Interim Financial Statements for the three and six months ended June 30, 2010

EX-99.12 13 dex9912.htm INTERIM FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 Interim Financial Statements for the three and six months ended June 30, 2010

Exhibit 99.12

Interim Consolidated Financial Statements

(In Canadian dollars)

HUDBAY MINERALS INC.

For the three and six months ended June 30, 2010

HUDBAY MINERALS INC.

Consolidated Balance Sheets

(Unaudited and in thousands of Canadian dollars)


	June 30, 2010		December 31, 2009

Assets

Current assets
Cash and cash equivalents (note 4)	$	911,778	$	886,814
Accounts receivable		49,840		40,187
Income taxes receivable		—		14,894
Inventories (note 5)		85,424		131,128
Prepaid expenses and other current assets		5,957		7,990
Future income and mining tax assets (note 10b)		15,011		23,152
Current portion of fair value of derivatives (note 13c)		8,181		1,106

		1,076,191		1,105,271
Property, plant and equipment (note 6)		835,996		818,634
Available-for-sale investments (notes 12, 13)		19,994		27,249
Other assets (note 7)		89,903		81,113


	$	2,022,084	$	2,032,267


Liabilities and Equity

Current liabilities
Accounts payable and accrued liabilities	$	100,000	$	114,204
Taxes payable		29,141		1,250
Current portion of other liabilities (note 8)		23,439		40,228

		152,580		155,682
Pension obligations		9,511		516
Other employee future benefits and stock-based compensation (note 11d)		84,453		81,287
Asset retirement obligations		54,431		49,133
Future income tax liabilities (note 10b)		35,276		34,927
Fair value of derivatives (note 13c)		243		7,068

		336,494		328,613


Shareholders’ equity
Share capital (note 11b)		624,155		644,127
Contributed surplus (note 11e)		23,491		26,717
Retained earnings		1,026,129		1,025,060
Accumulated other comprehensive income (note 12)		10,634		6,445

		1,684,409		1,702,349
Non-controlling interest		1,181		1,305


		1,685,590		1,703,654


	$	2,022,084	$	2,032,267

See accompanying notes to the interim consolidated financial statements.

HUDBAY MINERALS INC.

Consolidated Statements of Earnings

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


	Three months ended June 30						Six months ended June 30
	2010			2009			2010			2009

Revenue (note 15)	$	191,851		$	197,657		$	432,171		$	359,441


Expenses
Operating		118,190			145,543			263,032			280,643
Depreciation and amortization		29,992			23,224			57,351			44,256
General and administrative		6,251			7,205			11,744			20,333
Stock-based compensation (note 11c, d, e)		667			533			1,123			2,730
Accretion of asset retirement obligations		1,210			1,113			2,420			2,226
Foreign exchange (gain) loss		(4,174	)		14,665			701			9,418

		152,136			192,283			336,371			359,606


Earnings (loss) before the following:		39,715			5,374			95,800			(165	)

Exploration		(7,245	)		(1,577	)		(13,000	)		(2,632	)
Interest and other income (note 16)		956			100,966			2,984			102,906
Gain (loss) on derivative instruments		1,257			(58	)		1,264			(684	)


Earnings before tax		34,683			104,705			87,048			99,425

Tax expense (note 10a)		21,410			15,290			50,216			13,968


Net earnings for the period	$	13,273		$	89,415		$	36,832		$	85,457


Earnings per share:
Basic	$	0.09		$	0.58		$	0.24		$	0.56
Diluted	$	0.09		$	0.58		$	0.24		$	0.56

Weighted average number of common shares outstanding (note 17):
Basic		150,795,852			153,228,805			152,215,266			153,128,078
Diluted		151,390,155			153,815,018			152,864,256			153,604,335

HUDBAY MINERALS INC.

Consolidated Statements of Cash Flows

(Unaudited and in thousands of Canadian dollars)


	Three months ended						Six months ended
	June 30						June 30
	2010			2009			2010			2009
Cash provided by (used in):
Operating activities
Net earnings for the period	$	13,273		$	89,415		$	36,832		$	85,457
Items not affecting cash:
Depreciation and amortization		29,992			23,224			57,351			44,256
Stock-based compensation (note 11c,d)		667			533			1,123			2,730
Accretion on asset retirement obligations		1,210			1,113			2,420			2,226
Foreign exchange (gain) loss		(2,643	)		5,949			(641	)		3,551
Change in fair value of derivatives		(419	)		23			(503	)		(20	)
Future tax (benefit) expense (note 10a)		(109	)		13,015			8,605			11,171
Net gains reclassified from OCI (note 12)		(755	)		(102,406	)		(2,352	)		(104,602	)
Other		(189	)		(2,001	)		(2,737	)		(1,932	)

		41,027			28,865			100,098			42,837
Change in non-cash working capital (note 14a)		43,629			3,080			58,695			(32,870	)

		84,656			31,945			158,793			9,967

Investing activities
Additions to property, plant and equipment		(41,964	)		(25,110	)		(73,284	)		(47,592	)
Proceeds from sale of investments		—			235,704			2,021			235,704
Purchase of other non-current investments		—			—			(1,930	)		(817	)
Additions to restricted cash		(1,932	)		(1,922	)		(1,932	)		(54,566	)
Release of cash held in trust		—			—			—			3,885
Sale of short-term investments		—			—			—			478,941

		(43,896	)		208,672			(75,125	)		615,555

Financing activities
Repayment of Senior Secured Notes		—			—			—			(3,764	)
Repayment of obligations under capital leases		—			(103	)		—			(204	)
Repurchase of common shares (note 11b)		(41,740	)		—			(60,309	)		—
Proceeds on exercise of stock options		122			1,562			964			1,783

		(41,618	)		1,459			(59,345	)		(2,185	)

Effect of exchange rate changes on cash and cash equivalents		2,643			(5,949	)		641			(3,108	)

Change in cash and cash equivalents		1,785			236,127			24,964			620,229
Cash and cash equivalents, beginning of period		909,993			609,829			886,814			225,727


Cash and cash equivalents, end of period (note 4)	$	911,778		$	845,956		$	911,778		$	845,956

For supplemental information, see note 14.

HUDBAY MINERALS INC.

Consolidated Statements of Retained Earnings

(Unaudited and in thousands of Canadian dollars)


	Three months ended June 30						Six months ended June 30
	2010			2009			2010			2009

Retained earnings, beginning of period	$	1,036,228		$	908,331		$	1,025,060		$	912,289

Net earnings for the period		13,273			89,415			36,832			85,457

Share repurchases (note 11b)		(23,372	)		—			(35,763	)		—


Retained earnings, end of period	$	1,026,129		$	997,746		$	1,026,129		$	997,746

Consolidated Statements of Comprehensive Income (Unaudited and in thousands of Canadian dollars)
	Three months ended						Six months ended
	June 30						June 30
	2010			2009			2010			2009

Net earnings for the period	$	13,273		$	89,415		$	36,832		$	85,457


Other comprehensive income (loss), net of tax (note 12):
Cash flow hedges		7,799			(1,876	)		12,331			(3,379	)
Amounts reclassified to earnings on realization		(525	)		—			(867	)		—
Net (losses) gains on available-for-sale investments		(5,444	)		41,227			(6,325	)		108,852
Amounts reclassified to earnings on disposal of available-for-sale investments		—			(79,970	)		(950	)		(79,970	)
Currency translation adjustments		—			—			—			(23	)

		1,830			(40,619	)		4,189			25,480


Comprehensive income for the period	$	15,103		$	48,796		$	41,021		$	110,937

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

1.	Nature of business

HudBay Minerals Inc. (the “Company” or “HudBay”) is a Canadian company continued under the Canada Business Corporations Act on October 25, 2005. HudBay is a Canadian-based, integrated base metals mining, metallurgical processing and refining company with assets in North and Central America. HudBay owns zinc and copper mines, concentrators and metal production facilities in northern Manitoba and Saskatchewan, a zinc oxide production facility in Ontario, a copper refinery in Michigan and a nickel project in Guatemala. In addition to its primary products, zinc and copper, HudBay also produces gold, silver and zinc oxide.

2.	Basis of presentation and principles of consolidation

Management has prepared these interim consolidated financial statements in accordance with Canadian generally accepted accounting principles (“GAAP”) following the same accounting policies as disclosed in the audited consolidated financial statements for the year ended December 31, 2009, except as indicated in note 3.

These unaudited interim consolidated financial statements do not include all of the information and disclosures required by Canadian GAAP for audited annual financial statements. In the opinion of management, all adjustments considered necessary for fair presentation have been included in these unaudited interim consolidated financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the most recent audited annual consolidated financial statements of the Company, including the notes thereto.

3.	Adoption of new accounting standards

(a)

Adopted in 2010:

Effective January 1, 2010, the Company early adopted the following Canadian Institute of Chartered Accountants (“CICA”) recommendations:

Business Combinations, Consolidated Financial Statements and Non-Controlling Interests

In January 2009, the CICA issued Handbook Section 1582, Business Combinations, replacing Section 1581 of the same name. Section 1582 establishes standards for the accounting for business combinations that are equivalent to the business combination accounting standards under International Financial Reporting Standards (“IFRS”). Prospective application of Section 1582 is required for the Company’s business combinations with acquisition dates on or after January 1, 2011 with early adoption permitted. Section 1582 requires business acquisitions to be measured at the acquisition-date fair value, generally requires acquisition-related costs to be expensed, requires gains from bargain purchases to be recorded in earnings (loss), and expands the definition of a business to include certain development stage entities. It also requires the acquirer to measure any non-controlling interest either at fair value or at the non-controlling interest’s proportionate share of the acquirer’s identifiable net assets. Adoption of Section 1582 did not have an effect on the Company’s consolidated financial statements.

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

The CICA concurrently issued Section 1601, Consolidated Financial Statements, and Section 1602, Non-controlling Interests, which together replace the existing Section 1600, Consolidated Financial Statements. Sections 1601 and 1602 apply to the Company’s interim and annual consolidated financial statements for its fiscal year beginning January 1, 2011, unless they are early adopted at the same time as Section 1582. Sections 1601 and 1602 establish standards equivalent to those under IFRS for the preparation of consolidated financial statements and the accounting for non-controlling interests in consolidated financial statements, including accounting for non-controlling interests upon a change in ownership interest or loss of control of a subsidiary. Section 1602 requires attribution of comprehensive income to owners of the parent entity and to non-controlling interests, even if it results in the non-controlling interests having a deficit balance. The Company applied these sections prospectively, except for presentation and disclosure requirements, which were applied retrospectively. As a result of adopting these sections, the Company has presented non-controlling interests as a separate component of equity on the balance sheet.

(b)

Future accounting changes:

International Financial Reporting Standards

The Canadian Accounting Standards Board (“AcSB”) has confirmed that Canadian publicly accountable entities will be required to prepare their financial statements in accordance with IFRS for fiscal years beginning on or after January 1, 2011. As a result, IFRS will be adopted by the Company on January 1, 2011, and its first set of IFRS compliant financial statements will be for the quarter ending March 31, 2011, with comparative information presented on an IFRS basis. The Company is currently assessing the impact the adoption of IFRS will have on its consolidated financial statements.

4.	Cash and cash equivalents


	June 30, 2010		December 31, 2009

Cash and cash equivalents:
Cash on hand and demand deposits	$	886,762	$	76,297
Short-term money market instruments with original maturities of three months or less		25,016		810,517


	$	911,778	$	886,814

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

5.	Inventories


	June 30, 2010		December 31, 2009

Work-in-process	$	37,503	$	51,250
Finished goods		27,918		59,595
Materials and supplies		20,003		20,283


	$	85,424	$	131,128

6.	Property, plant and equipment


June 30, 2010	Cost		Accumulated depreciation and amortization		Net book value

Buildings and equipment	$	496,540	$	193,079	$	303,461
Mine development		349,736		245,132		104,604
Mineral properties		427,931		—		427,931


	$	1,274,207	$	438,211	$	835,996


December 31, 2009	Cost		Accumulated depreciation and amortization		Net book value

Buildings and equipment	$	470,350	$	161,622	$	308,728
Mine development		326,011		219,427		106,584
Mineral properties		403,322		—		403,322


	$	1,199,683	$	381,049	$	818,634

7.	Other assets


	June 30, 2010		December 31, 2009

Restricted cash	$	60,963	$	59,031
Computer software		3,533		1,966
Long-term portion of future tax asset (note 10b)		20,759		19,720
Long-term portion of fair value of derivatives (note 13c)		4,648		258
Investments, at fair value through earnings		—		138


	$	89,903	$	81,113

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

8.	Current portion of other liabilities


	June 30, 2010		December 31, 2009

Current portion of:
Pension obligation	$	11,603	$	28,447
Asset retirement obligation		5,079		5,327
Other employee future benefits		3,002		2,876
Fair value of derivatives (note 13c)		3,685		3,503
Future tax liabilities (note 10b)		70		75


	$	23,439	$	40,228

9.	Pension and other employee future benefit expense


	Three months ended June 30				Six months ended June 30
	2010		2009		2010		2009

Defined benefit pension	$	3,408	$	2,047	$	6,156	$	4,828
Other employee future benefits		1,857		1,998		3,714		3,672
Defined contribution pension		185		176		338		359


	$	5,450	$	4,221	$	10,208	$	8,859

10.

Income and mining taxes

(a)

Tax expense:


		Three months ended June 30						Six months ended June 30
		2010			2009			2010		2009

Current	- income taxes	$	13,404		$	3,462		$	26,044	$	3,897
	- mining taxes		8,115			(1,187	)		15,567		(1,100	)

			21,519			2,275			41,611		2,797


Future	- income taxes		(1,048	)		4,319			5,390		931
	- mining taxes		939			8,696			3,215		10,240

			(109	)		13,015			8,605		11,171


		$	21,410		$	15,290		$	50,216	$	13,968

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

(b)

Future tax assets and liabilities as represented on the balance sheet:


	June 30, 2010		December 31, 2009

Future tax assets
Current portion	$	15,011	$	23,152
Long-term portion (note 7)		20,759		19,720

		35,770		42,872


Future tax liabilities
Current portion (note 8)		70		75
Long-term portion		35,276		34,927

		35,346		35,002


	$	424	$	7,870

(c)

Changes in future tax assets and liabilities:


	Three months ended June 30						Six months ended June 30
	2010			2009			2010			2009

Balance, beginning of period	$	(566	)	$	1,227		$	7,870		$	12,359
Future tax benefit (expense)		109			(13,015	)		(8,605	)		(11,171	)
OCI (loss) transactions		881			11,810			1,159			(1,052	)
Other		—			141			—			27


Balance, end of period	$	424		$	163		$	424		$	163

The future income tax assets are net of a valuation allowance that represents management’s estimate of the allowance necessary to recognize the future tax assets at an amount that the Company considers is more likely than not to be realized.

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

11.

Share capital

(a)

Preference shares:


Authorized:		Unlimited preference shares

Issued:		none

(b)

Common shares:


Authorized:		Unlimited common shares

Issued:


	Three months ended June 30, 2010					Six months ended June 30, 2010
	Common shares		Amount			Common shares		Amount

Balance, beginning of period	152,192,687		$	637,825		153,854,655		$	644,127
Exercise of options	15,000			152		101,132			1,175
Shares repurchased	(3,299,000	)		(13,822	)	(5,047,100	)		(21,147	)


Balance, end of period	148,908,687		$	624,155		148,908,687		$	624,155

During the six months ended June 30, 2010, the Company repurchased for cancellation 5,047,100 common shares at a cost of $60,309. The Company recorded a reduction in share capital of $21,147 for the six months ended June 30, 2010. The excess cost over the average book value of the shares was recorded as a reduction to contributed surplus of $3,399 and a reduction to retained earnings of $35,763.

During the three months ended June 30, 2010, the Company repurchased for cancellation 3,299,000 common shares at a cost of $37,194. The Company recorded a reduction in share capital of $13,822 and a reduction to retained earnings of $23,372.

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

(c)

Stock option plan:


	Three months ended June 30, 2010				Six months ended June 30, 2010
	Number of shares subject to option		Weighted average exercise price		Number of shares subject to option		Weighted average exercise price

Balance, beginning of period	4,087,464		$	14.24	4,637,113		$	14.25
Exercised	(15,000	)		8.13	(101,132	)		9.53
Forfeited/cancelled	(36,667	)		15.50	(143,334	)		10.26
Expired	—			—	(356,850	)		17.20


Balance, end of period	4,035,797		$	14.25	4,035,797		$	15.77

The Company did not grant any options during the six months ended June 30, 2010.

The following table summarizes the options outstanding at June 30, 2010:


		Options outstanding				Options exercisable
Range of exercise prices		Number of options outstanding	Weighted- average remaining contractual life (years)	Weighted- average exercise price		Number of options exercisable	Weighted- average exercise price
$	2.59 - 7.33	529,697	4.9	$	2.62	529,697	$	2.62
	7.34 - 11.03	1,067,652	4.6		9.54	800,983		9.70
	11.04 - 15.86	787,948	7.7		15.85	787,948		15.85
	15.87 - 17.95	368,254	3.9		17.19	364,921		17.19
	17.96 - 23.74	1,282,246	6.6		21.14	1,282,246		21.14


$	2.59 - 23.74	4,035,797	5.81	$	14.25	3,765,795	$	14.61

(d)

Stock-based compensation plans:

The Company offers a deferred share unit (“DSU”) plan for non-employee members of the Board of Directors and a restricted share unit (“RSU”) plan for employees. Share units under these plans are notional shares; the value of one share unit represents the value of one HudBay common share. DSU and RSU liabilities are presented in other employee future benefits and stock-based compensation on the balance sheet. Changes in the liabilities are recognized in the income statement and presented in stock-based compensation expense.

DSU plan

DSUs vest on the grant date and are redeemable with a cash payment when a participant is no longer a member of the Board of Directors. Issue and redemption prices of DSUs are based on the average closing price of the Company’s common shares for the five trading days prior to issuance or

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

redemption. DSUs are initially measured at their issue price and recognized as a liability at the grant date. The liability is revalued, based on the change in the Company’s share price, at each reporting date up to and including the settlement date. During the six months ended June 30, 2010, the Company granted 58,662 DSUs at a weighted average issue price of $12.86 (three months ended June 30, 2010 - 42,493 granted). As at December 31, 2009, 87,724 DSUs at a weighted average price of $9.90 were outstanding.

At June 30, 2010, the Company’s DSU liability was $1,635 (December 31, 2009: $1,190). During the six months ended June 30, 2010, the Company recognized stock-based compensation expense related to the DSU plan of $445 (three months ended June 30, 2010 - $315).

RSU plan

RSUs, which are granted under the Company’s long-term equity plan, vest on the third anniversary of the grant date, subject to the Board’s discretion to set other terms. On the vest date, the Company has the option to settle RSUs either in common shares of the Company or with a cash payment based on the closing price of the Company’s common shares for the last trading date before the vest date. Under the long-term equity plan, a maximum of one million common shares of the Company may be issued from treasury. Management expects RSUs will be settled in cash. Except in specified circumstances, RSUs terminate when an employee ceases to be employed by the Company.

RSUs are measured at each reporting date, up to and including the settlement date, based on the closing price of the Company’s common shares, adjusted to reflect estimated forfeitures and to reflect the portion of the service period that had been performed by the end of the reporting date. During the six months ended June 30, 2010, the Company granted 284,289 RSUs at a weighted average price of $13.37 at the grant date (three months ended June 30, 2010 - 0). No RSUs were granted or outstanding in 2009.

At June 30, 2010, the Company’s RSU liability was $304 (December 31, 2009: $0). During the six months ended ended June 30, 2010, the Company recognized stock-based compensation expense related to the RSU plan of $304 (three months ended June 30, 2010 - $234).

(e)

Contributed surplus:


	Three months ended June 30						Six months ended June 30
	2010			2009			2010			2009

Balance, beginning of period	$	23,396		$	34,422		$	26,717		$	32,345
Stock-based compensation (note 11c)		128			533			387			2,730
Transfer to common shares on exercise of stock options		(33	)		(1,156	)		(214	)		(1,295	)
Share repurchases (note 11b)		—			—			(3,399	)		—
Warrants forfeited		—			—			—			19


Balance, end of period	$	23,491		$	33,799		$	23,491		$	33,799

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

12.

Accumulated other comprehensive income (loss) (“OCI”)


	Three months ended June 30						Six months ended June 30
	2010			2009			2010			2009

Accumulated OCI (loss), beginning of period:

Cash flow hedge (losses) gains
(net of tax of $391, ($2,297), $2,169, ($2,954))	$	(591	)	$	5,642		$	(4,782	)	$	7,145
Gains (losses) on investments
(net of tax of ($2,101), ($12,875), ($2,379), $0)		9,395			42,123			11,227			(25,502	)
Currency translation adjustments
(net of tax of $0, $0, $0, ($13))		—			—			—			23

		8,804			47,765			6,445			(18,334	)


OCI (loss) for the period:

Effective portion of changes in fair value of cash flow hedges		11,133			—			17,604			—
Less: reclassified to earnings		(755	)		(2,498	)		(1,258	)		(4,658	)
Changes in fair value of investments		(6,325	)		49,355			(7,340	)		129,855
Less: reclassified to earnings		—			(99,908	)		(1,094	)		(99,908	)
Currency translation adjustments		—			—			—			—
Less: reclassified to earnings		—			—			—			(36	)

OCI (loss), before tax		4,053			(53,051	)		7,912			25,253
Income tax (expense) benefit related to OCI		(2,223	)		12,432			(3,723	)		227

OCI (loss) for the period, net of tax		1,830			(40,619	)		4,189			25,480


Accumulated OCI, end of period:

Cash flow hedge gains (losses)
(net of tax of ($2,712), ($1,675), ($2,712), ($1,675))		6,683			3,766			6,683			3,766
Gains (losses) on investments
(net of tax of ($1,221), ($1,065), ($1,221), ($1,065))		3,951			3,380			3,951			3,380


Accumulated OCI, end of period	$	10,634		$	7,146		$	10,634		$	7,146

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

13.

Financial instruments

(a)

Fair value and carrying value of financial instruments:

The following presents the fair value and carrying value of the Company’s financial instruments and non-financial derivatives:


	Classification	June 30, 2010			December 31, 2009

Financial assets
Cash and cash equivalents ¹	FV through earnings	$	911,778		$	886,814
Accounts receivable
Trade and other receivables ¹	Loans & receivables		49,944			39,978
Embedded derivatives ²	FV through earnings		(104	)		209
Derivative assets
Hedging derivatives ²	Hedging derivatives		9,364			390
Non-hedge derivative assets ²	FV through earnings		3,465			974
Available-for-sale investments ³	Available-for-sale		19,994			27,249
Investments at fair value through earnings	FV through earnings		—			138
Restricted cash ¹	FV through earnings		60,963			59,031

		$	1,055,404		$	1,014,783


Financial liabilities
Accounts payable
Trade payables & accrued liabilities ¹	Other financial liabilities	$	100,254		$	113,647
Embedded derivatives ²	FV through earnings		(254	)		557
Derivative liabilities
Hedging derivatives ²	Hedging derivatives		115			9,823
Non-hedge derivative liabilities ²	FV through earnings		3,813			748

		$	103,928		$	124,775


Net financial assets		$	951,476		$	890,008

Carrying values of cash and cash equivalents and restricted cash, which are classified as held-for-trading, and measured at fair value, have been classified as Level 1 in the fair value hierarchy. The carrying values of accounts receivable, accounts payable and accrued liabilities approximate their fair values due to their short-term nature and thus have not been classified within the fair value hierarchy.

Derivatives and embedded provisional pricing derivatives are measured using Level 2 fair value measurements and are carried at their fair value. These are determined based on internal valuation models that reflect observable forward commodity prices and exchange rates, currency exchange rates and discount factors based on market U.S. dollar interest rates. Transactions involving derivatives are with counterparties the Company believes to be creditworthy.

³	Available-for-sale investments are measured using Level 1 fair value measurements and are listed shares carried at their fair values, which are determined using quoted market bid prices in active markets.

(b)

Credit risk:

The Company’s credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its obligations. The Company’s maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative assets, on the balance sheet.

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

The Company has a credit policy in place that requires it to obtain credit insurance from an investment grade credit insurance provider to mitigate exposure to credit risk in its receivables. The deductible and any additional exposure to credit risk is monitored and approved on an ongoing basis. Transactions involving derivatives are with counterparties the Company believes to be creditworthy. Adverse economic conditions could cause an increase in the rate of customer bad debts relative to historical experience, although this may be mitigated by the credit insurance described above. The Company uses an allowance to provide for doubtful accounts receivable. During the six months ended June 30, 2010, the allowance decreased by $15. As at June 30, 2010, less than 1% of the Company’s trade accounts receivable was past due.

Three customers accounted for approximately 12%, 11% and 10%, respectively, of total revenue during the six months ended June 30, 2010 (three months ended June 30, 2010 - approximately 21%, 13% and 12%, respectively, of total revenue).

(c)

Derivatives:

Fair value of derivatives, as presented on the balance sheet:


June 30, 2010	Non-hedge derivative zinc contracts			Cash flow hedging derivatives		Total

Derivative assets:
Current portion	$	3,332		$	4,849	$	8,181
Long-term portion (note 7)		133			4,515		4,648

		3,465			9,364		12,829


Derivative liabilities:
Current portion (note 8)		3,685			—		3,685
Long-term portion		128			115		243

		3,813			115		3,928


Net derivative (liability) asset	$	(348	)	$	9,249	$	8,901

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010


December 31, 2009	Non-hedge derivative zinc contracts		Cash flow hedging derivatives			Total

Derivative assets:
Current portion	$	974	$	132		$	1,106
Long-term portion (note 7)		—		258			258

		974		390			1,364


Derivative liabilities:
Current portion (note 8)		748		2,755			3,503
Long-term portion		—		7,068			7,068

		748		9,823			10,571


Net derivative asset (liability)	$	226	$	(9,433	)	$	(9,207	)

Non-hedge derivative zinc contracts

HudBay enters into fixed price sales contracts with zinc and zinc oxide customers and, to ensure the Company continues to receive a floating or unhedged realized zinc price, enters into forward zinc purchase contracts that effectively offset the fixed price sales contracts. Forward purchases and forward customer sales of zinc are recorded as derivatives. Gains and losses on these contracts are recorded in revenues, and cash flows are classified in operating activities. However, forward customer sales of zinc oxide do not qualify as derivatives.

At June 30, 2010, the Company held contracts for forward zinc purchases of 1,284 tonnes that related to non-derivative forward customer sales of zinc oxide. Prices ranged from US$1,722 to US$2,430 per tonne, and settlement dates extended out to fifteen months in the future. In addition, the Company held contracts for forward zinc purchases of 10,892 tonnes that substantially offset forward customer zinc sales of 10,892 tonnes, which have been recorded as derivatives.

Embedded provisional pricing derivatives

The Company records embedded derivatives (presented in accounts receivable and accounts payable) related to provisional pricing in concentrate purchase, concentrate sale, anode 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 based on quoted market prices during the quotational period specified in the contract. The period between provisional pricing and final pricing is typically up to three months. At each reporting date, provisionally priced metals are marked to market based on the forward market price for the quotational period stipulated in the contract, with changes in fair value recognized in revenues for sales contracts and in operating expenses for purchase concentrate contracts. Cash flows are classified in operating activities. At June 30, 2010, the Company’s net position consisted of contracts awaiting final pricing for purchases of 3,645 tonnes of zinc, sales of 2,385 tonnes of copper, sales of 4,974 ounces of gold and sales of 64,536 ounces of silver.

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

Cash flow hedges

During 2009, the Company entered into a foreign exchange swap contract to hedge foreign exchange risk for future receipts of US dollars and commodity swap contracts to hedge prices for a portion of future sales of zinc. These contracts will expire in mid-2012. The risk management objective for these hedging relationships is to mitigate the impact on the Company of fluctuating zinc prices and exchange rates. Cash flow hedge accounting has been applied to the hedging relationships. As at June 30, 2010, the zinc swap contracts have been recorded as hedging net derivative assets at their fair value of $9,353 and the foreign exchange swap contract has been recorded as a hedging net derivative liability at its fair value of $104.

For the six months ended June 30, 2010, the Company recorded pre-tax net gains of $17,604 (2009 -$0) to OCI for the effective portion of the cash flow hedges and recorded pre-tax net gains of $1,025 (2009 - $0) in earnings for the ineffective portion. Ineffective gains and losses are included in gain (loss) on derivative instruments. The Company also reclassified pre-tax net gains of $238 from OCI to earnings as hedged anticipated zinc sales occurred (three months ended June 30, 2010 - $238).

In 2007, the Company applied hedge accounting to commodity swap contracts used to hedge prices for a portion of future sales of zinc and copper. During 2008, the Company terminated its remaining zinc and copper commodity swap contracts. The related hedging relationships were discontinued prospectively, and related gains and losses in AOCI are reclassified to earnings when the remaining hedged anticipated future zinc sales occur. For the six months ended June 30, 2010, the Company reclassified pre-tax net gains of $1,019 from OCI to earnings (presented in revenue) as hedged anticipated zinc sales occurred (three months ended June 30, 2010 - $516).

Of the $9,395 pre-tax gains in AOCI at June 30, 2010, pre-tax gains of $5,504 will be reclassified to earnings in the next twelve months. The remaining pre-tax gains of $3,891 will be reclassified to earnings in 2011 and 2012.

(d)

Financial instruments at fair value through earnings – changes in value:

Financial instruments and non-financial derivatives classified as fair value through earnings include non-hedge derivative zinc contracts, embedded derivatives relating to provisional pricing, and investments at fair value through earnings. For the six months ended June 30, 2010, the total amount of change in fair value that has been recognized in earnings for these items was a net gain of $3,390 (2009 - net loss of $5,904) (three months ended June 30, 2010 - net gain of $817).

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

14.

Supplementary cash flow information

(a)

Change in non-cash working capital:


	Three months ended June 30						Six months ended June 30
	2010			2009			2010			2009

Accounts receivable	$	21,775		$	(506	)	$	(9,653	)	$	4,811
Income taxes receivable		4,097			(4,665	)		14,894			(5,183	)
Inventories		6,446			19,817			45,704			30,179
Prepaid expenses and other current assets		770			1,626			2,033			1,668
Accounts payable and accrued liabilities		(7,609	)		(15,344	)		(17,293	)		(44,276	)
Taxes payable		18,150			2,152			23,010			(20,069	)


	$	43,629		$	3,080		$	58,695		$	(32,870	)


(b) Non-cash investing activities:

	Three months ended June 30						Six months ended June 30
	2010			2009			2010			2009

Non-cash additions to property, plant and equipment	$	30		$	382		$	2,986		$	956

(c) Interest and taxes paid:

	Three months ended June 30						Six months ended June 30
	2010			2009			2010			2009
Interest paid	$	10		$	20		$	10		$	199
Taxes paid (recovered)		(2,270	)		1,250			2,238			24,376

15.

Segmented information

HudBay is a Canadian-based, integrated base metals mining, metallurgical processing and refining company. When making decisions on expansions, opening or closing mines, as well as day-to-day operations, management evaluates profitability by operating segment described below. Included in “HBMS” are the Company’s mines and metallurgical facilities in Manitoba, Saskatchewan, Michigan and Ontario. The HMI Nickel segment relates mainly to the Fenix nickel project. The “Other” segment consists of our Balmat operations, now on care and maintenance, and our HudBay Michigan subsidiary. Accounting policies for all segments are the same as those described in note 2.

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

Three months ended
June 30, 2010

HBMS

HMI
Nickel

Other

Corporate

Total

Revenue from external customers

191,851

—

191,851

Operating

111,320

3,242

3,719

(91

)

118,190

Depreciation and amortization

29,921

—

29,992

Other expense¹

(708

)

213

118

4,331

3,954

Earnings (loss) before the following

51,318

(3,487

)

(3,837

)

(4,279

)

39,715

Exploration

(3,982

)

(633

)

(2,613

)

(17

)

(7,245

)

Other income (expenses)

1,326

)

(249

)

1,076

Earnings (loss) before interest and taxes

48,662

(4,119

)

(6,452

)

(4,545

)

33,546

Interest income

1,137

Tax expense

(21,410

)

Net earnings for the period

13,273

Total assets²

857,319

383,977

4,254

776,534

2,022,084

Property, plant and equipment

456,028

377,350

1,937

681

835,996

Additions to property, plant and equipment³

40,250

1,155

557

41,964

¹	Includes foreign exchange gains and losses which fluctuate from period to period.

²	Total assets do not reflect intercompany balances, which have been eliminated on consolidation.

³	Additions to property, plant and equipment represent cash additions only. For non-cash additions, see note 14.


	Three months ended June 30, 2009
	HBMS			HMI Nickel			Other			Corporate			Total
Revenue from external customers	$	197,392		$	171		$	94		$	—		$	197,657
Operating		142,013			2,428			1,026			76			145,543
Depreciation and amortization		23,121			71			—			32			23,224
Other expense¹		14,168			298			51			8,999			23,516


Earnings (loss) before the following		18,090			(2,626	)		(983	)		(9,107	)		5,374
Exploration		(1,326	)		(51	)		(182	)		(18	)		(1,577	)
Other income (expenses)		(8	)		193			16			99,851			100,052

Earnings (loss) before interest and taxes		16,756			(2,484	)		(1,149	)		90,726			103,849
Interest income														856
Tax expense														(15,290	)


Net earnings for the period														89,415


Total assets²		881,053			337,941			4,084			749,120			1,972,198
Property, plant and equipment		453,580			367,364			—			691			821,635
Additions to property, plant and equipment³		22,149			2,951			—			10			25,110

¹	Includes foreign exchange gains and losses which fluctuate from period to period.

²	Total assets do not reflect intercompany balances, which have been eliminated on consolidation.

³	Additions to property, plant and equipment represent cash additions only. For non-cash additions, see note 14.

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

Six months ended
June 30, 2010

HBMS

HMI
Nickel

Other

Corporate
activities

Total

Revenue from external customers

432,171

—

432,171

Operating

253,052

5,420

4,514

263,032

Depreciation and amortization

57,211

—

57,351

Other expense¹

6,775

493

300

8,420

15,988

Earnings (loss) before the following:

115,133

(5,975

)

(4,814

)

(8,544

)

95,800

Exploration

(5,748

)

(1,267

)

(5,954

)

(31

)

(13,000

)

Other income (expenses)

1,314

(14

)

1,092

2,398

Earnings (loss) before interest and taxes

110,699

(7,256

)

(10,762

)

(7,483

)

85,198

Interest income

1,850

Tax expense

(50,216

)

Net earnings for the period

36,832

Additions to property, plant and equipment²

71,277

1,425

572

73,284

¹	Includes foreign exchange gains and losses which fluctuate from period to period.

²	Additions to property, plant and equipment represent cash additions only. For non-cash additions, see note 14.


	Six months ended June 30, 2009
	HBMS			HMI Nickel			Other			Corporate Activities			Total
Revenue from external customers	$	358,468		$	202		$	771		$	—		$	359,441
Operating		272,664			4,822			3,132			25			280,643
Depreciation and amortization		43,972			162			—			122			44,256
Other expenses¹		12,276			1,596			337			20,498			34,707


Earnings (loss) before the following:		29,556			(6,378	)		(2,698	)		(20,645	)		(165	)
Exploration		(2,031	)		(127	)		(340	)		(134	)		(2,632	)
Other income (expenses)		(304	)		—			6			99,724			99,426
		—			—			—			—			—

Earnings (loss) before interest and tax		27,221			(6,505	)		(3,032	)		78,945			96,629

Interest income														2,796
Tax expense														(13,968	)


Net earnings for the period														85,457


Additions to property, plant and equipment²		41,872			5,591						129			47,592

¹	Includes foreign exchange gains and losses which fluctuate from period to period.

²	Additions to property, plant and equipment represent cash additions only. For non-cash additions, see note 14.

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

The Company’s revenue by significant product types:


	Three months ended June 30				Six months ended June 30
	2010		2009		2010		2009

Copper	$	97,066	$	112,115	$	216,165	$	186,347
Zinc		38,954		35,539		94,962		69,612
Gold		26,129		26,145		57,776		57,962
Silver		4,821		9,220		12,641		18,418
Other		24,881		14,638		50,627		27,102


	$	191,851	$	197,657	$	432,171	$	359,441


The above revenues include revenues from the sale of metal produced from purchase of concentrates of:

	Three months ended June 30				Six months ended June 30
	2010		2009		2010		2009

Copper	$	—	$	25,191	$	305	$	42,086
Zinc		7,703		14,681		18,709		20,954
Gold		—		91		—		350
Silver		—		5,544		—		10,776

16.

Interest and other income


	Three months ended June 30						Six months ended June 30
	2010			2009			2010			2009

Interest income	$	1,148		$	868		$	1,861		$	2,830
Interest expense		(12	)		(22	)		(12	)		(44	)
Gain on disposal of investments		—			99,908			1,094			99,908
Other income (expense)		(180	)		212			41			212


	$	956		$	100,966		$	2,984		$	102,906

HUDBAY MINERALS INC.

Notes to Interim Consolidated Financial Statements

(Unaudited and in thousands of Canadian dollars, except where otherwise noted)

For the three and six months ended June 30, 2010

17.

Earnings per share data:


	Three months ended June 30		Six months ended June 30
	2010	2009	2010	2009

Weighted average common shares outstanding	150,795,852	153,228,805	152,215,266	153,128,078
Plus net incremental shares from assumed conversions:
- Warrants	—	441	—	376
- Stock options	594,303	585,772	648,990	475,881


Diluted weighted average common shares	151,390,155	153,815,018	152,864,256	153,604,335