the gold prepayment liability, Canadian junior mining investments, other financial assets and liabilities at fair value through profit or loss and share-based compensation expenses.

2 Changes from movements to environmental obligation closure estimates are primarily related to the Flin Flon operations, which were fully depreciated as of March 31, 2022, as well as other Manitoba non-operating sites.

3 Includes closure costs for Flin Flon operations.

After adjusting reported net earnings for those items not considered representative of the Company's core business or indicative of future operations, the Company had an adjusted net earnings in the first quarter of 2022 of $5.2 million or $0.02 earnings per share.


Adjusted EBITDA

Adjusted EBITDA is profit or loss before net finance expense/income, tax expense/recoveries, depreciation and amortization of property, plant and equipment and deferred revenue, as well as certain other adjustments. We calculate adjusted EBITDA by excluding certain adjustments included within our adjusted net earnings measure which we believe reflects the underlying performance of our core operating activities. The measure also removes the impact of non-cash items and financing costs that are not associated with measuring the underlying performance of our operations. However, our adjusted EBITDA is not the measure defined as EBITDA under our senior notes or revolving credit facilities and may not be comparable with performance measures with the same name reported by other companies. Adjusted EBITDA should not be considered as a substitute for profit or loss or as a better measure of liquidity than operating cash flow, which are calculated in accordance with IFRS. We provide adjusted EBITDA to help users analyze our results and to provide additional information about our ongoing cash generating potential in order to assess our capacity to service and repay debt, carry out investments and cover working capital needs.

The following table presents the reconciliation of earnings (loss) per the consolidated interim income statements, to adjusted EBITDA for the three months ended March 31, 2022 and 2021:

 

Three months ended

(in $ millions)

Mar. 31, 2022

Mar. 31, 2021

Profit (loss) for the period

63.8

(60.1)

 

 

 

Add back: Tax expense (recovery)

25.0

(9.5)

Add back: Net finance expense

36.7

108.5

Add back: Other expenses

2.0

1.1

Add back: Evaluation expenses

7.0

-

Add back: Depreciation and amortization

81.1

82.7

Less: Amortization of deferred revenue and variable consideration adjustment

(28.2)

(15.2)

 

187.4

107.5

Adjusting items (pre-tax):

 

 

Environmental obligation adjustments

(79.9)

(4.4)

Peru inventory write down reversal

(0.5)

(0.7)

Share-based compensation expenses 1

3.2

1.8

Adjusted EBITDA

110.2

104.2

1 Share-based compensation expenses reflected in cost of sales and selling and administrative expenses.

Net Debt

The following table presents our calculation of net debt as at March 31, 2022 and December 31, 2021:

 

(in $ thousands)

Mar. 31, 2022

Dec. 31,
2021

Total long-term debt

1,181,119

1,180,274

Cash

(213,359)

(270,989)

Net debt

967,760

909,285



Cash Cost, Sustaining and All-in Sustaining Cash Cost (Copper Basis)

Cash cost per pound of copper produced ("cash cost") is a non-IFRS measure that management uses as a key performance indicator to assess the performance of our operations. Our calculation designates copper as our primary metal of production as it has been the largest component of revenues. The calculation is presented in four manners:

- Cash cost, before by-product credits - This measure is gross of by-product revenues and is a function of the efforts and costs incurred to mine and process all ore mined. However, the measure divides this aggregate cost over only pounds of copper produced, our primary metal of production. This measure is generally less volatile from period to period, as it is not affected by changes in the price received for by-product metals. It is, however, significantly affected by the relative mix of copper concentrate and finished zinc production, where the sale of the zinc will occur later, and an increase in production of zinc metal will tend to result in an increase in cash cost under this measure.

- Cash cost, net of by-product credits - In order to calculate the net cost to produce and sell copper, the net of by-product credits measure subtracts the revenues realized from the sale of the metals other than copper. The by-product revenues from zinc, gold, and silver are significant and are integral to the economics of our operations. The economics that support our decision to produce and sell copper would be different if we did not receive revenues from the other significant metals being extracted and processed. This measure provides management and investors with an indication of the minimum copper price consistent with positive operating margins, assuming realized by-product metal prices are consistent with those prevailing during the reporting period. It also serves as an important operating statistic that management and investors utilize to measure our operating performance versus that of our competitors. However, it is important to understand that if by-product metal prices decline alongside copper prices, the cash cost net of by-product credits would increase, requiring a higher copper price than that reported to maintain positive cash flows and operating margins.

- Sustaining cash cost, net of by-product credits - This measure is an extension of cash cost that includes cash sustaining capital expenditures, including payments on capitalized leases, capitalized sustaining exploration, net smelter returns royalties, payments on certain long-term community agreements, as well as accretion and amortization for expected decommissioning activities for producing assets. It does not include corporate selling and administrative expenses. It provides a more fulsome measurement of the cost of sustaining production than cash cost, which is focused on operating costs only.

- All-in sustaining cash cost, net of by-product credits - This measure is an extension of sustaining cash cost that includes corporate G&A, regional costs, accretion and amortization for community agreements relating to current operations, and accretion for expected decommissioning activities for non-producing assets. Due to the inclusion of corporate selling and administrative expenses, all-in sustaining cash cost is presented on a consolidated basis only.

The tables below present a detailed build-up of cash cost and sustaining cash cost, net of by-product credits, by business unit in addition to consolidated all-in sustaining cash cost, net of by-product credits, and reconciliations between cash cost, net of by-product credits, to the most comparable IFRS measures of cost of sales for the three months ended March 31, 2022 and 2021. Cash cost, net of by-product credits may not calculate exactly based on amounts presented in the tables below due to rounding.

Consolidated

Three months ended

Net pounds of copper produced

 

(in thousands)

Mar. 31, 2022

Mar. 31, 2021

Peru

42,254

39,302

Manitoba

12,205

14,828

Net pounds of copper produced

54,459

54,130




Consolidated

Three months ended

 

Mar. 31, 2022

Mar. 31, 2021

Cash cost per pound of copper produced

$000s

$/lb

$000s

$/lb

Cash cost, before by-product credits

242,058

4.45

209,866

3.88

By-product credits

(181,673)

(3.34)

(153,515)

(2.84)

Cash cost, net of by-product credits

60,385

1.11

56,351

1.04


Consolidated

Three months ended

 

Mar. 31, 2022

Mar. 31, 2021

Supplementary cash cost information

$000s

$/lb 1

$000s

$/lb 1

By-product credits2:

 

 

 

 

Zinc

67,129

1.23

82,315

1.52

Gold 3

84,174

1.55

45,134

0.83

Silver 3

18,639

0.34

15,135

0.28

Molybdenum & other

11,731

0.22

10,931

0.20

Total by-product credits

181,673

3.34

153,515

2.84

Reconciliation to IFRS:

 

 

 

 

Cash cost, net of by-product credits

60,385

 

56,351

 

By-product credits

181,673

 

153,515

 

Treatment and refining charges

(12,083)

 

(11,936)

 

Inventory adjustments

(461)

 

(723)

 

Share-based compensation expense

448

 

184

 

Change in product inventory

(20,920)

 

(22,864)

 

Royalties

3,218

 

3,903

 

Depreciation and amortization4

81,091

 

82,682

 

Cost of sales5

293,351

 

261,112

 

1 Per pound of copper produced.

2 By-product credits are computed as revenue per financial statements, including amortization of deferred revenue and pricing and volume adjustments. For more information, please see the realized price reconciliation table on page 25 for these figures.

3 Gold and silver by-product credits do not include variable consideration adjustments with respect to stream arrangements. Variable consideration adjustments are cumulative adjustments to gold and silver stream deferred revenue primarily associated with the net change in mineral reserves and resources or amendments to the mine plan that would change the total expected deliverable ounces under the precious metal streaming arrangement. For the three months ended March 31, 2022 the variable consideration adjustments amounted to income of $3,245. For the three months ended March 31, 2021 - income of $1,617.

4 Depreciation is based on concentrate sold.

5 As per IFRS financial statements.


Peru

Three months ended

(in thousands)

Mar. 31, 2022

Mar. 31, 2021

Net pounds of copper produced1

42,254

39,302

1 Contained copper in concentrate.




Peru

Three months ended

 

Mar. 31, 2022

Mar. 31, 2021

Cash cost per pound of copper produced

$000s

$/lb

$000s

$/lb

Mining

28,402

0.67

21,539

0.55

Milling

47,655

1.13

43,320

1.10

G&A

16,100

0.38

14,420

0.37

Onsite costs

92,157

2.18

79,279

2.02

Treatment & refining

7,585

0.18

6,614

0.17

Freight & other

9,477

0.22

8,688

0.22

Cash cost, before by-product credits

109,219

2.58

94,581

2.41

By-product credits

(43,997)

(1.04)

(22,864)

(0.58)

Cash cost, net of by-product credits

65,222

1.54

71,717

1.82


Peru

Three months ended

 

Mar. 31, 2022

Mar. 31, 2021

Supplementary cash cost information

$000s

$/lb 1

$000s

$/lb 1

By-product credits2:

 

 

 

 

Gold3

21,712

0.51

4,155

0.11

Silver3

12,991

0.31

9,337

0.24

Molybdenum

9,294

0.22

9,372

0.24

Total by-product credits

43,997

1.04

22,864

0.58

Reconciliation to IFRS:

 

 

 

 

Cash cost, net of by-product credits

65,222

 

71,717

 

By-product credits

43,997

 

22,864

 

Treatment and refining charges

(7,585)

 

(6,614)

 

Inventory adjustments

(461)

 

(723)

 

Share-based compensation expenses

98

 

19

 

Change in product inventory

(4,772)

 

(10,575)

 

Royalties

854

 

1,165

 

Depreciation and amortization4

48,362

 

40,435

 

Cost of sales5

145,715

 

118,288

 

1 Per pound of copper produced.

2 By-product credits are computed as revenue per financial statements, including amortization of deferred revenue and pricing and volume adjustments. For more information, please see the realized price reconciliation table on page 25.

3 Gold and silver by-product credits do not include variable consideration adjustments with respect to stream arrangements.

4 Depreciation is based on concentrate sold.

5 As per IFRS financial statements.




Manitoba

Three months ended

(in thousands)

Mar. 31, 2022

Mar. 31, 2021

Net pounds of copper produced1

12,205

14,828

1 Contained copper in concentrate.


Manitoba

Three months ended

 

Mar. 31, 2022

Mar. 31, 2021

Cash cost per pound of copper produced

$000s

$/lb

$000s

$/lb

Mining

59,433

4.87

54,420

3.67

Milling

21,509

1.76

12,662

0.85

Refining (zinc)

18,376

1.51

19,607

1.32

G&A

22,893

1.88

15,787

1.06

Onsite costs

122,211

10.01

102,476

6.91

Treatment & refining

4,498

0.37

5,322

0.36

Freight & other

6,130

0.50

7,487

0.50

Cash cost, before by-product credits

132,839

10.88

115,285

7.77

By-product credits

(137,676)

(11.28)

(130,651)

(8.81)

Cash cost, net of by-product credits

(4,837)

(0.40)

(15,366)

(1.04)


Manitoba

Three months ended

 

Mar. 31, 2022

Mar. 31, 2021

Supplementary cash cost information

$000s

$/lb 1

$000s

$/lb 1

By-product credits2:

 

 

 

 

Zinc

67,129

5.50

82,315

5.55

Gold3

62,462

5.12

40,979

2.76

Silver3

5,648

0.46

5,798

0.39

Other

2,437

0.20

1,559

0.11

Total by-product credits

137,676

11.28

130,651

8.81

Reconciliation to IFRS:

 

 

 

 

Cash cost, net of by-product credits

(4,837)

 

(15,366)

 

By-product credits

137,676

 

130,651

 

Treatment and refining charges

(4,498)

 

(5,322)

 

Share-based compensation expenses

350

 

165

 

Change in product inventory

(16,148)

 

(12,289)

 

Royalties

2,364

 

2,738

 

Depreciation and amortization4

32,729

 

42,247

 

Cost of sales5

147,636

 

142,824

 

1 Per pound of copper produced.

2 By-product credits are computed as revenue per financial statements, including amortization of deferred revenue and pricing and volume adjustments. For more information, please see the realized price reconciliation table on page 25.

3 Gold and silver by-product credits do not include variable consideration adjustments with respect to stream arrangements.

4 Depreciation is based on concentrate sold.

5 As per IFRS financial statements.




Consolidated

Three months ended

 

Mar. 31, 2022

Mar. 31, 2021

All-in sustaining cash cost per pound of copper produced

$000s

$/lb

$000s

$/lb

Cash cost, net of by-product credits

60,385

1.11

56,351

1.04

Cash sustaining capital expenditures

60,963

1.12

56,456

1.04

Royalties

3,218

0.06

3,903

0.07

Sustaining cash cost, net of by-product credits

124,566

2.29

116,710

2.16

Corporate selling and administrative expenses & regional costs

13,060

0.24

10,765

0.20

Accretion and amortization of decommissioning and community agreements1

721

0.01

579

0.01

All-in sustaining cash cost, net of by-product credits

138,347

2.54

128,054

2.37

Reconciliation to property, plant and equipment additions:

 

 

 

 

Property, plant and equipment additions

39,399

 

82,378

 

Capitalized stripping net additions

24,146

 

18,625

 

Total accrued capital additions

63,545

 

101,003

 

Less other non-sustaining capital costs2

12,832

 

67,159

 

Total sustaining capital costs

50,713

 

33,844

 

Right of use leased assets

(7,772)

 

(1,321)

 

Capitalized lease cash payments - operating sites

9,259

 

9,188

 

Community agreement cash payments

3,772

 

235

 

Accretion and amortization of decommissioning and restoration obligations

4,991

 

14,510

 

Cash sustaining capital expenditures

60,963

 

56,456

 

1 Includes accretion of decommissioning relating to non-productive sites, and accretion and amortization of current community agreements.

2 Other non-sustaining capital costs include Arizona capitalized costs, capitalized interest, capitalized exploration, and growth capital expenditures.


Peru

Three months ended

 

Mar. 31, 2022

Mar. 31, 2021

Sustaining cash cost per pound of copper produced

$000s

$/lb

$000s

$/lb

Cash cost, net of by-product credits

65,222

1.54

71,717

1.82

Cash sustaining capital expenditures

30,039

0.71

19,802

0.50

Royalties

854

0.02

1,165

0.03

Sustaining cash cost per pound of copper produced

96,115

2.27

92,684

2.36

1 Only includes exploration costs incurred for locations near to existing mine operations.


Manitoba

Three months ended

 

Mar. 31, 2022

Mar. 31, 2021

Sustaining cash cost per pound of copper produced

$000s

$/lb

$000s

$/lb

Cash cost, net of by-product credits

(4,837)

(0.40)

(15,366)

(1.04)

Cash sustaining capital expenditures

30,924

2.53

36,654

2.47

Royalties

2,364

0.19

2,738

0.18

Sustaining cash cost per pound of copper produced

28,451

2.33

24,026

1.62



Gold Cash Cost and Gold Sustaining Cash Cost

Cash cost per ounce of gold produced ("gold cash cost") is a non-IFRS measure that management uses as a key performance indicator to assess the performance of our Manitoba operations. This alternative cash cost calculation designates gold as the primary metal of production as it represents a substantial component of revenues for our Manitoba business unit and should therefore be less volatile over time than Manitoba cash cost per pound of copper. The calculation is presented in three manners:

- Gold cash cost, before by-product credits - This measure is gross of by-product revenues and is a function of the efforts and costs incurred to mine and process all ore mined. However, the measure divides this aggregate cost over only ounces of gold produced, the assumed primary metal of production. This measure is generally less volatile from period to period, as it is not affected by changes in the price received for by-product metals.

- Gold cash cost, net of by-product credits - In order to calculate the net cost to produce and sell gold, the net of by-product credits measure subtracts the revenues realized from the sale of the metals other than gold. The by-product revenues from copper, zinc, and silver are significant and are integral to the economics of our Manitoba operation. The economics that support our decision to produce and sell gold would be different if we did not receive revenues from the other significant metals being extracted and processed. This measure provides management and investors with an indication of the minimum gold price consistent with positive operating margins, assuming realized by-product metal prices are consistent with those prevailing during the reporting period. It also serves as an important operating statistic that management and investors utilize to measure our operating performance at our Manitoba operation versus that of our competitors. However, it is important to understand that if by-product metal prices decline alongside gold prices, the gold cash cost net of by-product credits would increase, requiring a higher gold price than that reported to maintain positive cash flows and operating margins.

- Gold sustaining cash cost, net of by-product credits - This measure is an extension of gold cash cost that includes cash sustaining capital expenditures, capitalized exploration, net smelter returns royalties, as well as accretion and amortization for expected decommissioning activities for producing assets. It does not include corporate selling and administrative expenses. It provides a more fulsome measurement of the cost of sustaining production than gold cash cost, which is focused on operating costs only.

The tables below present a detailed build-up of gold cash cost and gold sustaining cash cost, net of by-product credits, for the Manitoba business unit, and reconciliations between gold cash cost, net of by-product credits, to the most comparable IFRS measures of cost of sales for the three months ended March 31, 2022. The introduction of gold cash cost was made in 2022, as gold replaced zinc as the major output within Manitoba's production profile. No comparatives have been disclosed for this metric as Manitoba gold production in 2021 was not considered meaningful. Gold cash cost, net of by-product credits, may not calculate exactly based on amounts presented in the tables below due to rounding.

Manitoba

Three months ended

(in thousands)

Mar. 31, 2022

Net ounces of gold produced

43,167


Manitoba

Three months ended

 

Mar. 31, 2022

Cash cost per ounce of gold produced

$000s

$/oz

Cash cost, before by-product credits1

132,839

3,077

By-product credits

(114,874)

(2,661)

Gold cash cost, net of by-product credits

17,965

416

1 For additional detail on cash cost, before by-product credits please see page 45 of this MD&A.




Manitoba

Three months ended

 

Mar. 31, 2022

Supplementary cash cost information

$000s

$/oz 1

By-product credits2:

 

 

Copper

39,660

919

Zinc

67,129

1,555

Silver3

5,648

131

Other

2,437

56

Total by-product credits

114,874

2,661

Reconciliation to IFRS:

 

 

Cash cost, net of by-product credits

17,965

 

By-product credits

114,874

 

Treatment and refining charges

(4,498)

 

Share-based compensation expenses

350

 

Change in product inventory

(16,148)

 

Royalties

2,364

 

Depreciation and amortization4

32,729

 

Cost of sales5

147,636

 

1 Per ounce of gold produced.

2 By-product credits are computed as revenue per financial statements, amortization of deferred revenue and pricing and volume adjustments. For more information, please see the realized price reconciliation table on page 25.

3 Silver by-product credits do not include variable consideration adjustments with respect to stream arrangements.

4 Depreciation is based on concentrate sold.

5 As per IFRS financial statements.


Manitoba

Three months ended

 

Mar. 31, 2022

Sustaining cash cost per ounce of gold produced

$000s

$/oz

Gold cash cost, net of by-product credits

17,965

416

Cash sustaining capital expenditures

30,924

716

Royalties

2,364

55

Sustaining cash cost per ounce of gold produced

51,253

1,187



Combined Unit Cost and Zinc Plant Unit Cost Reconciliation

Combined unit cost ("unit cost") and zinc plant unit cost is a non-IFRS measure that management uses as a key performance indicator to assess the performance of our mining and milling operations. Combined unit cost and zinc plant unit cost are calculated by dividing the cost of sales by mill throughput and refined zinc metal produced, respectively. This measure is utilized by management and investors to assess our cost structure and margins and compare it to similar information provided by other companies in our industry. Unlike cash cost, this measure is not impacted by variability in by-product commodity prices since there are no by-product deductions; costs associated with profit-sharing and similar costs are excluded because of their correlation to external metal prices. In addition, the unit costs are reported in the functional currency of the operation which minimizes the impact of foreign currency fluctuations. In all, the unit cost measures provide an alternative perspective on operating cost performance with minimal impact from external market prices.

The tables below present a detailed combined unit cost and zinc plant unit costs for the Manitoba business unit and combined unit cost for the Peru business unit, and reconciliations between these measures to the most comparable IFRS measures of cost of sales for the three months ended March 31, 2022 and 2021.

Peru

Three months ended

(in thousands except unit cost per tonne)

Mar. 31, 2022

Mar. 31, 2021

Combined unit cost per tonne processed

Mining

28,402

21,539

Milling

47,655

43,320

G&A 1

16,100

14,420

Other G&A 2

(571)

19

 

91,586

79,298

Less COVID-19 related costs

2,321

4,601

Unit cost

89,265

74,697

Tonnes ore milled

7,214

6,363

Combined unit cost per tonne

12.37

11.74

Reconciliation to IFRS:

 

 

Unit cost

89,265

74,697

Freight & other

9,477

8,688

COVID-19 related costs

2,321

4,601

Other G&A

571

(19)

Share-based compensation expenses

98

19

Inventory adjustments

(461)

(723)

Change in product inventory

(4,772)

(10,575)

Royalties

854

1,165

Depreciation and amortization

48,362

40,435

Cost of sales3

145,715

118,288

1 G&A as per cash cost reconciliation above.

2 Other G&A primarily includes profit sharing costs.

3 As per IFRS financial statements.




Manitoba

Three months ended

(in thousands except tonnes ore milled and unit cost per tonne)

Mar. 31, 2022

Mar. 31, 2021

Combined unit cost per tonne processed

Mining

59,433

54,420

Milling

21,509

12,662

G&A 1

22,893

15,787

Less: G&A allocated to zinc metal production and other areas

(13,407)

(5,997)

Unit cost

90,428

76,872

USD/CAD implicit exchange rate

1.27

1.27

Unit cost - C$

114,504

97,341

Tonnes ore milled

651,333

644,730

Combined unit cost per tonne - C$

176

151

Reconciliation to IFRS:

 

 

Unit cost

90,428

76,872

Freight & other

6,130

7,487

Refined (zinc)

18,376

19,607

G&A allocated to zinc metal production

13,407

5,997

Share-based compensation expenses

350

165

Change in product inventory

(16,148)

(12,289)

Royalties

2,364

2,738

Depreciation and amortization

32,729

42,247

Cost of sales2

147,636

142,824

1 G&A as per cash cost reconciliation above.

2 As per IFRS financial statements.




Manitoba

Three months ended

(in thousands except zinc plant unit cost per pound)

Mar. 31, 2022

Mar. 31, 2021

Zinc plant unit cost

 

 

 

Zinc plant costs

18,376

19,607

G&A 1

22,893

15,787

Less: G&A allocated to other areas

(19,511)

(11,969)

Zinc plant unit cost

21,758

23,425

 

 

 

USD/CAD implicit exchange rate

1.27

1.27

Zinc plant unit cost - C$

27,551

29,663

Refined metal produced (in pounds)

44,231

58,440

Zinc plant unit cost per pound - C$

0.62

0.51

 

 

 

Reconciliation to IFRS:

 

 

Zinc plant unit cost

21,758

23,425

Freight & other

6,130

7,487

Mining

59,433

54,420

Milling

21,509

12,662

G&A allocated to other areas

19,511

11,969

Share-based payment

350

165

Change in product inventory

(16,148)

(12,289)

Royalties

2,364

2,738

Depreciation and amortization

32,729

42,247

Cost of sales2

147,636

142,824

1 G&A as per cash cost reconciliation above.

2 As per IFRS financial statements.

ACCOUNTING CHANGES AND CRITICAL ESTIMATES

New standards and interpretations not yet adopted

For information on new standards and interpretations not yet adopted, refer to note 4 of our March 31, 2022 consolidated interim financial statements.

Estimates and judgements

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

We review these estimates and underlying assumptions on an ongoing basis based on our experience and other factors, including expectations of future events that we believe to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Certain accounting estimates and judgements have been identified as being "critical" to the presentation of our financial condition and results of operations because they require us to make subjective and/or complex judgments about matters that are inherently uncertain; or there is a reasonable likelihood that materially different amounts could be reported under different conditions or using different assumptions and estimates.


For more information on judgements and estimates, refer to note 2 of our March 31, 2022 consolidated interim financial statements.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting ("ICFR"). ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.

We did not make any changes to ICFR during the three months ended March 31, 2022 that materially affected or are reasonably likely to materially affect our ICFR.

NOTES TO READER

Forward-Looking Information

This MD&A contains forward-looking information within the meaning of applicable Canadian and United States securities legislation. All information contained in this MD&A, other than statements of current and historical fact, is forward-looking information. Often, but not always, forward-looking information can be identified by the use of words such as "plans", "expects", "budget", "guidance", "scheduled", "estimates", "forecasts", "strategy", "target", "intends", "objective", "goal", "understands", "anticipates" and "believes" (and variations of these or similar words) and statements that certain actions, events or results "may", "could", "would", "should", "might" "occur" or "be achieved" or "will be taken" (and variations of these or similar expressions). All of the forward-looking information in this MD&A is qualified by this cautionary note.

Forward-looking information includes, but is not limited to, production, cost and capital and exploration expenditure guidance, expectations regarding the impact of COVID-19 and inflationary pressures on the cost of operations, financial condition and prospects, expectations regarding our cash balance and liquidity for the remainder of the year, expectations regarding future railcar availability and selling down excess inventory, expectations regarding the preliminary economic assessment of the Copper World project, including the timeline for completion, positive results and a potential alternative development plan for Rosemont, expectations regarding the litigation that has been commenced against Copper World and ongoing litigation in respect of Rosemont, expectations regarding the permitting requirements for Copper World, expectations regarding the Snow Lake gold strategy, including anticipated timelines for achieving target throughput and recoveries at the New Britannia mill, increasing the mining rate at Lalor to 5,300 tonnes per day and implementing the Stall mill recovery improvement program, expectations regarding the Flin Flon closure process and the transition of personnel and equipment to Snow Lake, expectations regarding the potential to reprocess Flin Flon tailings in the future and the possible benefits of such a project, the potential and our anticipated plans for advancing our mining properties surrounding Constancia and elsewhere in Peru, anticipated mine plans, anticipated metals prices and the anticipated sensitivity of our financial performance to metals prices, events that may affect our operations and development projects, anticipated cash flows from operations and related liquidity requirements, the anticipated effect of external factors on revenue, such as commodity prices, estimation of mineral reserves and resources, mine life projections, reclamation costs, economic outlook, government regulation of mining operations, and business and acquisition strategies. Forward-looking information is not, and cannot be, a guarantee of future results or events. Forward-looking information is based on, among other things, opinions, assumptions, estimates and analyses that, while considered reasonable by us at the date the forward-looking information is provided, inherently are subject to significant risks, uncertainties, contingencies and other factors that may cause actual results and events to be materially different from those expressed or implied by the forward-looking information.

The material factors or assumptions that we identified and were applied by us in drawing conclusions or making forecasts or projections set out in the forward-looking information include, but are not limited to:

- our ability to continue to operate safely and at full capacity despite COVID-19 related challenges;

- the availability, global supply and effectiveness of COVID-19 vaccines, the effective distribution of such vaccines in the countries in which we operate, the lessening of restrictions related to COVID-19, and the anticipated rate and timing for each of the foregoing;

- the ability to achieve production and cost guidance;


- no significant interruptions to our operations due to COVID-19 or social or political unrest in the regions Hudbay operates;

- a positive preliminary economic assessment in respect of Copper World;

- the successful outcome of the Copper World and Rosemont litigation proceedings;

- the ability to ramp-up the New Britannia mill to target throughput and recoveries and achieve the anticipated production;

- the economic prospects of reprocessing Flin Flon tailings;

- the success of mining, processing, exploration and development activities;

- the scheduled maintenance and availability of our processing facilities;

- the accuracy of geological, mining and metallurgical estimates;

- anticipated metals prices and the costs of production;

- the supply and demand for metals we produce;

- the supply and availability of all forms of energy and fuels at reasonable prices;

- no significant unanticipated operational or technical difficulties;

- the execution of our business and growth strategies, including the success of our strategic investments and initiatives;

- the availability of additional financing, if needed;

- the ability to complete project targets on time and on budget and other events that may affect our ability to develop our projects;

- the timing and receipt of various regulatory and governmental approvals;

- the availability of personnel for our exploration, development and operational projects and ongoing employee relations;

- maintaining good relations with the labour unions that represent certain of our employees in Manitoba and Peru;

- maintaining good relations with the communities in which we operate, including the neighbouring Indigenous communities and local governments;

- no significant unanticipated challenges with stakeholders at our various projects;

- no significant unanticipated events or changes relating to regulatory, environmental, health and safety matters;

- no contests over title to our properties, including as a result of rights or claimed rights of Indigenous peoples or challenges to the validity of our unpatented mining claims;

- the timing and possible outcome of pending litigation and no significant unanticipated litigation;

- certain tax matters, including, but not limited to current tax laws and regulations, changes in taxation policies and the refund of certain value added taxes from the Canadian and Peruvian governments; and

- no significant and continuing adverse changes in general economic conditions or conditions in the financial markets (including commodity prices and foreign exchange rates).

The risks, uncertainties, contingencies and other factors that may cause actual results to differ materially from those expressed or implied by the forward-looking information may include, but are not limited to, risks associated with COVID-19 and its effect on our operations, financial condition, projects and prospects, uncertainties related to the closure of the 777 mine and the Flin Flon operations, the direct and indirect impacts of the change in government in Peru, future uncertainty with respect to the Peruvian mining tax regime and social unrest in Peru, risks generally associated with the mining industry and the current geopolitical environment, including future commodity prices, currency and interest rate fluctuations, energy and consumable prices, supply chain constraints and general cost escalation in the current inflationary environment, uncertainties related to the development and operation of our projects, risks related to the preliminary economic assessment of Copper World, including its effect on the current Rosemont mineral reserves and the potential for it to trigger an indicator of impairment or impairment reversal with respect to Rosemont, risks related to the ongoing Copper World and Rosemont litigation processes and other legal challenges that could affect the permitting timeline for Copper World or Rosemont, risks related to the new Lalor mine plan, including the continuing ramp-up of the New Britannia mill and the ability to convert inferred mineral resource estimates to higher confidence categories, risks related to the technical and economic prospects of reprocessing Flin Flon tailings, the potential that additional financial assurance will be required to support the updated Flin Flon closure plan, dependence on key personnel and employee and union relations, risks related to political or social instability, unrest or change, risks in respect of Indigenous and community relations, rights and title claims, operational risks and hazards, including the cost of maintaining and upgrading the Company's tailings management facilities and any unanticipated environmental, industrial and geological events and developments and the inability to insure against all risks, failure of plant, equipment, processes, transportation and other infrastructure to operate as anticipated, compliance with government and environmental regulations, including permitting requirements and anti-bribery legislation, depletion of our reserves, volatile financial markets and interest rates that may affect our ability to obtain additional financing on acceptable terms, the failure to obtain required approvals or clearances from government authorities on a timely basis, uncertainties related to the geology, continuity, grade and estimates of mineral reserves and resources, and the potential for variations in grade and recovery rates, uncertain costs of reclamation activities, our ability to comply with our pension and other post-retirement obligations, our ability to abide by the covenants in our debt instruments and other material contracts, tax refunds, hedging transactions, as well as the risks discussed under the heading "Financial Risk Management" in this MD&A and under the heading "Risk Factors" in our most recent Annual Information Form.


Should one or more risk, uncertainty, contingency or other factor materialize or should any factor or assumption prove incorrect, actual results could vary materially from those expressed or implied in the forward-looking information. Accordingly, you should not place undue reliance on forward-looking information. We do not assume any obligation to update or revise any forward-looking information after the date of this MD&A or to explain any material difference between subsequent actual events and any forward-looking information, except as required by applicable law.

Note to United States Investors

This MD&A has been prepared in accordance with the requirements of the securities laws in effect in Canada, which may differ materially from the requirements of United States securities laws applicable to U.S. issuers.

Qualified Person and NI 43-101

The technical and scientific information in this MD&A related to our material mineral projects has been approved by Olivier Tavchandjian, P. Geo, our Vice President, Exploration and Technical Services. Mr. Tavchandjian is a qualified person pursuant to NI 43-101. For a description of the key assumptions, parameters and methods used to estimate mineral reserves and resources at Hudbay's material properties, as well as data verification procedures and a general discussion of the extent to which the estimates of scientific and technical information may be affected by any known environmental, permitting, legal title, taxation, sociopolitical, marketing or other relevant factors, please see the technical reports for our material properties as filed by us on SEDAR at www.sedar.com.


SUMMARY OF RESULTS

The following unaudited tables set out a summary of quarterly and annual results for the Company.

 

Q1 2022

2021 4

Q4 2021

Q3 20215

Q2 2021

Q1 2021

2020 4

Q4 2020

Q3 2020

Q2 2020

Q1 2020

Consolidated Financial Condition ($000s)

 

 

 

 

 

 

 

 

Cash

$213,359

$270,989

$270,989

$297,451

$294,287

$310,564

$439,135

$439,135

$449,014

$391,136

$305,997

Total long-term debt

1,181,119

1,180,274

1,180,274

1,182,612

1,181,195

1,180,798

1,135,675

1,135,675

1,175,104

988,418

988,074

Net debt1

967,760

909,285

909,285

885,161

886,908

870,234

696,540

696,540

726,090

597,282

682,077

Consolidated Financial Performance ($000s except per share amounts)

 

 

 

 

 

 

Revenue

$378,619

$1,501,998

$425,170

$358,961

$404,242

$313,624

$1,092,418

$322,290

$316,108

$208,913

$245,105

Cost of sales

293,351

1,370,979

343,426

444,379

322,060

261,112

1,053,418

287,923

276,830

221,567

267,096

Earnings (loss) before tax

88,861

(202,751)

(149)

(147,830)

14,819

(69,592)

(179,089)

911

(23,944)

(74,604)

(81,452)

Earnings (loss)

63,815

(244,358)

(10,453)

(170,411)

(3,395)

(60,102)

(144,584)

7,406

(23,955)

(51,901)

(76,134)

Basic and diluted (loss) earnings

$0.24

$(0.93)

$(0.04)

$(0.65)

$(0.01)

$(0.23)

$(0.55)

$0.03

$(0.09)

$(0.20)

$(0.29)

Adjusted earnings (loss) per share 1

$0.02

$0.09

$0.13

$-

$0.02

$(0.06)

$(0.46)

$(0.06)

$(0.10)

$(0.15)

$(0.15)

Operating cash flow before change in non-cash working capital 1

77,053

483,862

156,917

103,509

132,786

90,656

241,863

86,071

84,383

29,457

41,951

Adjusted EBITDA (in $ millions) 1

110.2

547.1

180.3

119.3

143.2

104.2

306.7

106.9

96.1

49.1

55.0

Consolidated Operational Performance

 

 

 

 

 

 

 

Contained metal in concentrate and doré produced 2

 

 

 

 

 

 

 

 

Copper

24,702

99,470

28,198

23,245

23,474

24,553

95,333

27,278

25,395

18,026

24,635

Gold

53,956

193,783

64,159

54,276

39,848

35,500

124,622

32,376

29,277

32,614

30,355

Silver

784,357

3,045,481

899,713

763,177

685,916

696,673

2,750,873

730,679

671,685

580,817

767,692

Zinc

22,252

93,529

23,207

20,844

21,538

27,940

118,130

25,843

30,570

31,222

30,495

Molybdenum

207

1,146

275

282

295

294

1,204

333

392

124

354

Payable metal in concentrate and doré sold

Copper

20,609

92,200

24,959

21,136

25,176

20,929

88,888

22,963

25,903

15,951

24,072

Gold

48,343

168,358

56,927

47,843

38,205

25,383

122,949

35,179

30,605

30,590

26,574

Silver

864,591

2,427,508

638,640

701,601

577,507

509,760

2,585,586

762,384

705,495

541,785

575,922

Zinc 3

17,306

96,435

21,112

21,619

25,361

28,343

109,347

28,431

26,520

27,604

26,792

Molybdenum

213

1,098

245

304

265

284

1,321

457

313

120

431

Cash cost 1

$1.11

$0.74

$0.51

$0.62

$0.84

$1.04

$0.60

$0.43

$0.65

$0.29

$0.98

Sustaining cash cost

$2.29

$2.07

$1.95

$1.97

$2.25

$2.16

$1.93

$1.97

$2.02

$1.59

$2.05

All-in sustaining cash cost 1

$2.54

$2.30

$2.20

$2.18

$2.48

$2.37

$2.16

$2.24

$2.25

$1.91

$2.17

1Net debt, adjusted earnings (loss) per share, adjusted EBITDA, cash cost, sustaining cash cost and all-in sustaining cash cost per pound of copper produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.

2 Metal reported in concentrate is prior to deductions associated with smelter contract terms.

3 Includes refined zinc metal sold.

4 Annual consolidated results may not calculate based on amounts presented in this table due to rounding.


5 The Q3 2021 adjusted net earnings (loss) and adjusted net earnings (loss) per share have been adjusted for changes made in the computation of tax impacts on certain adjusting items. The adjusted net earnings per share changed from $ 0.15/share to adjusted net earnings of $0.00/share. See the "Trend Analysis and Quarterly Review" section of this MD&A for further details.

 

 

Q1 2022

2021 5

Q4 2021

Q3 2021

Q2 2021

Q1 2021

2020 5

Q4 2020

Q3 2020

Q2 2020

Q1 2020

Peru Operations

 

 

 

 

 

 

 

 

 

 

 

 

Constancia ore mined1

tonnes

6,908,151

29,714,327

7,742,469

6,208,019

8,016,373

7,747,466

27,529,950

9,313,784

8,455,668

2,775,286

6,985,212

Copper

%

0.32

0.31

0.33

0.30

0.30

0.30

0.32

0.31

0.31

0.34

0.34

Gold

g/tonne

0.04

0.04

0.04

0.04

0.04

0.04

0.03

0.03

0.03

0.04

0.03

Silver

g/tonne

3.22

2.88

2.81

2.76

3.02

2.90

2.75

2.61

2.55

2.90

3.10

Molybdenum

%

0.01

0.01

0.01

0.01

0.01

0.01

0.02

0.01

0.02

0.02

0.02

Pampacancha ore mined1

tonnes

847,306

5,141,001

2,107,196

2,050,813

982,992

-

-

-

-

-

-

Copper

%

0.27

0.27

0.27

0.27

0.26

-

-

-

-

-

-

Gold

g/tonne

0.43

0.30

0.34

0.27

0.27

-

-

-

-

-

-

Silver

g/tonne

4.06

4.02

4.26

3.58

4.43

-

-

-

-

-

-

Molybdenum

%

0.01

0.01

0.01

0.01

0.01

-

-

-

-

-

-

Ore milled

tonnes

7,213,833

28,809,755

8,048,925

6,985,035

7,413,043

6,362,752

26,297,318

7,741,714

7,480,655

4,355,482

6,719,466

Copper

%

0.31

0.32

0.33

0.30

0.31

0.33

0.34

0.33

0.33

0.34

0.34

Gold

g/tonne

0.08

0.08

0.11

0.11

0.07

0.04

0.03

0.03

0.03

0.04

0.03

Silver

g/tonne

3.26

3.35

3.67

3.93

2.88

2.84

2.87

2.74

2.68

3.04

3.13

Molybdenum

%

0.01

0.01

0.01

0.01

0.01

0.01

0.02

0.02

0.02

0.01

0.02

Copper recovery

%

85.3

84.6

86.0

84.9

83.3

84.1

83.0

85.3

83.3

76.6

84.3

Gold recovery

%

59.8

64.6

63.6

71.9

62.2

52.0

49.8

52.7

51.6

43.4

50.2

Silver recovery

%

66.9

63.7

60.8

59.1

68.2

69.9

66.9

70.1

66.7

59.6

68.2

Molybdenum recovery

%

21.1

31.5

26.7

33.5

33.3

33.4

29.4

28.4

30.4

19.9

35.0

Contained metal in concentrate

 

 

 

 

 

 

 

 

 

 

 

 

Copper

tonnes

19,166

77,813

22,856

18,072

19,058

17,827

73,150

21,554

20,803

11,504

19,290

Gold

ounces

10,789

50,306

17,917

17,531

10,220

4,638

12,395

3,689

3,333

2,311

3,062

Silver

ounces

505,568

1,972,949

578,140

521,036

468,057

405,714

1,622,972

477,775

430,208

253,687

461,302

Molybdenum

tonnes

207

1,146

275

282

295

294

1,204

333

392

124

354

Payable metal sold

 

 

 

 

 

 

 

 

 

 

 

 

Copper

tonnes

16,825

71,398

20,551

16,065

19,946

14,836

68,506

18,583

21,654

9,023

19,247

Gold

ounces

14,452

41,807

16,304

16,902

5,638

2,963

10,986

3,297

3,753

1,317

2,618

Silver

ounces

636,133

1,490,651

380,712

457,263

315,064

337,612

1,518,548

480,843

433,595

242,519

361,591

Molybdenum

tonnes

213

1,098

245

304

265

284

1,321

457

313

120

431

Peru combined unit operating cost 2,3,4

$/tonne

$12.37

$10.70

$9.96

$10.93

$10.40

$11.74

$9.46

$10.17

$9.85

$7.77

$9.31

Peru cash cost3

$/lb

$1.54

$1.54

$1.28

$1.26

$1.85

$1.82

$1.45

$1.47

$1.54

$1.31

$1.42

Peru sustaining cash cost3

$/lb

$2.27

$2.46

$2.46

$2.31

$2.69

$2.36

$2.20

$2.58

$2.29

$1.84

$1.91

1 Reported tonnes and grade for ore mined are estimates based on mine plan assumptions and may not fully reconcile to ore milled.

2 Reflects combined mine, mill and general and administrative ("G&A") costs per tonne of ore milled. Reflects the deduction of expected capitalized stripping costs.

3 Combined unit costs, cash cost, and sustaining cash cost per pound of copper produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A

4 2022 and 2021 combined unit costs exclude COVID-19 related costs.

5 Annual consolidated results may not calculate based on amounts presented in this table due to rounding.




 

 

Q1 2022

2021 1

Q4 2021

Q3 2021

Q2 2021

Q1 2021

2020 1

Q4 2020

Q3 2020

Q2 2020

Q1 2020

Manitoba Operations

 

 

 

 

 

 

 

 

 

 

 

 

Lalor ore mined

tonnes

386,752

1,593,141

422,208

392,380

356,951

421,602

1,654,240

468,101

357,213

407,408

421,518

Copper

%

0.80

0.71

0.78

0.86

0.64

0.57

0.74

0.80

0.66

0.77

0.70

Zinc

%

4.06

4.23

4.19

3.60

3.81

5.20

5.73

5.54

5.98

6.05

5.43

Gold

g/tonne

3.76

3.41

3.92

3.85

3.19

2.67

2.51

2.79

2.28

2.64

2.27

Silver

g/tonne

22.94

24.66

30.35

22.13

22.98

22.75

25.31

24.96

21.23

28.4

26.18

777 ore mined

tonnes

258,069

1,053,710

266,744

256,536

255,170

275,260

991,576

164,856

264,905

281,890

279,925

Copper

%

1.19

1.28

1.13

1.06

0.82

2.06

1.40

1.89

0.98

1.72

1.18

Zinc

%

4.12

3.91

4.16

3.88

3.57

4.00

3.88

2.98

3.95

4.13

4.11

Gold

g/tonne

1.69

2.03

1.80

1.96

1.97

2.39

1.90

1.85

2.01

1.91

1.82

Silver

g/tonne

21.05

25.25

25.02

22.99

23.35

29.32

24.13

21.64

24.25

25.73

23.86

Stall & New Britannia Concentrator Combined:

 

 

 

 

 

 

 

 

 

 

Ore milled

tonnes

397,301

1,506,756

419,727

408,201

317,484

361,344

1,412,751

372,624

335,739

334,601

369,787

Copper

%

0.82

0.72

0.75

0.82

0.68

0.60

0.73

0.79

0.68

0.76

0.70

Zinc

%

4.24

4.30

4.12

3.58

4.06

5.53

5.76

5.47

6.11

6.16

5.38

Gold

g/tonne

3.87

3.42

3.90

3.84

3.19

2.57

2.55

2.88

2.35

2.70

2.28

Silver

g/tonne

23.16

24.95

30.07

23.32

22.02

23.40

25.37

24.43

22.08

28.72

26.28

Copper recovery

%

87.5

86.8

88.7

84.3

88.8

85.7

86.2

87.1

84.0

86.6

86.5

Zinc recovery

%

85.7

88.9

87.4

88.2

88.1

91.1

91.9

90.9

92.7

92.4

91.4

Gold recovery

%

58.4

54.9

54.6

53.4

55.5

57.5

60.0

59.5

57.4

62.3

60.9

Silver recovery

%

60.0

54.4

53.9

52.7

55.1

56.2

60.4

60.3

57.5

62.1

61.1

Flin Flon Concentrator:

 

 

 

 

 

 

 

 

 

 

 

Ore milled

tonnes

254,032

1,133,516

262,565

258,062

329,503

283,386

1,205,314

225,663

322,156

324,906

332,589

Copper

%

1.20

1.23

1.12

1.06

0.89

1.88

1.28

1.59

0.99

1.52

1.11

Zinc

%

4.13

3.95

4.16

3.86

3.65

4.20

4.21

3.87

4.07

4.41

4.36

Gold

g/tonne

1.70

2.04

1.78

1.96

2.06

2.34

1.96

1.99

1.99

1.99

1.88

Silver

g/tonne

21.23

24.90

25.04

22.93

23.65

28.01

24.26

22.65

24.01

25.56

24.33

Copper recovery

%

87.6

87.7

86.7

85.2

84.8

91.3

86.0

88.1

83.9

87.3

84.1

Zinc recovery

%

83.2

83.0

83.1

82.2

84.8

81.8

85.5

83.9

87.9

84.9

85.0

Gold recovery

%

57.7

58.5

59.2

58.1

52.9

64.0

56.0

56.6

55.3

58.6

53.5

Silver recovery

%

52.5

45.1

45.6

42.4

37.5

54.1

45.9

46.5

42.0

50.7

44.3

1 Annual consolidated results may not calculate based on amounts presented in this table due to rounding.




 

 

Q1 2022

2021 4

Q4 2021

Q3 2021

Q2 2021

Q1 2021

2020 4

Q4 2020

Q3 2020

Q2 2020

Q1 2020

Manitoba Operations (continued)

 

 

 

 

 

 

 

 

 

 

 

Total Manitoba contained metal in concentrate produced

 

 

 

 

 

 

 

 

Copper

tonnes

5,536

21,657

5,342

5,173

4,416

6,726

22,183

5,724

4,592

6,522

5,345

Zinc

tonnes

22,252

93,529

23,207

20,844

21,538

27,940

118,130

25,843

30,570

31,222

30,495

Gold

ounces

36,887

134,475

37,644

36,341

29,628

30,862

112,227

28,687

25,944

30,303

27,293

Silver

ounces

268,743

1,066,003

315,054

242,131

217,859

290,959

1,127,901

252,904

241,477

327,130

306,390

Precious metal in doré produced

 

 

 

 

 

 

 

 

 

 

Gold

ounces

6,280

9,002

8,598

404

-

-

-

-

-

-

-

Silver

ounces

10,046

6,529

6,519

10

-

-

-

-

-

-

-

Total Manitoba payable metal sold and doré

 

 

 

 

 

 

 

 

 

 

 

Copper

tonnes

3,784

20,802

4,408

5,071

5,230

6,093

20,382

4,380

4,249

6,928

4,825

Zinc1

tonnes

17,306

96,435

21,112

21,619

25,361

28,343

109,347

28,431

26,520

27,604

26,792

Gold

ounces

33,891

126,551

40,623

30,941

32,567

22,420

111,963

31,882

26,852

29,273

23,956

Silver

ounces

228,458

936,857

257,928

244,338

262,443

172,148

1,067,038

281,541

271,900

299,266

214,331

Manitoba combined unit operating cost2,3

C$/tonne

$176

$154

$168

$147

$148

$151

$132

$140

$126

$135

$127

Manitoba copper cash cost3

$/lb

$(0.40)

$(2.11)

$(2.77)

$(1.64)

$(3.51)

$(1.04)

$(2.20)

$(3.48)

$(3.41)

$(1.51)

$(0.62)

Manitoba sustaining copper cash cost3

$/lb

$2.33

$0.69

$(0.23)

$0.75

$0.36

$1.62

$1.02

$(0.36)

$0.83

$1.16

$2.54

Manitoba gold cash cost 3, 5

$/oz

$416

$-

$-

$-

$-

$-

$-

$-

$-

$-

$-

Manitoba sustaining gold cash cost 3,5

$/oz

$1,187

$-

$-

$-

$-

$-

$-

$-

$-

$-

$-

1 Includes refined zinc metal sold.

2 Reflects combined mine, mill and G&A costs per tonne of milled ore.

3 Combined unit costs, cash cost, and sustaining cash cost per pound of copper produced, cash cost, and sustaining cash cost per ounce of gold produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.

4 Annual consolidated results may not calculate based on amounts presented in this table due to rounding.

5 Cash cost and sustaining cash cost per ounce of gold produced, net of by-product credits were introduced in 2022 and do not have a published comparative.



EX-99.3 4 exhibit99-3.htm EXHIBIT 99.3 Hudbay Minerals Inc.: Exhibit 99.3 - Filed by newsfilecorp.com

FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE

I, Peter Kukielski, President and Chief Executive Officer of Hudbay Minerals Inc., certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Hudbay Minerals Inc. (the "issuer") for the interim period ended March 31, 2022.

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.

5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

5.2 N/A

5.3 N/A


6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on January 1, 2022 and ended on March 31, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.

 

Date: May 9, 2022

 

(signed) "Peter Kukielski"                                                    

Name: Peter Kukielski

Title: President and Chief Executive Officer


EX-99.4 5 exhibit99-4.htm EXHIBIT 99.4 Hudbay Minerals Inc.: Exhibit 99.4 - Filed by newsfilecorp.com

FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE

I, Steve Douglas, Senior Vice President and Chief Financial Officer of Hudbay Minerals Inc., certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of Hudbay Minerals Inc. (the "issuer") for the interim period ended March 31, 2022.

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

4. Responsibility: The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, for the issuer.

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer's other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.

5.1 Control framework: The control framework the issuer's other certifying officer(s) and I used to design the issuer's ICFR is the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

5.2 N/A

5.3 N/A


6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer's ICFR that occurred during the period beginning on January 1, 2022 and ended on March 31, 2022 that has materially affected, or is reasonably likely to materially affect, the issuer's ICFR.

 

Date: May 9, 2022

 

(signed) "Steve Douglas"                                      

Name: Steve Douglas

Title: Senior Vice President and Chief Financial Officer


EX-99.5 6 exhibit99-5.htm EXHIBIT 99.5 Hudbay Minerals Inc.: Exhibit 99.5 - Filed by newsfilecorp.com
TSX, NYSE - HBM
2022 No. 6
   
25 York Street, Suite 800
Toronto, Ontario
Canada M5J 2V5
tel  416 362-8181
fax 416 362-7844
hudbay.com
News Release
 

 

Hudbay Announces First Quarter 2022 Results

Toronto, Ontario, May 9, 2022 - Hudbay Minerals Inc. ("Hudbay" or the "company") (TSX, NYSE:HBM) today released its first quarter 2022 financial results. All amounts are in U.S. dollars, unless otherwise noted.

First Quarter Operating and Financial Results

  • Consolidated production in the first quarter was 24,702 tonnes of copper and 53,956 ounces of gold. Cash cost and sustaining cash cost[i] per pound of copper produced, net of by-product credits, were $1.11 and $2.29, respectively.
  • Full year 2022 production and cost guidance reaffirmed as first quarter production was in line with quarterly cadence expectations and Hudbay achieved strong unit operating cost performance despite the inflationary environment.
  • Peru's operations in the first quarter were impacted by COVID-19 related employee absenteeism and high rainfalls resulting in reduced Pampacancha production relative to the fourth quarter of 2021, as well as a semi-annual scheduled mill maintenance period in January.
  • Manitoba achieved first quarter gold production of 43,167 ounces at a cash cost per ounce of gold produced, net of by-product creditsi, of $416 as New Britannia's gold metallurgical recoveries improved significantly relative to previous months. Manitoba sales volumes were impacted by the availability of railcars during the quarter, with excess inventory of approximately 7,000 tonnes of copper concentrate containing high gold content and 6 million pounds of refined zinc at the end of the quarter, collectively valued at approximately $45 million.
  • First quarter net earnings and earnings per share were $63.8 million and $0.24, respectively. After adjusting for a non-cash gain of $79.9 million mostly related to a quarterly revaluation of the Flin Flon environmental provision given higher long term risk-free discount rates, amongst other items, first quarter adjusted net earningsi per share were $0.02.
  • Operating cash flow before change in non-cash working capital was $77.1 million and adjusted EBITDAi was $110.2 million in the first quarter of 2022, benefiting from strong realized base metals prices but negatively impacted by the temporary buildup of unsold inventory in Manitoba.
  • Cash and cash equivalents decreased during the first quarter to $213.4 million, as at March 31, 2022, mainly as a result of $55.9 million of sustaining capital investments, $31.9 million of interest payments and an $18.6 million partial repayment of the gold prepay liability, partially offset by cash generated from operations, which was negatively impacted by limited railcar availability leading to an inventory buildup in Manitoba.

Executing on Growth Initiatives

 The Copper World preliminary economic assessment is nearing completion and is expected to reflect a two-phase mine plan contemplating the development of the Copper World deposits in conjunction with an alternative plan for the Rosemont deposit.

 In April 2022, the New Britannia mill consistently achieved throughput greater than 1,500 tonnes per day after scheduled rod mill liner maintenance was completed in the first quarter.


TSX, NYSE - HBM
2022 No. 6

 Announced annual reserve and resource update with mineral reserve growth replacing close to 100% of 2021 mining depletion and extending the mine life at each of Constancia and Snow Lake by one year to 2038.

 Significant exploration activity continues across the business with seven drill rigs now turning at the Copper World site to conduct infill and extension drilling and to support future economic studies, winter drilling campaigns recently completed in the Snow Lake region and at the Flin Flon tailings facility, and the advancement of exploration initiatives in Peru.

"We maintained steady operations during the first quarter despite being faced with a number of external challenges, including COVID-related absenteeism, extreme weather conditions and inflationary cost pressures," said Peter Kukielski, President and Chief Executive Officer. "This led to strong unit cost performance which is a testament to our effective risk management systems and focus on operating efficiencies. We have seen strong performance from the New Britannia mill in Manitoba and we are on track to mine the significantly higher grades in Peru later this year. As such, we have reaffirmed our 2022 production and cost guidance. We look forward to continuing to advance our world-class project pipeline, including the release of a robust PEA on our Copper World project in the second quarter."

Summary of First Quarter Results

Consolidated copper production in the first quarter of 2022 was 24,702 tonnes, in line with expected quarterly cadence for the year. Consolidated gold production decreased by 16% compared to the fourth quarter, primarily due to lower gold production in Peru as COVID-19 related absenteeism and high rainfalls limited production from the Pampacancha pit during the quarter. Consolidated zinc production in the first quarter was 4% lower than the fourth quarter primarily due to lower zinc grades at Lalor and 777.

Consolidated cash cost per pound of copper produced, net of by-product creditsi, in the first quarter of 2022 was $1.11, compared to $0.51 in fourth quarter of 2021. This increase was a result of higher milling costs and lower copper production in Peru and higher general and administrative costs in Manitoba, partially offset by slightly higher by-product credits per pound. Consolidated sustaining cash cost per pound of copper produced, net of by-product creditsi, was $2.29 in the first quarter of 2022 compared to $1.95 in the fourth quarter. This increase was primarily due to the same reasons outlined above, partially offset by lower sustaining capital expenditures and capitalized exploration. Both measures were slightly above the company's 2022 guidance ranges primarily as a result of the by-product credit impact from lower sales volumes in the first quarter, as described below, and therefore, consolidated cash cost and sustaining cash cost are expected to decline in future quarters to within the 2022 guidance ranges with higher expected copper production and contributions from precious metal by-product credits.

In the first quarter of 2022, Peru and Manitoba maintained steady operations with unit operating cost performance of $12.37 per tonne and C$176 per tonne, respectively, in line with the 2022 guidance ranges. This strong cost performance was achieved despite continuing to experience broad based inflationary pressures caused by higher input prices for many services and consumables, such as power, fuel, grinding media, freight and insurance, leading to higher than budgeted operating costs during the first quarter of 2022. The company also continues to face intermittent operational, labour and travel disruptions with periodic waves of COVID-19 cases.

Cash generated from operating activities in the first quarter of 2022 decreased to $63.6 million compared to $95.8 million in the fourth quarter of 2021. Operating cash flow before change in non-cash working capital was $77.1 million during the first quarter of 2022, compared to $156.9 million in the fourth quarter 2021. These decreases were due to lower sales volumes for copper, gold and zinc, primarily as a result of limited railcar availability in Manitoba as detailed below, partially offset by higher silver sales volumes and higher base metals realized prices.


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As previously announced, first quarter Manitoba sales were impacted by limited railcar availability resulting in approximately 7,000 tonnes of copper concentrate inventory containing high gold content, and 6 million pounds of refined zinc inventory in excess of normal operating levels. Had the excess copper concentrate and zinc inventory been sold during the first quarter, Hudbay would have realized approximately $45 million of incremental revenue, assuming end of quarter commodity prices. The above quantities are expected to be recognized as revenue and converted to cash as inventory levels are drawn down over the next several months with increased railcar access as weather conditions improve.

Net earnings and earnings per share in the first quarter of 2022 were $63.8 million and $0.24, respectively, compared to a net loss and loss per share of $10.5 million and $0.04, respectively, in the fourth quarter of 2021. First quarter earnings benefited from a non-cash gain of $79.9 million mostly related to the quarterly revaluation of the Flin Flon environmental provision, which was impacted by rising long term risk-free discount rates. With Flin Flon operations closing in June of this year and given the long-term nature of the reclamation cash flows, quarterly revaluation of the corresponding environmental provision remains highly sensitive to changes in long-term risk-free discount rates and, as such, the company expects to continue to experience quarterly environmental provision revaluations. The quarterly financial results were also negatively impacted by $10.5 million in non-cash mark-to-market losses arising from the revaluation of the gold prepayment liability, among other items.

Adjusted net earningsi and adjusted net earnings per sharei in the first quarter of 2022 were $5.2 million and $0.02 per share, respectively, after adjusting for the non-cash gain related to the revaluation of the environmental provision, among other items. This compares to an adjusted net earnings and adjusted net earnings per share of $32.7 million, and $0.13 per share in fourth quarter of 2021. First quarter adjusted EBITDAi was $110.2 million, compared to $180.3 million in the fourth quarter of 2021, primarily as a result of the same factors affecting operating cash flow noted above.

As at March 31, 2022, the company's liquidity includes $213.4 million in cash as well as undrawn availability of $357.5 million under its revolving credit facilities. The company expects that the current liquidity combined with cash flow from operations will be sufficient to meet its liquidity needs for the foreseeable future. Given the elevated inventory levels in Manitoba at the end of the first quarter and the positive expected quarterly production cadence, the company projects its cash balance to grow throughout the remainder of the year based on current commodity prices.

Consolidated Financial Condition ($000s) Mar. 31, 2022 Dec. 31, 2021 Mar. 31, 2021
Cash 213,359 270,989 310,564
Total long-term debt 1,181,119 1,180,274 1,180,798
Net debt1 967,760 909,285 870,234
Working capital2 161,846 147,512 236,281
Total assets 4,538,214 4,616,231 4,549,196
Equity 1,561,978 1,476,828 1,660,250

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

2 Working capital is determined as total current assets less total current liabilities as defined under IFRS and disclosed on the consolidated financial statements


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Consolidated Financial Performance   Three Months Ended
    Mar. 31, 2022 Dec. 31, 2021 Mar. 31, 2021
Revenue $000s 378,619 425,170 313,624
Cost of sales $000s 293,351 343,426 261,112
Earnings (loss) before tax $000s 88,861 (149) (69,592)
Earnings (loss) $000s 63,815 (10,453) (60,102)
Basic and diluted earnings (loss) per share $/share 0.24 (0.04) (0.23)
Adjusted earnings (loss) per share1 $/share 0.02 0.13 (0.06)
Operating cash flow before change in non-cash working capital $ millions 77.1 156.9 90.7
Adjusted EBITDA1 $ millions 110.2 180.3 104.2
1 Adjusted earnings (loss) per share and adjusted EBITDA are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the "Non-IFRS Financial Reporting Measures" section of this news release.

Consolidated Production and Cost Performance Three Months Ended
    Mar. 31, 2022 Dec. 31, 2021 Mar. 31, 2021
Contained metal in concentrate and doré produced1      
Copper tonnes 24,702 28,198 24,553
Gold ounces 53,956 64,159 35,500
Silver ounces 784,357 899,713 696,673
Zinc tonnes 22,252 23,207 27,940
Molybdenum tonnes 207 275 294
Payable metal sold        
Copper tonnes 20,609 24,959 20,929
Gold2 ounces 48,343 56,927 25,383
Silver2 ounces 864,591 638,640 509,760
Zinc3 tonnes 17,306 21,112 28,343
Molybdenum tonnes 213 245 284
Consolidated cash cost per pound of copper produced4    
Cash cost $/lb 1.11 0.51 1.04
Peru $/lb 1.54 1.28 1.82
Manitoba $/lb (0.40) (2.77) (1.04)
Sustaining cash cost $/lb 2.29 1.95 2.16
Peru $/lb 2.27 2.46 2.36
Manitoba $/lb 2.33 (0.23) 1.62
All-in sustaining cash cost $/lb 2.54 2.20 2.37

1 Metal reported in concentrate is prior to deductions associated with smelter contract terms.

2 Includes total payable gold and silver in concentrate and in doré sold.

3 Includes refined zinc metal and payable zinc in concentrate sold.

4 Cash cost, sustaining cash cost and all-in sustaining cash cost per pound of copper produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the "Non-IFRS Financial Reporting Measures" section of this news release.


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Peru Operations Review

Peru Operations Three Months Ended
    Mar. 31, 2022 Dec. 31, 2021 Mar. 31, 2021
Constancia ore mined1 tonnes 6,908,151 7,742,469 7,747,466
Copper % 0.32 0.33 0.30
Gold g/tonne 0.04 0.04 0.04
Silver g/tonne 3.22 2.81 2.90
Molybdenum % 0.01 0.01 0.01
Pampacancha ore mined1 tonnes 847,306 2,107,196 -
Copper % 0.27 0.27 -
Gold g/tonne 0.43 0.34 -
Silver g/tonne 4.06 4.26 -
Molybdenum % 0.01 0.01 -
Ore milled tonnes 7,213,833 8,048,925 6,362,752
Copper % 0.31 0.33 0.33
Gold g/tonne 0.08 0.11 0.04
Silver g/tonne 3.26 3.67 2.84
Molybdenum   0.01 0.01 0.01
Copper recovery % 85.3 86.0 84.1
Gold recovery % 59.8 63.6 52.0
Silver recovery % 66.9 60.8 69.9
Molybdenum recovery % 21.1 26.7 33.4
Contained metal in concentrate      
Copper tonnes 19,166 22,856 17,827
Gold ounces 10,789 17,917 4,638
Silver ounces 505,568 578,140 405,714
Molybdenum tonnes 207 275 294
Payable metal sold      
Copper tonnes 16,825 20,551 14,836
Gold ounces 14,452 16,304 2,963
Silver ounces 636,133 380,712 337,612
Molybdenum tonnes 213 245 284
Combined unit operating cost2,3,4 $/tonne 12.37 9.96 11.74
Cash cost4 $/lb 1.54 1.28 1.82
Sustaining cash cost3,4 $/lb 2.27 2.46 2.36

1 Reported tonnes and grade for ore mined are estimates based on mine plan assumptions and may not reconcile fully to ore milled.

2 Reflects combined mine, mill and general and administrative ("G&A") costs per tonne of ore milled. Reflects the deduction of expected capitalized stripping costs.

3 Excludes approximately $2.3 million, or $0.32 per tonne, of COVID-19 related costs during the three months ended March 31, 2022, $4.1 million, or $0.51 per tonne, of COVID-related costs during the three months ended December 31, 2021 and $4.6 million, or $0.72 per tonne, during the three months ended March 31, 2021.

4 Combined unit cost, cash cost and sustaining cash cost per pound of copper produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the "Non-IFRS Financial Reporting Measures" section of this news release.

The Peru operations were impacted by the COVID-19 Omicron variant during January and February of 2022, resulting in high employee absenteeism which had a direct impact on the quarter's production. Despite the high absenteeism, COVID-19 containment costs have decreased considerably as the severity of the variant appears lower and COVID-19 protocols have been modified to align with recommended public health measures. Full year production of all metals and costs in Peru are expected to be within guidance ranges for 2022.


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During the first quarter of 2022, the Constancia operations produced 19,166 tonnes of copper, 10,789 ounces of gold, 505,568 ounces of silver and 207 tonnes of molybdenum. Production of all metals was lower than the fourth quarter of 2021 primarily due to a planned semi-annual mill maintenance shutdown in January and lower grades. As previously disclosed, full year production in Peru is expected to benefit from significantly higher grades in the fourth quarter of 2022.

Total ore mined declined during the first quarter of 2022, relative to the fourth quarter of 2021, due to high rainfalls and labour shortages, which resulted in delays affecting the water management system and lower production from Pampacancha. Ore milled during the first quarter of 2022 was lower compared to the fourth quarter of 2021 due to the planned mill maintenance shutdown in January. Milled copper grades and recoveries were lower than the previous quarter's levels but were consistent with the mine plan. Milled gold grades and recoveries were lower than the previous quarter due to a lower contribution of Pampacancha ore in the quarter.

Combined mine, mill and G&A unit operating costs in the first quarter of 2022 were $12.37 per tonne, and higher than the fourth quarter of 2021, primarily due to continued inflationary pressures on consumables and energy costs and fewer tonnes of ore milled due to the planned mill maintenance shutdown. Hudbay experienced unbudgeted inflationary pressure on costs in the first quarter of 2022 as a result of higher fuel prices, higher power prices, higher steel prices affecting grinding media costs, higher community costs and higher insurance costs. Despite these inflationary cost pressures, full year unit operating costs in Peru are expected to be within the 2022 guidance range.

Peru's cash cost per pound of copper produced, net of by-product credits, in the first quarter of 2022 was $1.54, higher than the fourth quarter primarily due to higher milling costs and lower copper production. Cash costs in the first quarter were above the upper end of the 2022 guidance range in part due to lower production and higher costs related to the scheduled semi-annual plant maintenance shutdown in the quarter. Cash cost per pound of copper produced, net of by-product credits, is expected to decline and full year cash costs are expected to remain within the 2022 guidance range with higher expected copper production and contributions from precious metal by-product credits later this year.

Peru's sustaining cash cost per pound of copper produced, net of by-product credits, in the first quarter of 2022 improved to $2.27, compared to $2.46 in the fourth quarter, as lower sustaining capital expenditures and lower capitalized exploration more than offset the higher milling costs and lower production in the quarter.


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Manitoba Operations Review

Manitoba Operations                                                                          Three Months Ended
    Mar. 31, 2022 Dec. 31, 2021 Mar. 31, 2021
Lalor ore mined tonnes 386,752 422,208 421,602
Copper % 0.80 0.78 0.57
Zinc % 4.06 4.19 5.20
Gold g/tonne 3.76 3.92 2.67
Silver g/tonne 22.94 30.35 22.75
777 ore mined tonnes 258,069 266,744 275,260
Copper % 1.19 1.13 2.06
Zinc % 4.12 4.16 4.00
Gold g/tonne 1.69 1.80 2.39
Silver g/tonne 21.05 25.02 29.32
Stall Concentrator & New Britannia Mill:  
Ore milled tonnes 397,301 419,727 361,344
Copper % 0.82 0.75 0.60
Zinc % 4.24 4.12 5.53
Gold g/tonne 3.87 3.90 2.57
Silver g/tonne 23.16 30.07 23.40
Copper recovery % 87.5 88.7 85.7
Zinc recovery % 85.7 87.4 91.1
Gold recovery % 58.4 54.6 57.5
Silver recovery % 60.0 53.9 56.2
Flin Flon Concentrator:      
Ore milled tonnes 254,032 262,565 283,386
Copper % 1.20 1.12 1.88
Zinc % 4.13 4.16 4.20
Gold g/tonne 1.70 1.78 2.34
Silver g/tonne 21.23 25.04 28.01
Copper recovery % 87.6 86.7 91.3
Zinc recovery % 83.2 83.1 81.8
Gold recovery % 57.7 59.2 64.0
Silver recovery % 52.5 45.6 54.1
Total contained metal in concentrate    
Copper tonnes 5,536 5,342 6,726
Zinc tonnes 22,252 23,207 27,940
Gold ounces 36,887 37,644 30,862
Silver ounces 268,743 315,054 290,959
Total metal in doré        
Gold ounces 6,280 8,598 -
Silver ounces 10,046 6,519 -
Total payable metal sold      
Copper tonnes 3,784 4,408 6,093
Zinc1 tonnes 17,306 21,112 28,343
Gold2 ounces 33,891 40,623 22,420
Silver2 ounces 228,458 257,928 172,148
Combined unit operating cost3,4 C$/tonne 176 168 151
Gold cash cost4,5 $/oz 416 - -
Gold sustaining cash cost4,5 $/oz 1,187 - -

1 Includes refined zinc metal sold and payable zinc in concentrate sold.

2 Includes total payable precious metals in concentrate and in doré sold.

3 Reflects combined mine, mill and G&A costs per tonne of ore milled.

4 Combined unit cost, cash cost and sustaining cash cost per ounce of gold produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the "Non-IFRS Financial Reporting Measures" section of this news release.

5 Cash cost and sustaining cash cost per ounce of gold produced were introduced in 2022 and do not have a published comparative.


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During the first quarter of 2022, the Manitoba operations produced 43,167 ounces of gold, 22,252 tonnes of zinc, 5,536 tonnes of copper and 278,789 ounces of silver. Copper production increased by approximately 4%, whereas gold, zinc and silver production decreased by 7%, 4% and 13%, respectively, compared to the fourth quarter due to expected grade variability quarter-to-quarter and lower ore milled. As previously mentioned, sales volumes in Manitoba were impacted by limited railcar availability, and the resulting excess copper concentrate and refined zinc inventory buildup is expected to normalize over the next several months with increased access to railcars as weather conditions improve. Full year production of all metals and costs in Manitoba are expected to be within guidance ranges for 2022.

Ore mined at the Manitoba operations during the first quarter of 2022 was lower than the fourth quarter of 2021 due to employee absenteeism caused by COVID-19, unplanned maintenance requirements of the ore handling system that temporarily affected hoisting ability at Lalor and planned lower production at 777 as the mine approaches closure in June 2022.

Lalor production processes to separate gold and base metal ores are fully established to optimally provide feed for both the New Britannia and Stall mills based on the ore metal content. Higher gold content ore is processed at the New Britannia facility and higher base metal content ore is directed towards Stall. A production ramp-up strategy to achieve 5,300 tonnes per day at Lalor by the end of 2022 is underway and includes advancing development for new mining fronts, additions to the mine equipment fleet, transition of workforce from the 777 mine upon closure, and expansion of change house and office facilities. A planned Lalor maintenance period has been advanced to the second quarter of 2022 in order to allow for increased availability during the third quarter after 777 has closed and the additional workforce and equipment have transitioned to Lalor. The 777 equipment relocation strategy will commence in the second quarter of 2022, ahead of expected timeframes to advance the production ramp-up to 5,300 tonnes per day.

The 777 mine is within months of closure and the focus continues to be on safely mining out the remaining reserves by completing the necessary ground rehabilitation to access remnant and pillar stoping blocks. Challenging ground conditions continue to cause delays in the production sequence and result in higher dilution than planned. These challenges are expected to continue until the end of the mine life in June 2022. Pre-closure activities are well underway in mined out areas to decommission stationary equipment of value for redeployment at Lalor. As development requirements wind down, personnel and equipment are being redeployed to Lalor as part of the Lalor ramp-up strategy.

The New Britannia mill averaged approximately 1,400 tonnes per day in the first quarter of 2022, slightly below the targeted 1,500 tonnes per day as a result of completing scheduled rod mill liner maintenance during the quarter. Since completing the mill maintenance, New Britannia has consistently achieved greater than 1,500 tonnes per day in April. With the inclusion of doré, the gold and silver recoveries at the New Britannia mill have also improved significantly with metallurgical recoveries in March higher in relation to previous months. Additional initiatives are planned in the second quarter to further improve recoveries to be in line with metallurgical models.


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The combined Snow Lake mills processed less ore in the first quarter compared to the fourth quarter as a result of less ore being mined at Lalor. Stall recoveries were consistent with the metallurgical model for the head grades delivered. The Flin Flon concentrator consumed the available ore feed from the 777 mine in the first quarter of 2022. Recoveries were consistent with the metallurgical model for the head grades delivered.

Combined mine, mill and G&A unit operating costs in the first quarter of 2022 increased by 5% compared to the fourth quarter of 2021. The increase was primarily due to higher propane usage during the colder winter coupled with continued inflationary cost pressures for bulk commodities and fuel, and lower tonnes processed. Full year combined unit costs are expected to remain within 2022 guidance ranges.

Cash cost per ounce of gold produced, net of by-product credits, in the first quarter of 2022 was $416 and in line with the 2022 guidance range for Manitoba.

Supply Chain and Cost Inflation

The company continues to experience higher operating costs as a result of higher input prices for many services and consumables, such as power, fuel and grinding media, due to global supply chain disruptions. Hudbay also continues to face intermittent operational labour and travel disruptions with periodic waves of COVID-19 cases. However, these external challenges are effectively being managed and Hudbay has been able to maintain steady operations during the first quarter while continuing to track in line with 2022 unit operating cost guidance.

Copper World Preliminary Economic Assessment Nearing Completion

The initial technical studies for Copper World have been completed and the results are being incorporated into a Preliminary Economic Assessment ("PEA") contemplating the development of the Copper World deposits in conjunction with an alternative plan for the Rosemont deposit to capitalize on regional synergies. The PEA is expected to incorporate a two-phase mine plan with the first phase reflecting a standalone operation utilizing Hudbay's private land for processing infrastructure and contemplating mining portions of Copper World and Rosemont located on patented mining claims. The first phase is designed as an economically viable standalone plan, requiring only state and local permits and is expected to reflect an approximate 15-year mine life. The second phase of the mine plan is expected to extend the mine life and incorporate an expansion onto federal lands to mine the entire Rosemont and Copper World deposits. The second phase of the mine plan would be subject to the federal NEPA permitting process. Hudbay expects the PEA to demonstrate positive economics for this low-cost, long-life copper project and the company is on track to publish the results in a NI 43-101 Technical Report in the second quarter of 2022.

In April, Hudbay commenced early site works at Copper World with initial grading and clearing activities taking place on the company's private land. The company has also increased the number of drill rigs at site to seven to conduct infill drilling and to support future feasibility studies.

Rosemont / Copper World Litigation Update

In April, two groups of project opponents provided separate notices of their intent to bring citizen suits against Rosemont under the Clean Water Act. In each case, project opponents have alleged that Copper World contains jurisdictional waters of the United States ("WOTUS") and that Rosemont requires a Section 404 Clean Water Act permit to advance the project. The Army Corps of Engineers has never determined that there are WOTUS on the site and Hudbay has independently concluded that none of the dry washes in the area are WOTUS.


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In addition to the citizen suits under the Clean Water Act, the same groups subsequently filed motions for a preliminary injunction in the two lawsuits challenging the 404 permit for the Rosemont project. These lawsuits had been stayed following the suspension of the 404 permit in 2019. Hudbay is in the process of relinquishing the suspended 404 Permit and has a filed a motion to dismiss these cases as moot on that basis.

Hudbay continues to await a decision from the U.S. Court of Appeals for the Ninth Circuit relating to the District Court's 2019 ruling to vacate the final record of decision ("FROD") in respect of the Rosemont project. The FROD was issued by the U.S. Forest Service and is based upon a standalone development plan for the Rosemont project, as set forth in Hudbay's 2017 feasibility study.

Mineral Reserve and Resource Growth at Constancia and Snow Lake

Hudbay provided its annual mineral reserve and resource update on March 28, 2022. In Peru, mine planning gains and economic re-evaluations have resulted in additional mineral reserves at Constancia which have largely offset 2021 mining depletion. Current mineral reserve estimates at Constancia total 521 million tonnes at 0.31% copper with over 1.6 million tonnes of contained copper. As a result, Constancia's expected mine life has been extended one year to 2038. The inferred mineral resources have also increased in 2022 due to the inclusion of the Constancia Norte underground mineral resource estimates.

In 2021, a positive scoping study was completed, which resulted in an inferred mineral resource estimate of 6.5 million tonnes at 1.2% copper in two high grade skarn lenses located below the open pit in the Constancia Norte area. The study concluded these two lenses could be mined by underground methods starting in 2029 to supplement the open pit production. The company intends to conduct infill drilling and an internal pre-feasibility study in hopes of converting the underground mineral resources to mineral reserves for inclusion in the mine plan for the Constancia operations.

As a result of exploration success in Manitoba in 2021, additional mineral reserves were identified at Lalor and the 1901 deposit, which are expected to extend the mine life of the Snow Lake operations by one year until 2038, maintaining the 17-year mine life. Resource to reserve conversion has more than offset 2021 mining depletion with a net gain for all metals, including an additional 218,000 ounces of gold contained in reserves after adjusting for 2021 mining depletion.

Inferred mineral resources at Lalor and 1901 increased by 1.1 million tonnes despite delays in underground drill programs caused by COVID-19 related restrictions. This increases the total inferred mineral resources at Lalor and 1901 to 8.1 million tonnes. These inferred mineral resources have the potential to maintain the 5,300 tonnes per day production level in Snow Lake beyond 2028 and further extend the mine life.

Other Exploration Updates

Peru Regional Exploration

Hudbay controls a large, contiguous block of mineral rights with the potential to hold mineable deposits within trucking distance of the Constancia processing facility, including the past producing Caballito property and the highly prospective Maria Reyna and Kusiorcco properties. Exploration agreement discussions with the communities of Uchucarcco and Anahuichi on the Maria Reyna, Kusiorcco and Caballito properties are in progress.

Drilling continues at the Llaguen copper porphyry target in northern Peru with a total of 9,250 metres in 21 holes completed to-date. Assays have been received for eight holes and all holes have intersected mineralization. Based on the positive results from the initial drilling, a second phase of drilling has been initiated aimed at defining an initial inferred mineral resource estimate for Llaguen in the third quarter of 2022.


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Snow Lake Regional Exploration

The company has been actively conducting surface and underground winter drilling activities in the Snow Lake area, primarily focused on the copper-gold rich feeder zone at the 1901 deposit, the drilling gap between 1901 and lens 17 at Lalor, and a high-priority geophysical target located immediately north of Lalor. In addition, Hudbay continues to compile results from ongoing infill drilling programs at Lalor and 1901.

Arizona Regional Exploration

In addition to infill drilling to support feasibility studies at Copper World, Hudbay continues to test regional exploration targets. There remain several opportunities to further extend economic mineralization within the private land limits at Copper World and Rosemont, including to the north and south of Bolsa through infill drilling to bridge the gaps.

Flin Flon Tailings Reprocessing Opportunity

Hudbay is exploring the concept to potentially reprocess the Flin Flon tailings in the future. In early January 2022, the company commenced a confirmatory drill program on the tailings facility in Flin Flon to support the evaluation of the tailings reprocessing opportunity. This opportunity could utilize the Flin Flon concentrator, with modifications, after the closure of the 777 mine, creating operating and economic benefits in northern Manitoba and Saskatchewan. It could also provide the opportunity to redesign the closure plans, increase metal production, defer or reduce certain closure costs and reduce the environmental impacts of the tailings facility.

Website Links

Hudbay:

www.hudbay.com

Management's Discussion and Analysis:

http://www.hudbayminerals.com/files/doc_financials/2022/Q1/MDA221.pdf

Financial Statements:

http://www.hudbayminerals.com/files/doc_financials/2022/Q1/FS221.pdf

Conference Call and Webcast

Date:                Tuesday, May 10, 2022
   
Time:                8:30 a.m. ET
   
Webcast:          www.hudbay.com
 
Dial in:              1-416-915-3239 or 1-800-319-4610


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2022 No. 6

Qualified Person and NI 43-101

The technical and scientific information in this news release related to the company's material mineral projects has been approved by Olivier Tavchandjian, P. Geo, Vice President, Exploration and Technical Services. Mr. Tavchandjian is a qualified person pursuant to NI 43-101. For a description of the key assumptions, parameters and methods used to estimate mineral reserves and resources at Hudbay's material properties, as well as data verification procedures and a general discussion of the extent to which the estimates of scientific and technical information may be affected by any known environmental, permitting, legal title, taxation, sociopolitical, marketing or other relevant factors, please see the technical reports for the company's material properties as filed by Hudbay on SEDAR at www.sedar.com.

Non-IFRS Financial Performance Measures

Adjusted net earnings (loss), adjusted net earnings (loss) per share, adjusted EBITDA, net debt, cash cost, sustaining and all-in sustaining cash cost per pound of copper produced, cash cost and sustaining cash cost per ounce of gold produced and combined unit cost are non-IFRS performance measures. These measures do not have a meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS and are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently.

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

During 2021, there were non-recurring adjustments for Manitoba operations, including severance, past service pension costs, write-downs of certain machinery and equipment, and inventory supplies write-downs as well as non-cash impairment charges related to an updated Flin Flon closure plan and lower long term discount rates in the fourth quarter, none of which management believes are indicative of ongoing operating performance and have therefore been excluded from the calculations of adjusted net earnings (loss) and adjusted EBITDA.

Cash cost and sustaining cash cost per pound of zinc produced was a previously disclosed non-IFRS measure, most recently published in the company's MD&A for the year ended December 31, 2021, dated February 23, 2022. With the planned closure of 777 mine and Flin Flon operations, including the zinc plant, in the second quarter of 2022, the production profile of Manitoba has shifted from zinc to gold and therefore the company has ceased providing this measure on a go forward basis.

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


TSX, NYSE - HBM
2022 No. 6

Adjusted Net Earnings (Loss) Reconciliation

 

Three Months Ended

(in $ millions)

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Profit (loss) for the period

63.8

(10.5)

(60.1)

Tax expense (recovery)

25.0

10.3

(9.5)

Profit (loss) before tax

88.8

(0.2)

(69.6)

Adjusting items:

 

 

 

Mark-to-market adjustments

10.5

13.3

40.8

Peru inventory reversal

(0.5)

-

(0.7)

Variable consideration adjustment - stream revenue and accretion

(5.8)

-

(1.0)

Foreign exchange loss

1.5

1.1

1.7

Environmental obligation adjustments

(79.9)

-

-

 

 

 

 

Restructuring charges - Manitoba1

0.7

3.4

-

Evaluation expenses

7.0

-

-

Impairment - environmental obligation

-

46.2

-

Write-down of unamortized transaction costs

-

-

2.5

Premium paid on redemption of notes

-

-

22.9

Past service pension cost

-

0.7

-

Loss on disposal of plant and equipment - Manitoba

-

2.4

-

Adjusted earnings (loss) before income taxes

22.3

66.9

(3.4)

Tax (expense) recovery

(25.0)

(10.3)

9.5

Tax impact of adjusting items1

7.9

(23.9)

(22.2)

Adjusted net earnings (loss)

5.2

32.7

(16.1)

Adjusted net earnings (loss) ($/share)

0.02

0.13

(0.06)

Basic weighted average number of common shares outstanding (millions)

261.7

261.6

261.3

1 Includes severance accrued for unionized employees and write down of materials and supply inventories at the Flin Flon operations.


TSX, NYSE - HBM
2022 No. 6

Adjusted EBITDA Reconciliation

 

Three Months Ended

(in $ millions)

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

(Loss) profit for the period

63.8

(10.5)

(60.1)

  Add back: Tax expense (recovery)

25.0

10.3

9.5

  Add back: Net finance expense

36.7

38.6

108.5

  Add back: Other expenses

2.0

16.1

1.1

 

 

 

 

  Add back: Evaluation expenses

7.0

-

-

  Add back: Depreciation and amortization

81.1

89.9

82.7

  Add back: Environmental obligation adjustments

(79.9)

-

(4.4)

  Less: Amortization of deferred revenue and variable consideration adjustment

(28.2)

(17.3)

(15.7)

 

107.5

127.1

103.1

  Adjusting items (pre-tax):

 

 

 

  Peru inventory reversal

(0.5)

-

(0.7)

  Impairment - environmental obligation

-

46.2

-

  Past service pension cost

-

0.7

-

  Share-based compensation expenses1

3.2

6.3

1.8

Adjusted EBITDA

110.2

180.3

104.2

1 Share-based compensation expenses reflected in cost of sales and selling and administrative expenses.

Net Debt Reconciliation

(in $ thousands)

 

 

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Total long-term debt

1,181,119

1,180,274

1,180,798

Cash and cash equivalents

213,359

(270,989)

310,564

Net debt

967,760

909,285

870,234

Copper Cash Cost Reconciliation

Consolidated

Three Months Ended

Net pounds of copper produced

 

 

 

(in thousands)

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Peru

42,254

50,389

39,302

Manitoba

12,205

11,777

14,828

Net pounds of copper produced

54,459

62,166

54,130


Consolidated

Three Months Ended

 

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Cash cost per pound of copper produced

$000s

$/lb1

$000s

$/lb1

$000s

$/lb1

Cash cost, before by-product credits

242,058

4.45

232,224

3.73

209,866

3.88

By-product credits

(181,673)

(3.34)

(200,306)

(3.22)

(153,515)

(2.84)

Cash cost, net of by-product credits

60,385

1.11

31,918

0.51

56,351

1.04

1 Per pound of copper produced.


TSX, NYSE - HBM
2022 No. 6

Consolidated

Three Months Ended

 

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Supplementary cash cost information

$000s

$/lb 1

$000s

$/lb 1

$000s

$/lb 1

By-product credits2:

 

 

 

 

 

 

  Zinc

67,129

1.23

74,585

1.20

82,315

1.52

  Gold 3

84,174

1.55

99,728

1.60

45,134

0.83

  Silver 3

18,639

0.34

14,853

0.24

15,135

0.28

  Molybdenum & other

11,731

0.22

11,140

0.18

10,931

0.20

Total by-product credits

181,673

3.34

200,306

3.22

153,515

2.84

Reconciliation to IFRS:

 

 

 

 

 

 

Cash cost, net of by-product credits

60,385

 

31,918

 

56,351

 

By-product credits

181,673

 

200,306

 

153,515

 

Treatment and refining charges

(12,083)

 

(13,721)

 

(11,936)

 

Share-based compensation        expense

448

 

744

 

184

 

Inventory adjustments

(461)

 

-

 

(723)

 

Past service pension cost

-

 

737

 

 

 

Change in product inventory

(20,920)

 

(16,247)

 

(22,864)

 

Royalties

3,218

 

3,594

 

3,903

 

Depreciation and amortization4

81,091

 

89,927

 

82,682

 

Cost of sales5

293,351

 

297,258

 

261,112

 

1 Per pound of copper produced.

2 By-product credits are computed as revenue per financial statements, including amortization of deferred revenue and pricing and volume adjustments.

3 Gold and silver by-product credits do not include variable consideration adjustments with respect to stream arrangements. Variable consideration adjustments are cumulative adjustments to gold and silver stream deferred revenue primarily associated with the net change in mineral reserves and resources or amendments to the mine plan that would change the total expected deliverable ounces under the precious metal streaming arrangement. For the three months ended March 31, 2022 the variable consideration adjustments amounted to income of $3,245. For the three months ended December 31, 2021 - nil. For the three months ended March 31, 2021 - income of $1,617.

4 Depreciation is based on concentrate sold.

5 As per IFRS financial statements.


TSX, NYSE - HBM
2022 No. 6

Peru

Three Months Ended

(in thousands)

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Net pounds of copper produced1

42,254

50,389

39,302

1 Contained copper in concentrate.

Peru

Three Months Ended

 

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Cash cost per
pound of copper
produced

$000s

$/lb

$000s

$/lb

$000s

$/lb

Mining

28,402

0.67

27,756

0.55

21,539

0.55

Milling

47,655

1.13

40,121

0.80

43,320

1.10

G&A

16,100

0.38

18,351

0.36

14,420

0.37

Onsite costs

92,157

2.18

86,228

1.71

79,279

2.02

Treatment & refining

7,585

0.18

8,636

0.17

6,614

0.17

Freight & other

9,477

0.22

11,609

0.23

8,688

0.22

Cash cost, before by-product credits

109,219

2.58

106,473

2.11

94,581

2.41

By-product credits

(43,997)

(1.04)

(41,900)

(0.83)

(22,864)

(0.58)

Cash cost, net of by-product credits

65,222

1.54

64,573

1.28

71,717

1.82


Peru

Three Months Ended

 

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Supplementary cash cost
information

$000s

$/lb1

$000s

$/lb1

$000s

$/lb1

By-product credits2:

 

 

 

 

 

 

Gold3

21,712

0.51

24,325

0.49

4,155

0.11

Silver3

12,991

0.31

7,793

0.15

9,337

0.24

Molybdenum

9,294

  0.22

9,782

  0.19

9,372

0.24

Total by-product credits

43,997

1.04

41,900

0.83

22,864

0.58

Reconciliation to IFRS:

 

 

 

 

 

 

Cash cost, net of by-product credits

65,222

 

64,573

 

71,717

 

By-product credits

43,997

 

41,900

 

22,864

 

Treatment and refining charges

(7,585)

 

(8,636)

 

(6,614)

 

Inventory adjustments

(461)

 

-

 

(723)

 

Share-based compensation expenses

98

 

145

 

19

 

Change in product inventory

(4,772)

 

(4,507)

 

(10,575)

 

Royalties

854

 

762

 

1,165

 

Depreciation and amortization4

48,362

 

54,078

 

40,435

 

Cost of sales5

145,715

 

148,315

 

118,288

 

1 Per pound of copper produced.

2 By-product credits are computed as revenue per financial statements, including amortization of deferred revenue and pricing and volume adjustments.

3 Gold and silver by-product credits do not include variable consideration adjustments with respect to stream arrangements.

4 Depreciation is based on concentrate sold.

5 As per IFRS financial statements.


TSX, NYSE - HBM
2022 No. 6

Manitoba

Three Months Ended

(in thousands)

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Net pounds of copper produced1

12,205

11,777

14,828

1 Contained copper in concentrate.

Manitoba

Three Months Ended

 

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Cash cost per pound of
copper produced

$000s

$/lb

$000s

$/lb

$000s

$/lb

Mining

59,433

4.87

58,891

5.01

54,420

3.67

Milling

21,509

1.76

22,193

1.88

12,662

0.85

Refining (Zinc)

18,376

1.51

19,008

1.61

19,607

1.32

G&A

22,893

1.88

13,746

1.17

15,787

1.06

Onsite costs

122,211

10.01

113,838

9.67

102,476

6.91

Treatment & refining

4,498

0.37

5,085

0.43

5,322

0.36

Freight & other

6,130

0.50

6,828

0.58

7,487

0.50

Cash cost, before by-product credits

132,839

10.88

125,751

10.68

115,285

7.77

By-product credits

(137,676)

(11.28)

(158,406)

(13.45)

(130,651)

(8.81)

Cash cost, net of by-product credits

(4,837)

(0.40)

(32,655)

(2.77)

(15,366)

(1.04)


Manitoba

Three Months Ended

 

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Supplementary cash cost information

$000s

$/lb

$000s

$/lb

$000s

$/lb

By-product credits2:

 

 

 

 

 

 

Zinc

67,129

5.50

74,585

6.33

77,593

6.15

Gold3

62,462

5.12

75,403

6.40

55,616

4.41

Silver3

5,648

0.46

7,060

0.60

7,040

0.56

Other

2,437

0.20

1,358

0.12

1,595

0.13

Total by-product credits

137,676

11.28

158,406

13.45

141,844

11.24

Reconciliation to IFRS:

 

 

 

 

 

 

Cash cost, net of by-product credits

(4,837)

 

(32,655)

 

(15,366)

 

By-product credits

137,676

 

158,406

 

130,651

 

Treatment and refining charges

(4,498)

 

(5,085)

 

(5,322)

 

Past service pension cost

-

 

737

 

-

 

Share-based compensation expenses

350

 

599

 

165

 

Change in product inventory

(16,148)

 

(11,740)

 

(12,289)

 

Royalties

2,364

 

2,832

 

2,738

 

Depreciation and amortization4

32,729

 

35,849

 

42,247

 

Cost of sales5

147,636

 

148,943

 

142,824

 

1 Per pound of copper produced.

2 By-product credits are computed as revenue per financial statements, including amortization of deferred revenue and pricing and volume adjustments.

3 Gold and silver by-product credits do not include variable consideration adjustments with respect to stream arrangements.

4 Depreciation is based on concentrate sold.

5 As per IFRS financial statements.


TSX, NYSE - HBM
2022 No. 6

Sustaining and All-in Sustaining Cash Cost Reconciliation

Consolidated

Three Months Ended

 

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

All-in sustaining cash cost per
pound of copper produced

$000s

$/lb

$000s

$/lb

$000s

$/lb

Cash cost, net of by-product credits

60,385

1.11

31,918

0.51

56,351

1.04

Cash sustaining capital expenditures

60,963

1.12

77,539

1.25

56,456

1.04

Capitalized exploration

-

-

8,000

0.13

-

-

Royalties

3,218

0.06

3,594

0.06

3,903

0.07

Sustaining cash cost, net of by-product credits

124,566

2.29

121,051

1.95

116,170

2.16

Corporate selling and administrative expenses & regional costs

13,060

0.24

14,729

0.24

10,765

0.20

Accretion and amortization of decommissioning and community agreements1

721

0.01

894

0.01

579

0.01

All-in sustaining cash cost, net of by-product credits

 

138,347

 

2.54

 

136,674

 

2.20

 

128,054

 

2.37

Reconciliation to property, plant and equipment additions:

 

 

 

 

 

 

Property, plant and equipment additions

39,399

 

91,432

 

82,378

 

Capitalized stripping net additions

24,146

 

19,201

 

18,625

 

Total accrued capital additions

63,545

 

110,633

 

101,003

 

Less other non-sustaining capital costs2

12,832

 

43,176

 

67,159

 

Total sustaining capital costs

50,713

 

67,457

 

33,844

 

Right of use leased assets

(7,772)

 

(6,714)

 

(1,321)

 

Capitalized lease cash payments - operating sites

9,259

 

9,099

 

9,188

 

Community agreement cash payments

3,772

 

1,266

 

235

 

Accretion and amortization of decommissioning and restoration obligations

4,991

 

6,431

 

14,510

 

Cash sustaining capital expenditures

60,963

 

77.539

 

56,456

 

1 Includes accretion of decommissioning relating to non-productive sites, and accretion and amortization of current community agreements.

2 Other non-sustaining capital costs include Arizona capitalized costs, capitalized interest, capitalized exploration, growth capital expenditures.


TSX, NYSE - HBM
2022 No. 6

Peru

Three Months Ended

 

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Sustaining cash cost per pound of copper produced

$000s

$/lb

$000s

$/lb

$000s

$/lb

Cash cost, net of by-product credits

65,222

1.54

64,573

1.28

71,717

1.82

Cash sustaining capital expenditures

30,039

0.71

50,423

1.00

19,802

0.50

Capitalized exploration1

-

0.00

8,000

0.16

-

0.00

Royalties

854

0.02

762

0.02

1,165

0.03

Sustaining cash cost per pound of copper produced

96,115

2.27

123,758

2.46

92,684

2.36

1 Only includes exploration costs incurred for locations near to existing mine operations.

Manitoba

Three Months Ended

 

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Sustaining cash cost per pound
of copper produced

$000s

$/lb

$000s

$/lb

$000s

$/lb

Cash cost, net of by-product credits

(4,837)

(0.40)

(32,655)

(2.77)

(15,366)

(1.04)

Cash sustaining capital expenditures

30,924

2.53

27,116

2.30

36,654

2.47

Royalties

2,364

0.19

2,832

0.24

2,738

0.18

Sustaining cash cost per pound of copper produced

28,451

2.33

(2,707)

(0.23)

24,026

1.62

Manitoba Gold Cash Cost and Sustaining Cash Cost Reconciliation

Manitoba

  Three Months Ended

 

 

 

Mar. 31, 2022

Net ounces of gold produced

 

 

 

 

 

43,167


Manitoba

Three Months Ended

 

 

 

Mar. 31, 2022

Cash cost per ounce of gold produced

 

 

 

 

$000s

$/oz

Cash cost, net of by-product credits

 

 

 

 

132,839

3,077

By-product credits

 

 

 

 

(114,874)

(2,661)

Gold cash cost, net of by-product credits

 

 

 

 

17,965

416



TSX, NYSE - HBM
2022 No. 6

Manitoba

Three Months Ended

 

 

 

Mar. 31, 2021

Supplementary cash cost information

 

 

 

 

$000s

$/oz1

By-product credits2:

 

 

 

 

 

 

Copper

 

 

 

 

39,660

919

Zinc

 

 

 

 

67,129

1,555

Silver3

 

 

 

 

5,648

131

Other

 

 

 

 

2,437

56

Total by-product credits

 

 

 

 

114,874

2,661

Reconciliation to IFRS:

 

 

 

 

 

 

Cash cost, net of by-product credits

 

 

 

 

17,965

 

Treatment and refining charges

 

 

 

 

114,874

 

Share-based compensation expenses

 

 

 

 

(4,498)

 

Change in product inventory

 

 

 

 

350

 

Royalties

 

 

 

 

(16,148)

 

Depreciation and amortization4

 

 

 

 

2,364

 

Cost of sales5

 

 

 

 

32,729

 

1 Per ounce of gold produced.

2 By-product credits are computed as revenue per financial statements, amortization of deferred revenue and pricing and volume adjustments. For more information, please see the realized price reconciliation table in the Q1 2022 Management Discussion and Analysis posted on hudbayminerals.com

3 Silver by-product credits do not include variable consideration adjustments with respect to stream arrangements.

4 Depreciation is based on concentrate sold.

5 As per IFRS financial statements.

Manitoba

Three Months Ended

 

 

 

Mar. 31, 2022

Sustaining cash cost per ounce of gold produced

 

 

 

 

$000s

$/oz

Gold cash cost, net of by-product credits

 

 

 

 

17,965

416

Cash sustaining capital expenditures

 

 

 

 

30,924

716

Royalties

 

 

 

 

2,364

55

Gold sustaining cash cost, net of by-product credits

 

 

 

 

51,253

1,187



TSX, NYSE - HBM
2022 No. 6

Combined Unit Cost Reconciliation

Peru

Three Months Ended

(in thousands except ore tonnes milled and unit cost per tonne)

 

 

 

Combined unit cost per tonne processed

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Mining

28,402

27,756

21,539

Milling

47,655

40,121

43,320

G&A 1

16,100

18,351

14,420

Other G&A2

(571)

(1,937)

19

 

91,586

84.291

79,298

Less: Covid related costs

2,321

4,041

4,601

Unit Cost

91,586

80,250

79,298

Tonnes ore milled

7,214

8,049

6,363

Combined unit cost per tonne

12.37

9.96

11.74

Reconciliation to IFRS:

 

 

 

Unit cost

89,265

80,250

74,697

Freight & other

9,477

11,609

8,688

Covid related costs

2,321

4,041

4,601

Other G&A

571

1,937

(19)

Share-based compensation expenses

98

145

19

Inventory adjustments

(461)

-

(723)

Change in product inventory

(4,772)

(4,507)

(10,575)

Royalties

854

762

1,165

Depreciation and amortization

48,362

54,078

40,435

Cost of sales3

145,715

148,315

118,288

1 G&A as per cash cost reconciliation above.

2 Other G&A primarily includes profit sharing costs.

3 As per IFRS financial statements.


TSX, NYSE - HBM
2022 No. 6

Manitoba

Three Months Ended

(in thousands except tonnes ore milled and unit cost per tonne)

 

 

 

Combined unit cost per tonne processed

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

Mining

59,433

58,891

54,420

Milling

21,509

22,193

12,662

G&A 1

22,893

13,746

15,787

Less: G&A allocated to zinc metal production

(13,407)

(3,762)

(3,818)

Unit cost

90,428

91,068

76,872

USD/CAD implicit exchange rate

1.27

1.26

1.27

Unit cost - C$

114,504

114,751

97,341

Tonnes ore milled

651,333

682,292

644,730

Combined unit cost per tonne - C$

176

168

151

Reconciliation to IFRS:

 

 

 

Unit cost

90,428

91,068

76,872

Freight & other

6,130

6,828

7,487

Refined (zinc)

18,376

19,008

19,607

G&A allocated to zinc metal production

13,407

3,762

3,818

Share-based compensation expenses

350

599

165

Past service pension cost

-

737

-

Change in product inventory

(16,148)

(11,740)

(12,289)

Royalties

2,364

2,832

2,738

Depreciation and amortization

32,729

35,849

42,247

Cost of sales2

147,636

148,943

142,824

1 G&A as per cash cost reconciliation above.

2 As per IFRS financial statements.

Forward-Looking Information

This news release contains forward-looking information within the meaning of applicable Canadian and United States securities legislation. All information contained in this news release, other than statements of current and historical fact, is forward-looking information. Often, but not always, forward-looking information can be identified by the use of words such as "plans", "expects", "budget", "guidance", "scheduled", "estimates", "forecasts", "strategy", "target", "intends", "objective", "goal", "understands", "anticipates" and "believes" (and variations of these or similar words) and statements that certain actions, events or results "may", "could", "would", "should", "might" "occur" or "be achieved" or "will be taken" (and variations of these or similar expressions). All of the forward-looking information in this news release is qualified by this cautionary note.

Forward-looking information includes, but is not limited to, production, cost and capital and exploration expenditure guidance, expectations regarding the impact of COVID-19 and inflationary pressures on the cost of operations, financial condition and prospects, expectations regarding our cash balance and liquidity for the remainder of the year, expectations regarding future railcar availability and selling down excess inventory, expectations regarding the preliminary economic assessment of the Copper World project, including the timeline for completion, positive results and a potential alternative development plan for Rosemont, expectations regarding the litigation that has been commenced against Copper World and ongoing litigation in respect of Rosemont, expectations regarding the permitting requirements for Copper World, expectations regarding the Snow Lake gold strategy, including  anticipated timelines for achieving target throughput and recoveries at the New Britannia mill, increasing the mining rate at Lalor to 5,300 tonnes per day and implementing the Stall mill recovery improvement program, expectations regarding the  Flin Flon closure process and the transition of personnel and equipment to Snow Lake, expectations regarding the potential to reprocess Flin Flon tailings in the future and the possible benefits of such a project, the potential and Hudbay's anticipated plans for advancing the mining of its properties surrounding Constancia and elsewhere in Peru, anticipated mine plans, anticipated metals prices and the anticipated sensitivity of the company's financial performance to metals prices, events that may affect its operations and development projects, anticipated cash flows from operations and related liquidity requirements, the anticipated effect of external factors on revenue, such as commodity prices, estimation of mineral reserves and resources, mine life projections, reclamation costs, economic outlook, government regulation of mining operations, and business and acquisition strategies. Forward-looking information is not, and cannot be, a guarantee of future results or events. Forward-looking information is based on, among other things, opinions, assumptions, estimates and analyses that, while considered reasonable by the company at the date the forward-looking information is provided, inherently are subject to significant risks, uncertainties, contingencies and other factors that may cause actual results and events to be materially different from those expressed or implied by the forward-looking information. 


TSX, NYSE - HBM
2022 No. 6

The material factors or assumptions that Hudbay has identified and applied in drawing conclusions or making forecasts or projections are set out in the forward-looking information include, but are not limited to:

  • Hudbay's ability to continue to operate safely and at full capacity despite COVID-19 related challenges;
  • the availability, global supply and effectiveness of COVID-19 vaccines, the effective distribution of such vaccines in the countries in which the company operates, the lessening of restrictions related to COVID-19, and the anticipated rate and timing for each of the foregoing;
  • the ability to achieve production and cost guidance;
  • no significant interruptions to operations due to COVID-19 or social or political unrest in the regions Hudbay operates;
  • a positive preliminary economic assessment in respect of Copper World;
  • the successful outcome of the Copper World and Rosemont litigation proceedings;
  • the ability to ramp-up the New Britannia mill to target throughput and recoveries and achieve the anticipated production;
  • the economic prospects of reprocessing Flin Flon tailings;
  • the success of mining, processing, exploration and development activities;
  • the scheduled maintenance and availability of Hudbay's processing facilities;
  • the accuracy of geological, mining and metallurgical estimates;
  • anticipated metals prices and the costs of production;
  • the supply and demand for metals the company produces;
  • the supply and availability of all forms of energy and fuels at reasonable prices;
  • no significant unanticipated operational or technical difficulties;
  • the execution of business and growth strategies, including the success of the company's strategic investments and initiatives;
  • the availability of additional financing, if needed;
  • the ability to complete project targets on time and on budget and other events that may affect Hudbay's ability to develop its projects;
  • the timing and receipt of various regulatory and governmental approvals;
  • the availability of personnel for exploration, development and operational projects and ongoing employee relations;
  • maintaining good relations with the labour unions that represent certain of Hudbay's employees in Manitoba and Peru;
  • maintaining good relations with the communities in which Hudbay operates, including the neighbouring Indigenous communities and local governments;
  • no significant unanticipated challenges with stakeholders at various projects;
  • no significant unanticipated events or changes relating to regulatory, environmental, health and safety matters;

TSX, NYSE - HBM
2022 No. 6
  • no contests over title to the company's properties, including as a result of rights or claimed rights of Indigenous peoples or challenges to the validity of Hudbay's unpatented mining claims;
  • the timing and possible outcome of pending litigation and no significant unanticipated litigation;
  • certain tax matters, including, but not limited to current tax laws and regulations, changes in taxation policies and the refund of certain value added taxes from the Canadian and Peruvian governments; and
  • no significant and continuing adverse changes in general economic conditions or conditions in the financial markets (including commodity prices and foreign exchange rates).

The risks, uncertainties, contingencies and other factors that may cause actual results to differ materially from those expressed or implied by the forward-looking information may include, but are not limited to, risks associated with COVID-19 and its effect on our operations, financial condition, projects and prospects, uncertainties related to the closure of the 777 mine and the Flin Flon operations, the direct and indirect impacts of the change in government in Peru, future uncertainty with respect to the Peruvian mining tax regime and social unrest in Peru, risks generally associated with the mining industry and the current geopolitical environment, including future commodity prices, currency and interest rate fluctuations, energy and consumable prices, supply chain constraints and general cost escalation in the current inflationary environment, uncertainties related to the development and operation of our projects, risks related to the preliminary economic assessment of Copper World, including its effect on the current Rosemont mineral reserves and the potential for it to trigger an indicator of impairment or impairment reversal with respect to Rosemont, risks related to the ongoing Copper World and Rosemont litigation processes and other legal challenges that could affect the permitting timeline for Copper World or Rosemont, risks related to the new Lalor mine plan, including the continuing ramp-up of the New Britannia mill and the ability to convert inferred mineral resource estimates to higher confidence categories, risks related to the technical and economic prospects of reprocessing Flin Flon tailings, the potential that additional financial assurance will be required to support the updated Flin Flon closure plan, dependence on key personnel and employee and union relations, risks related to political or social instability, unrest or change, risks in respect of Indigenous and community relations, rights and title claims, operational risks and hazards, including the cost of maintaining and upgrading the Company's tailings management facilities and any unanticipated environmental, industrial and geological events and developments and the inability to insure against all risks, failure of plant, equipment, processes, transportation and other infrastructure to operate as anticipated, compliance with government and environmental regulations, including permitting requirements and anti-bribery legislation, depletion of our reserves, volatile financial markets and interest rates that may affect our ability to obtain additional financing on acceptable terms, the failure to obtain required approvals or clearances from government authorities on a timely basis, uncertainties related to the geology, continuity, grade and estimates of mineral reserves and resources, and the potential for variations in grade and recovery rates, uncertain costs of reclamation activities, our ability to comply with our pension and other post-retirement obligations, our ability to abide by the covenants in our debt instruments and other material contracts, tax refunds, hedging transactions, as well as the risks discussed under the heading "Financial Risk Management" in Hudbay's Management's Discussion and Analysis for the period ended March 31, 2022 and "Risk Factors" in Hudbay's most recent Annual Information Form.

Should one or more risk, uncertainty, contingency or other factor materialize or should any factor or assumption prove incorrect, actual results could vary materially from those expressed or implied in the forward-looking information. Accordingly, you should not place undue reliance on forward-looking information. Hudbay does not assume any obligation to update or revise any forward-looking information after the date of this news release or to explain any material difference between subsequent actual events and any forward-looking information, except as required by applicable law.


TSX, NYSE - HBM
2022 No. 6

Note to United States Investors

This news release has been prepared in accordance with the requirements of the securities laws in effect in Canada, which may differ materially from the requirements of United States securities laws applicable to U.S. issuers.

About Hudbay

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

For further information, please contact:

Candace Brûlé

Vice President, Investor Relations

(416) 814-4387

candace.brule@hudbay.com

 

_________________________________________
1 Adjusted net earnings and adjusted net earnings per share; adjusted EBITDA; cash cost, sustaining cash cost and all-in sustaining cash cost per pound of copper produced, net of by-product credits; cash cost and sustaining cash cost per ounce of gold produced, net of by-product credits; and net debt are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the "Non-IFRS Financial Reporting Measures" section of this news release.


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