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 November 2011
Commission File Number: 001-34244
HUDBAY MINERALS INC.
(Translation of registrants 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 November 2, 2011, 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 three and nine months ended September 30, 2011, (2) Managements Discussion and Analysis of Results of Operations and Financial Condition for the three and nine months ended September 30, 2011, (3) CEO Certification of Interim Filings, (4) CFO Certification of Interim Filings, and (5) a Press Release announcing HudBays third quarter 2011 financial results.
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 three and nine months ended September 30, 2011, |
| Exhibit 99.2 Managements Discussion and Analysis of Results of Operations and Financial Condition for the three and nine months ended September 30, 2011, |
| Exhibit 99.3 CEO Certification of Interim Filings, |
| Exhibit 99.4 CFO Certification of Interim Filings, and |
| Exhibit 99.5 Press Release announcing HudBays third quarter 2011 financial results. |
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) | ||||||||
Date: November 3, 2011 | By: | /s/ DAVID GAROFALO | ||||||
Name: | David Garofalo | |||||||
Title: | President and Chief Executive Officer |
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 three and nine months ended September 30, 2011 | |
99.2 | Managements Discussion and Analysis of Results of Operations and Financial Condition for the three and nine months ended September 30, 2011 | |
99.3 | CEO Certification of Interim Filings | |
99.4 | CFO Certification of Interim Filings | |
99.5 | Press Release announcing HudBays third quarter 2011 financial results |
Exhibit 99.1
Unaudited Condensed Consolidated Interim Financial Statements
(In Canadian dollars)
HUDBAY MINERALS INC.
For the three and nine months ended September 30, 2011
HUDBAY MINERALS INC.
Condensed Consolidated Balance Sheet
(Unaudited and in thousands of Canadian dollars)
Note | Sep. 30, 2011 |
Dec. 31, 2010 |
Jan. 1, 2010 |
|||||||||||||
Assets |
||||||||||||||||
Current assets |
||||||||||||||||
Cash and cash equivalents |
$ | 871,089 | $ | 901,693 | $ | 886,814 | ||||||||||
Trade and other receivables |
33,719 | 78,168 | 40,185 | |||||||||||||
Inventories |
6 | 95,909 | 115,642 | 125,940 | ||||||||||||
Prepaid expenses and other current assets |
10,822 | 9,994 | 7,990 | |||||||||||||
Other financial assets |
7 | 3,723 | 3,795 | 955 | ||||||||||||
Taxes receivable |
11,597 | 99 | 15,313 | |||||||||||||
Assets held for sale |
9 | 19,012 | | | ||||||||||||
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1,045,871 | 1,109,391 | 1,077,197 | ||||||||||||||
Inventories |
6 | 5,461 | 6,052 | 5,188 | ||||||||||||
Prepaid expenses |
1,389 | 1,884 | | |||||||||||||
Other financial assets |
7 | 102,988 | 117,686 | 86,676 | ||||||||||||
Intangible computer software assets |
11,193 | 7,083 | 1,967 | |||||||||||||
Property, plant and equipment |
4, 8 | 1,148,369 | 817,558 | 796,669 | ||||||||||||
Goodwill |
4 | 70,340 | | | ||||||||||||
Deferred tax assets |
10b | 17,155 | 32,406 | 44,609 | ||||||||||||
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$ | 2,402,766 | $ | 2,092,060 | $ | 2,012,306 | |||||||||||
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Liabilities |
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Current liabilities |
||||||||||||||||
Trade and other payables |
$ | 159,652 | $ | 133,597 | 111,802 | |||||||||||
Taxes payable |
3,175 | 33,088 | | |||||||||||||
Derivative liabilities |
2,253 | 2,767 | 2,907 | |||||||||||||
Other liabilities |
17,251 | 56,453 | 42,660 | |||||||||||||
Liabilities associated with assets held for sale |
9 | 2,718 | | | ||||||||||||
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185,049 | 225,905 | 157,369 | ||||||||||||||
Pension obligations |
| 822 | 63 | |||||||||||||
Other employee benefits |
99,363 | 93,066 | 87,744 | |||||||||||||
Provisions |
133,523 | 112,514 | 81,021 | |||||||||||||
Derivative liabilities |
178 | 1,632 | 7,068 | |||||||||||||
Deferred tax liabilities |
10b | 188,571 | 24,302 | 29,457 | ||||||||||||
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606,684 | 458,241 | 362,722 | ||||||||||||||
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Equity |
||||||||||||||||
Share capital |
11b | 1,020,126 | 642,161 | 656,427 | ||||||||||||
Reserves |
69,961 | 50,772 | 33,280 | |||||||||||||
Retained earnings |
702,204 | 931,464 | 958,518 | |||||||||||||
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Equity attributable to owners of the Company |
1,792,291 | 1,624,397 | 1,648,225 | |||||||||||||
Non-controlling interests |
15 | 3,791 | 9,422 | 1,359 | ||||||||||||
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1,796,082 | 1,633,819 | 1,649,584 | ||||||||||||||
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$ | 2,402,766 | $ | 2,092,060 | $ | 2,012,306 | |||||||||||
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Capital commitments (note 17)
Page 1
HUDBAY MINERALS INC.
Condensed Consolidated Income Statement
(Unaudited and in thousands of Canadian dollars, except share and per share amounts)
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||||||
Note | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
Revenue |
5a | $ | 212,335 | $ | 167,778 | $ | 636,503 | $ | 596,425 | |||||||||||
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Cost of sales |
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Depreciation and amortization |
5b | 27,166 | 27,111 | 78,624 | 94,052 | |||||||||||||||
Impairment loss |
9 | 5,878 | | 5,878 | | |||||||||||||||
Other cost of sales |
120,790 | 88,156 | 341,725 | 341,921 | ||||||||||||||||
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153,834 | 115,267 | 426,227 | 435,973 | |||||||||||||||||
Gross profit |
58,501 | 52,511 | 210,276 | 160,452 | ||||||||||||||||
Selling and administrative expenses |
7,597 | 9,071 | 29,776 | 18,405 | ||||||||||||||||
Exploration and evaluation |
14,054 | 18,301 | 36,580 | 50,742 | ||||||||||||||||
Other operating income |
(463 | ) | (403 | ) | (3,014 | ) | (422 | ) | ||||||||||||
Other operating expenses |
5c | 3,490 | 3,691 | 8,333 | 11,726 | |||||||||||||||
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Results from operating activities |
33,823 | 21,851 | 138,601 | 80,001 | ||||||||||||||||
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Finance income |
5d | (1,866 | ) | (1,994 | ) | (5,990 | ) | (3,887 | ) | |||||||||||
Finance expenses |
5d | 1,836 | 986 | 5,302 | 3,099 | |||||||||||||||
Other finance (gains) losses |
5d | (3,620 | ) | 443 | 77 | (1,286 | ) | |||||||||||||
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Net finance income |
5d | (3,650 | ) | (565 | ) | (611 | ) | (2,074 | ) | |||||||||||
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Profit before tax |
37,473 | 22,416 | 139,212 | 82,075 | ||||||||||||||||
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Tax expense |
10a | 53,525 | 15,040 | 98,302 | 55,354 | |||||||||||||||
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(Loss) profit from continuing operations |
(16,052 | ) | 7,376 | 40,910 | 26,721 | |||||||||||||||
Loss from discontinued operations (net of taxes) |
(25,031 | ) | (9,119 | ) | (238,784 | ) | (13,572 | ) | ||||||||||||
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(Loss) profit for the period |
(41,083 | ) | (1,743 | ) | (197,874 | ) | 13,149 | |||||||||||||
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Attributable to: |
||||||||||||||||||||
Owners of the Company |
(39,505 | ) | (1,758 | ) | (189,628 | ) | 13,256 | |||||||||||||
Non-controlling interests |
(1,578 | ) | 15 | (8,246 | ) | (107 | ) | |||||||||||||
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$ | (41,083 | ) | $ | (1,743 | ) | $ | (197,874 | ) | $ | 13,149 | ||||||||||
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(Loss) earnings per share (note 13) |
||||||||||||||||||||
Basic |
$ | (0.23 | ) | $ | (0.01 | ) | $ | (1.14 | ) | $ | 0.09 | |||||||||
Diluted |
(0.23 | ) | (0.01 | ) | (1.14 | ) | 0.09 | |||||||||||||
Weighted average number of common shares outstanding: |
||||||||||||||||||||
Basic |
171,905,912 | 148,949,050 | 166,490,423 | 151,114,563 | ||||||||||||||||
Diluted |
171,905,912 | 148,949,050 | 166,490,423 | 151,799,167 |
Page 2
HUDBAY MINERALS INC.
Condensed Consolidated Statement of Comprehensive Income
(Unaudited and in thousands of Canadian dollars)
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Loss) profit for the period |
$ | (41,083 | ) | $ | (1,743 | ) | $ | (197,874 | ) | $ | 13,149 | |||||
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Other comprehensive income (loss): (note 14) |
||||||||||||||||
Recognized directly in equity: |
||||||||||||||||
Net exchange gain (loss) on translation of foreign operations |
45,728 | (7,015 | ) | 31,349 | (4,481 | ) | ||||||||||
Effective portion of change in fair value of cash flow hedges |
3,601 | (7,237 | ) | 6,041 | 10,367 | |||||||||||
Change in fair value of available-for-sale financial assets |
(34,126 | ) | 29,521 | (46,205 | ) | 22,181 | ||||||||||
Tax effect |
3,232 | (1,629 | ) | 4,054 | (5,819 | ) | ||||||||||
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18,435 | 13,640 | (4,761 | ) | 22,248 | ||||||||||||
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Transferred to income statement: |
||||||||||||||||
Net exchange loss on translation of foreign operations |
20,416 | | 20,416 | | ||||||||||||
Change in fair value of cash flow hedges |
(170 | ) | (1,524 | ) | (231 | ) | (2,782 | ) | ||||||||
Change in fair value of available-for-sale financial assets |
2,546 | (1,069 | ) | 2,716 | (2,163 | ) | ||||||||||
Tax effect |
(301 | ) | 685 | (336 | ) | 1,152 | ||||||||||
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22,491 | (1,908 | ) | 22,565 | (3,793 | ) | |||||||||||
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Other comprehensive income net of tax, for the period |
40,926 | 11,732 | 17,804 | 18,455 | ||||||||||||
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Total comprehensive (loss) income for the period |
$ | (157 | ) | $ | 9,989 | $ | (180,070 | ) | $ | 31,604 | ||||||
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Attributable to: |
||||||||||||||||
Owners of the Company |
1,027 | 10,138 | (188,064 | ) | 31,875 | |||||||||||
Non-controlling interests |
(1,184 | ) | (149 | ) | 7,994 | (271 | ) | |||||||||
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Total comprehensive (loss) income for the period |
$ | (157 | ) | $ | 9,989 | $ | (180,070 | ) | $ | 31,604 | ||||||
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Page 3
HUDBAY MINERALS INC.
Condensed Consolidated Statement of Changes in Equity
(Unaudited and in thousands of Canadian dollars)
Attributable to owners of the Company | ||||||||||||||||||||||||||||||||||||
Share capital | Other capital reserves |
Foreign currency translation reserve |
Available-for-sale reserve |
Hedging reserve |
Retained earnings |
Total | Non-controlling interest |
Total equity | ||||||||||||||||||||||||||||
Balance, Jan. 1, 2010 |
$ | 656,427 | $ | 26,484 | $ | | $ | 11,718 | $ | (4,922 | ) | $ | 958,518 | $ | 1,648,225 | $ | 1,359 | $ | 1,649,584 | |||||||||||||||||
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Total comprehensive income for the period: |
||||||||||||||||||||||||||||||||||||
Profit (loss) |
| | | | | 13,256 | 13,256 | (107 | ) | 13,149 | ||||||||||||||||||||||||||
Other comprehensive income (loss) |
| | (4,317 | ) | 17,612 | 5,324 | | 18,619 | (164 | ) | 18,455 | |||||||||||||||||||||||||
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Total comprehensive income (loss) |
| | (4,317 | ) | 17,612 | 5,324 | 13,256 | 31,875 | (271 | ) | 31,604 | |||||||||||||||||||||||||
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Share repurchases |
(21,147 | ) | (3,399 | ) | | | | (35,763 | ) | (60,309 | ) | | (60,309 | ) | ||||||||||||||||||||||
Share issue costs |
| | | | | (188 | ) | (188 | ) | | (188 | ) | ||||||||||||||||||||||||
Share-based payment expense |
| 1,743 | | | | | 1,743 | | 1,743 | |||||||||||||||||||||||||||
Stock options exercised |
3,029 | (683 | ) | | | | | 2,346 | | 2,346 | ||||||||||||||||||||||||||
Dividends paid |
| | | | | (14,901 | ) | (14,901 | ) | | (14,901 | ) | ||||||||||||||||||||||||
Acquisition of non-controlling interest |
| | | | | | | 11,341 | 11,341 | |||||||||||||||||||||||||||
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Balance, Sep. 30, 2010 |
638,309 | 24,145 | (4,317 | ) | 29,330 | 402 | 920,922 | 1,608,791 | 12,429 | 1,621,220 | ||||||||||||||||||||||||||
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Total comprehensive income for the period: |
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Profit (loss) |
| | | | | 10,709 | 10,709 | (2,845 | ) | 7,864 | ||||||||||||||||||||||||||
Other comprehensive (loss) income |
| | (10,427 | ) | 14,235 | (2,306 | ) | | 1,502 | (162 | ) | 1,340 | ||||||||||||||||||||||||
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Total comprehensive (loss) income |
| | (10,427 | ) | 14,235 | (2,306 | ) | 10,709 | 12,211 | (3,007 | ) | 9,204 | ||||||||||||||||||||||||
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Share issue costs |
| | | | | (167 | ) | (167 | ) | | (167 | ) | ||||||||||||||||||||||||
Share based payment expense |
| 658 | | | | | 658 | | 658 | |||||||||||||||||||||||||||
Stock options exercised |
3,852 | (948 | ) | | | | | 2,904 | | 2,904 | ||||||||||||||||||||||||||
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Balance, Dec. 31, 2010 |
$ | 642,161 | $ | 23,855 | $ | (14,744 | ) | $ | 43,565 | $ | (1,904 | ) | $ | 931,464 | $ | 1,624,397 | $ | 9,422 | $ | 1,633,819 | ||||||||||||||||
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Page 4
HUDBAY MINERALS INC.
Condensed Consolidated Statement of Changes in Equity
(Unaudited and in thousands of Canadian dollars)
Attributable to owners of the Company | ||||||||||||||||||||||||||||||||||||
Share capital | Other capital reserves |
Foreign currency translation reserve |
Available-for-sale reserve |
Hedging reserve |
Retained earnings |
Total | Non-controlling interest |
Total equity | ||||||||||||||||||||||||||||
Balance, Jan. 1 2011 |
$ | 642,161 | $ | 23,855 | $ | (14,744 | ) | $ | 43,565 | $ | (1,904 | ) | $ | 931,464 | $ | 1,624,397 | $ | 9,422 | $ | 1,633,819 | ||||||||||||||||
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Total comprehensive income for the period: |
||||||||||||||||||||||||||||||||||||
Loss |
| | | | | (189,629 | ) | (189,629 | ) | (8,245 | ) | (197,874 | ) | |||||||||||||||||||||||
Other comprehensive (loss) income |
| | 51,513 | (38,034 | ) | 4,073 | | 17,552 | 252 | 17,804 | ||||||||||||||||||||||||||
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Total comprehensive loss |
| | 51,513 | (38,034 | ) | 4,073 | (189,629 | ) | (172,077 | ) | (7,993 | ) | (180,070 | ) | ||||||||||||||||||||||
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Shares issued for acquisition |
345,119 | | | | | | 345,119 | | 345,119 | |||||||||||||||||||||||||||
Share issue costs |
(239 | ) | | | | | | (239 | ) | | (239 | ) | ||||||||||||||||||||||||
Share-based payment expense |
| 1,700 | | | | | 1,700 | | 1,700 | |||||||||||||||||||||||||||
Stock options exercised |
216 | (63 | ) | | | | | 153 | | 153 | ||||||||||||||||||||||||||
Dividends paid |
| | | | | (34,346 | ) | (34,346 | ) | | (34,346 | ) | ||||||||||||||||||||||||
Acquisition/disposition of non-controlling interest |
32,869 | | | | | (5,285 | ) | 27,584 | 2,362 | 29,946 | ||||||||||||||||||||||||||
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Balance, Sep. 30, 2011 |
$ | 1,020,126 | $ | 25,492 | $ | 36,769 | $ | 5,531 | $ | 2,169 | $ | 702,204 | $ | 1,792,291 | $ | 3,791 | $ | 1,796,082 | ||||||||||||||||||
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Page 5
HUDBAY MINERALS INC.
Condensed Consolidated Statement of Cash Flows
(Unaudited and in thousands of Canadian dollars)
Three months ended September 30 |
Nine months ended September 30 |
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Note | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||
Cash generated from (used in) operating activities: |
||||||||||||||||||||
Profit before tax |
$ | 37,473 | $ | 22,416 | $ | 139,212 | $ | 82,075 | ||||||||||||
Loss from discontinued operations |
(25,031 | ) | (9,119 | ) | (238,784 | ) | (13,572 | ) | ||||||||||||
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Items not affecting cash: |
12,442 | 13,297 | (99,572 | ) | 68,503 | |||||||||||||||
Depreciation and amortization |
27,271 | 27,174 | 79,030 | 94,193 | ||||||||||||||||
Equity-settled share-based payment expense |
|
(697 | ) | 2,936 | 1,871 | 4,012 | ||||||||||||||
Net finance costs |
(116 | ) | (895 | ) | (688 | ) | (430 | ) | ||||||||||||
Change in fair value of derivatives |
5,626 | (6,095 | ) | 5,864 | (2,945 | ) | ||||||||||||||
Items reclassified from other comprehensive income |
3,766 | (2,592 | ) | 2,485 | (4,944 | ) | ||||||||||||||
Gain on disposition |
(36 | ) | (22 | ) | (2,463 | ) | (22 | ) | ||||||||||||
Impairment losses |
5d, 9 | 8,424 | | 9,814 | | |||||||||||||||
Loss from discontinued operations |
25,031 | 9,119 | 238,784 | 13,572 | ||||||||||||||||
Other |
(5,692 | ) | (4,857 | ) | (11,516 | ) | (12,778 | ) | ||||||||||||
Operating interest paid |
(691 | ) | (254 | ) | (691 | ) | (264 | ) | ||||||||||||
Operating cash flows of discontinued operations |
|
(2,058 | ) | (243 | ) | (2,126 | ) | (665 | ) | |||||||||||
Change in non-cash working capital |
18 | 23,076 | (12,061 | ) | 20,701 | 5,252 | ||||||||||||||
Taxes paid |
(17,886 | ) | (6,619 | ) | (88,377 | ) | (8,857 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
78,460 | 18,888 | 153,116 | 154,627 | |||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cash generated from (used in) investing activities: |
||||||||||||||||||||
Interest received |
| 1,673 | 4,464 | 3,437 | ||||||||||||||||
Proceeds on disposition of assets |
136,896 | 6,030 | 139,802 | 8,051 | ||||||||||||||||
Acquisition of property, plant and equipment |
|
(68,385 | ) | (30,114 | ) | (158,106 | ) | (79,381 | ) | |||||||||||
Acquisition of intangible assets |
(860 | ) | (1,260 | ) | (4,781 | ) | (2,562 | ) | ||||||||||||
Acquisition of investments |
(8,650 | ) | (38,348 | ) | (40,455 | ) | (40,278 | ) | ||||||||||||
Acquisition of subsidiary, net of cash acquired |
4 | | | (94,855 | ) | | ||||||||||||||
Release of (additions to) restricted cash |
(170 | ) | (580 | ) | 135 | (2,512 | ) | |||||||||||||
Sale of short-term investments |
| | 20,112 | | ||||||||||||||||
Acquisition of non-controlling interests |
4 | (2,320 | ) | | (11,476 | ) | | |||||||||||||
Investing cash flows of discontinued operations |
|
| (403 | ) | (7,163 | ) | (1,828 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
56,511 | (63,002 | ) | (152,323 | ) | (115,073 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cash generated from (used in) financing activities: |
||||||||||||||||||||
Repurchase of common shares |
| | | (60,309 | ) | |||||||||||||||
Share issue costs |
| | (237 | ) | | |||||||||||||||
Proceeds from exercise of stock options |
83 | 1,387 | 145 | 2,351 | ||||||||||||||||
Dividends paid |
11 | (17,194 | ) | (14,901 | ) | (34,346 | ) | (14,901 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
(17,111 | ) | (13,514 | ) | (34,438 | ) | (72,859 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Effect of movement in exchange rates on cash and cash equivalents |
5,519 | (2,411 | ) | 3,041 | (1,770 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
|
123,379 | (60,039 | ) | (30,604 | ) | (35,075 | ) | ||||||||||||
Cash and cash equivalents, beginning of period |
|
747,710 | 911,778 | 901,693 | 886,814 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents, end of period |
$ | 871,089 | $ | 851,739 | $ | 871,089 | $ | 851,739 | ||||||||||||
|
|
|
|
|
|
|
|
For supplemental information, see note 18.
Page 6
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
1. | Reporting entity |
HudBay Minerals Inc. (the Company) is a Canadian company continued under the Canada Business Corporations Act on October 25, 2005. The address of the Companys principal executive office is 25 York Street, Suite 800, Toronto, Ontario. The condensed consolidated interim financial statements of the Company for the period ended September 30, 2011 contemplate the financial position and results of operations of the Company and its subsidiaries (together referred to as the Group or HudBay and individually as Group entities).
Significant subsidiaries include Hudson Bay Mining and Smelting Co., Limited (HBMS), Hudson Bay Exploration and Development Company Limited (HBED), HudBay Marketing and Sales Inc. (HMS), HudBay Peru Inc. (HudBay Peru) (previously named Norsemont Mining Inc.), St. Lawrence Zinc Company LLC (St. Lawrence), HudBay Michigan Inc. and HudBay Metal Marketing Inc.
HudBay is a Canadian integrated mining company with assets in North and South America. Through its subsidiaries, HudBay owns copper/zinc/gold mines, ore concentrators and zinc production facilities in northern Manitoba and Saskatchewan and a copper project in Peru. HudBay produces copper concentrate (containing copper, gold and silver) and zinc metal. HudBays shares are listed on the Toronto and New York stock exchanges under the symbol HBM.
These condensed consolidated interim financial statements have been prepared on a going concern basis as management believes there are no uncertainties that lead to significant doubt the entity can continue as a going concern in the foreseeable future.
Management does not consider the impact of seasonality on operations to be significant on the condensed consolidated interim financial statements.
Page 7
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
2. | Basis of preparation |
(a) | Statement of compliance: |
The Company has adopted International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB) effective for the year ended December 31, 2011.
These are the Companys IFRS condensed consolidated interim financial statements for part of the period covered by the first IFRS consolidated annual financial statements. These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, and IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied. They do not include all of the information required for full annual financial statements and should be read in conjunction with the Groups first IFRS condensed consolidated interim financial statements for the three months ended March 31, 2011. The Groups consolidated financial statements for the year ended December 31, 2010 were prepared under Canadian generally accepted accounting principles (GAAP) and are available at www.sedar.com.
Previously, the Company prepared its consolidated annual and condensed consolidated interim financial statements in accordance with Canadian GAAP.
Note 20 contains an explanation of the effect the transition to IFRSs had on the Groups reported financial position, financial performance and cash flows. This note includes reconciliations of equity and comprehensive income for comparative periods reported under GAAP to those reported for those periods and at the date of transition under IFRS.
The Board of Directors approved these condensed consolidated interim financial statements on November 2, 2011.
(b) | Functional and presentation currency: |
The Groups condensed consolidated interim financial statements are presented in Canadian dollars, which is the Companys functional currency. All values are rounded to the nearest thousand ($000) except where otherwise indicated.
(c) | Use of estimates and judgments: |
The preparation of the condensed consolidated interim financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated interim financial statements and reported amounts of revenue and expenses during the reporting period. Actual results may differ from these estimates.
Significant areas requiring management judgment include estimates of ore reserves and resources, which, for example, affect the carrying value of property, plant and equipment; units-of-production depreciation; plant and equipment estimated useful lives and residual values; mining properties expenditures capitalized; cost allocations for mine development; acquisition method accounting;
Page 8
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
estimates of fair value of financial instruments; in-process inventory quantities and provision for inventory obsolescence; recoverability of exploration and evaluation assets; assessments related to impairment; pensions and other employee benefits; decommissioning, restoration and similar liabilities; taxes; share-based payment expense; contingent liabilities; assaying used to determine revenue; and determinations of functional currency.
Estimates and underlying assumptions are reviewed on an ongoing basis, and are based on managements experience and other factors, including expectations of future events that are believed 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.
3. | Significant accounting policies |
The condensed consolidated interim financial statements reflect standards and interpretations anticipated to be in effect at December 31, 2011 that are required to be applied by an entity with an annual period beginning on or after January 1, 2010. For a description of the significant accounting policies applied, refer to note 3 to the Groups condensed consolidated interim financial statements for the three months ended March 31, 2011. Any subsequent changes to IFRSs that become effective and are adopted for the December 31, 2011 consolidated annual financial statements could result in revisions to accounting policies applied in these condensed consolidated interim financial statements and, if applicable, the opening balance sheet and reconciliations.
New standards and interpretations not yet adopted
IFRS 9 Financial Instruments
In November 2009, the IASB issued IFRS 9 Financial Instruments as the first step in its project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on an entitys business model and the contractual cash flow of the financial asset. Gains and losses on remeasurement of financial assets measured at fair value will be recognized in profit or loss, except that for an investment in an equity instrument which is not held-for-trading, IFRS 9 provides, on initial recognition, an irrevocable election to present all fair value changes from the investment in other comprehensive income (OCI). Amounts presented in OCI will not be reclassified to profit or loss at a later date. The new standard also requires use of a single impairment method, replacing the multiple impairment methods in IAS 39 and amends some of the requirements of IFRS 7 Financial Instruments: Disclosures.
IFRS 9 (2010) added guidance to IFRS 9 (2009) on the classification and measurement of financial liabilities, and this guidance is consistent with the guidance in IAS 39, except for changes related to financial liabilities measured at fair value under the fair value option and derivative liabilities that are linked to and must be settled by delivery of an unquoted equity instrument.
IFRS 9 will be effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Group has not yet determined the effect of adoption of IFRS 9 on its consolidated financial statements.
Page 9
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
Amendments to IAS 12 Deferred Tax: Recovery of Underlying Assets
In December 2010, the IASB published Deferred Tax: Recovery of Underlying Assets Amendments to IAS 12. This amendment introduces an exception to the current measurement principles of deferred tax assets and liabilities arising from investment property measured using the fair value model in accordance with IAS 40 Investment Property. The exception also applies to investment properties acquired in a business combination accounted for in accordance with IFRS 3 Business Combinations provided the acquirer subsequently measures these assets applying the fair value model. The effective date for the amendment is for periods beginning on or after January 1, 2012 and is applied retrospectively. Early application is permitted. The Group does not expect the amendment to have a material effect on its consolidated financial statements.
Amendments to IFRS 7 Disclosures Transfers of Financial Assets
In October 2010 the IASB issued Amendments to IFRS 7 Disclosures - Transfers of Financial Assets, which require disclosure of information that enables users of financial statements to understand the relationship between transferred financial assets that are not derecognized in their entirety and the associated liabilities and to evaluate the nature of, and risks associated with, the entitys continuing involvement in derecognized financial assets. The effective date for the amendment is for periods beginning on or after January 1, 2012. The Group does not expect the amendment to have a material effect on its consolidated financial statements.
IFRS 10 Consolidated Financial Statements
In May 2011, the IASB issued IFRS 10 Consolidated Financial Statements, which replaces the guidance in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities. IAS 27 (2008) survives as IAS 27 (2011) Separate Financial Statements, only to carry forward the existing accounting requirements for separate financial statements. IFRS 10 provides a single model to be applied in the control analysis for all investees, including entities that currently are special purpose entities within the scope of SIC-12, stating that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In addition, IFRS 10 carries forward the consolidation procedures substantially unmodified from IAS 27 (2008). IFRS 10 is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. If an entity applies this Standard earlier, it also applies IFRS 11, IFRS 12, IAS 27 (2011) and IAS 28 (2011) at the same time. The Group does not expect the adoption of IFRS 10 to have a material effect on its consolidated financial statements based on its current facts and circumstances.
IFRS 11 Joint Arrangements
In May 2011, the IASB issued IFRS 11 Joint Arrangements, which replaces the guidance in IAS 31 Interests in Joint Ventures. IFRS 11 classifies joint arrangements as either joint operations or joint ventures based on an entitys rights and obligations. A joint operator will recognize its share of the assets, liabilities, revenue and expenses of the joint operation. A joint venturer will recognize an investment and account for that investment using the equity method. Under existing IFRS, entities have the choice to proportionately consolidate or apply the equity method to interests in jointly controlled entities. IFRS 11 is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. If an entity applies this Standard earlier, it shall also apply IFRS 10, IFRS 12, IAS 27 (2011) and IAS 28 (2011) at the same time. The Group does not expect the adoption of IFRS 11 to have a material effect on its consolidated financial statements based on its current facts and circumstances.
Page 10
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
IFRS 12 Disclosure of Interests in Other Entities
In May 2011, the IASB issued IFRS 12 Disclosure of Interests in Other Entities, which contains disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e., joint operations or joint ventures), associates and/or unconsolidated structured entities. The required disclosures aim to enable users to evaluate the nature of, and the risks associated with, an entitys interest in other entities, and the effects of those interests on the entitys financial position, financial performance and cash flows. IFRS 12 is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Group will provide additional disclosures as required and does not otherwise expect the adoption of IFRS 12 to have a material effect on its consolidated financial statements.
IFRS 13 Fair Value Measurement
In May 2011, the IASB published IFRS 13 Fair Value Measurement, which replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). The standard establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. IFRS 13 is effective prospectively for annual periods beginning on or after January 1, 2013. The disclosure requirements of IFRS 13 need not be applied in comparative information for periods before initial application. The Group has not yet determined the effect of adoption of IFRS 13 on its consolidated financial statements.
Amendments to IAS 28 Investments in Associates and Joint Ventures
In May 2011, the IASB issued Amendments to IAS 28 Investments in Associates and Joint Ventures, which carries forward the requirements of IAS 28 (2008), with limited amendments related to associates and joint ventures held for sale, as well as to changes in interests held in associates and joint ventures when an entity retains an interest in the investment. IAS 28 (2011) is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. If an entity applies this Standard earlier, it shall also apply IFRS 10, IFRS 11, IFRS 12 and IAS 27 (2011) at the same time. The Group has not yet determined the effect of adoption of the amendments on its consolidated financial statements. The Group does not expect the amendments to have a material effect on its consolidated financial statements based on the current facts and circumstances.
Amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income
In June 2011, the IASB issued amendments to IAS 1 Presentation of Financial Statements: Presentation of Items of Other Comprehensive Income. The amendments require separate presentation of the items of OCI that may be reclassified to profit or loss in the future from those that will never be reclassified to profit or loss. The standard is effective for annual periods beginning on or after July 1, 2012, with early adoption permitted. The Group has not yet determined the effect of adoption of the amendments on its consolidated financial statements.
Page 11
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
IAS 19 Employee Benefits
In June 2011, the IASB issued an amended version of IAS 19 Employee Benefits to revise certain aspects of the accounting for pension plans and other benefits. The amendments eliminate the corridor method of accounting for defined benefit plans and require immediate recognition of actuarial gains and losses in OCI; eliminate use of an expected rate of return on plan assets and require use of the discount rate to determine the interest on the plan asset component of the net interest cost; and set out additional disclosure requirements. The standard is effective for annual periods beginning on or after January 1, 2013, with early adoption permitted. The Group has not yet determined the effect of adoption of the amendments on its consolidated financial statements.
IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine
In October 2011, the IASB issued IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine, which provides guidance on the accounting for waste removal costs that are incurred in surface mining activity during the production phase of a mine when two benefits accrue to the entity from the stripping activity: useable ore that can be used to produce inventory and improved access to further quantities of material that will be mined in future periods. IFRIC 20 must be applied starting January 1, 2013 with early adoption permitted. The Group has not yet determined the effect of adoption of IFRIC 20 on its consolidated financial statements.
4. | Acquisition of HudBay Peru |
On March 1, 2011, the Group obtained control of HudBay Peru (formerly Norsemont Mining Inc.), a Canadian mineral exploration and development company focused on its wholly-owned Constancia copper project in southern Peru. HudBay obtained control of HudBay Peru by acquiring 90.5% of the share capital and voting interests in the company. As a result, the Groups equity interest in HudBay Peru increased from 1.2% to 91.7%. On July 5, 2011, HudBay acquired the remaining common shares and now wholly owns HudBay Peru. Acquiring control of HudBay Peru allows the Group an opportunity to develop the Constancia project and significantly increase HudBays future copper production.
Since acquisition, HudBay Peru contributed a loss of $23,216 to the Groups results. HudBay Peru does not currently earn revenue as it is in the development stage. If the acquisition had occurred on January 1, 2011, management estimates that consolidated revenue would have been $636,503 and consolidated loss for the period would have been $198,411. In determining these amounts, management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if the acquisition had occurred on January 1, 2011.
Consideration transferred
The following summarizes the acquisition date fair value of the major classes of consideration transferred:
Cash consideration |
$ | 118,525 | ||
Equity instruments (20,372,986 common shares) |
345,119 | |||
|
|
|||
Total consideration transferred |
463,644 | |||
Less: cash acquired |
(23,669 | ) | ||
|
|
|||
Total consideration transferred, net of cash acquired |
$ | 439,975 | ||
|
|
Page 12
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
The fair value of the common shares issued was based on HudBays listed share price of $16.94 at the March 1, 2011 acquisition date.
The Group incurred acquisition related costs of $5,778 mainly relating to external legal and advisory fees and due diligence costs. These costs have been included in selling and administrative expenses in the Groups consolidated income statement. In addition, the Group incurred share issue costs of $239 and presented them as a deduction from share capital. For cash flow purposes, the Group paid $94,855 upon acquisition of HudBay Peru representing $118,525 of cash paid, net of $23,669 cash received.
Identifiable assets acquired and liabilities assumed
During the three months ended September 30, 2011, the Group completed the purchase price allocation resulting in recognized amounts of identifiable assets acquired and liabilities assumed as follows:
Provisional fair value | ||||
Cash and cash equivalents |
$ | 23,669 | ||
Short-term investments |
20,053 | |||
Receivables and prepaid expenses |
19,447 | |||
Mineral properties |
520,768 | |||
Other property, plant and equipment |
561 | |||
Deferred tax assets |
750 | |||
Trade and other payables |
(13,827 | ) | ||
Provisions - decommissioning and restoration liabilities |
(978 | ) | ||
Deferred tax liabilities |
(129,586 | ) | ||
|
|
|||
Total net identifiable assets |
$ | 440,857 | ||
|
|
Acquired receivables were valued at $19,248. Based on the valuation performed at the acquisition date, management expected all contractual cash flows to be collectible. Receivables related primarily to the timing of receipt of proceeds by HudBay Peru from exercises of stock options and warrants. Subsequent to the acquisition date, all receivables relating to the exercises of stock options and warrants were collected. Upon finalization of the purchase price allocation, the deferred tax liabilities were adjusted from $128,211 to $129,586. There was also a minor adjustment to other property, plant and equipment.
Goodwill
The Group recognized goodwill as a result of the acquisition as follows:
Total consideration transferred |
$ | 463,644 | ||
Fair value of previous 1.2% interest in the acquiree |
6,043 | |||
Non-controlling interests of 8.3% measured based on the proportionate share of identifiable net assets |
36,591 | |||
Less: value of net identifiable asset acquired |
(440,857 | ) | ||
|
|
|||
Goodwill upon acquisition March 1, 2011 |
65,421 | |||
|
|
The goodwill increased from $64,157 to $65,421 as a result of finalizing the purchase price.
Page 13
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
The goodwill balance arose from the requirement to record deferred income tax liabilities measured at the tax effect of the difference between the fair values of the assets acquired and liabilities assumed and their tax bases. None of the goodwill recognized is expected to be deductible for income tax purposes.
As a result of foreign exchange translation from HudBay Perus US dollar functional currency to the Groups Canadian dollar presentation currency, the goodwill balance was $70,340 as at September 30, 2011.
The Group recognized a gain of $2,100 in other finance gains and losses as a result of remeasuring its existing 1.2% interest in HudBay Peru to fair value. Of this amount, $1,219 represented a transfer of gains recognized in previous periods from the available-for-sale reserve within equity into the income statement (note 5d).
Acquisition of non-controlling interests
On March 15, 2011, the Group acquired an additional 6.9% interest in HudBay Peru. The Group transferred consideration of $33,914 to the non-controlling interest holders, consisting of cash of $9,156 and 1,566,945 HudBay common shares. The carrying amount of HudBay Perus net assets in the Groups financial statements on the acquisition date was $511,495 and the carrying value of the additional interest acquired was $30,809. The Group recognized the difference of $3,105 between the consideration transferred and the carrying value of the interest acquired in retained earnings.
Subsequent to the acquisition, HudBay Peru issued additional shares to non-controlling interest holders upon the exercise of warrants. The Group received proceeds of $2,474 and recognized an increase to non-controlling interests of $3,549 and a decrease to retained earnings of $1,077.
On July 5, 2011, the Group acquired the remaining shares in HudBay Peru pursuant to a compulsory acquisition. The Group transferred consideration of $10,431, consisting of cash of $2,320 and 535,773 HudBay common shares, and recognized a decrease to non-controlling interests of $9,469 and a decrease to retained earnings of $962.
As at September 30, 2011, the Groups ownership interest in HudBay Peru was 100%.
The following summarizes the effect of changes in the Groups ownership interest in HudBay Peru:
Ownership interest before acquisition |
$ | 6,043 | ||
Effect of increase in ownership interest upon acquisition of control |
463,644 | |||
Effect of increase in ownership interest upon acquisition of non-controlling interest, on March 15, 2011 |
30,809 | |||
Effect of decrease from HudBay Peru shares issued upon exercises of warrants |
(1,077 | ) | ||
Less: share of comprehensive loss |
(13,193 | ) | ||
Effect of increase in ownership interest upon acquisition of remaining common shares |
9,469 | |||
|
|
|||
Ownership interest at September 30, 2011 |
$ | 495,695 | ||
|
|
Page 14
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
5. | Revenue and expenses |
(a) | Revenue: |
The Groups revenue by significant product types:
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Copper |
$ | 122,742 | $ | 75,394 | $ | 337,805 | $ | 293,402 | ||||||||
Zinc |
35,114 | 43,655 | 117,216 | 135,094 | ||||||||||||
Gold |
37,511 | 22,832 | 96,241 | 80,845 | ||||||||||||
Silver |
5,937 | 3,042 | 18,893 | 16,011 | ||||||||||||
Other |
20,618 | 27,456 | 91,590 | 78,298 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
221,922 | 172,379 | 661,745 | 603,650 | |||||||||||||
Less: treatment and refining charges |
(9,587 | ) | (4,601 | ) | (25,242 | ) | (7,225 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 212,335 | $ | 167,778 | $ | 636,503 | $ | 596,425 | |||||||||
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2011, copper, gold and silver revenues were from the sale of metal contained in concentrates or anodes after deducting applicable treatment and refining costs. During 2010, copper revenues also included sales of copper cathode. Other revenues include sales of zinc oxide.
A portion of the Groups revenue from sales of zinc is hedged and designated as cash flow hedges. For the nine months ended September 30, 2011, revenues from zinc sales include losses of $680 (three months ended September 30, 2011 losses of $137) from the hedging reserve (note 16b).
(b) | Depreciation and amortization: |
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Total depreciation and amortization presented in: |
||||||||||||||||
Cost of sales |
$ | 27,166 | $ | 27,111 | $ | 78,624 | $ | 94,052 | ||||||||
Selling and administrative expenses |
105 | 63 | 406 | 141 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 27,271 | $ | 27,174 | $ | 79,030 | $ | 94,193 | |||||||||
|
|
|
|
|
|
|
|
Page 15
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
(c) | Other operating income and expense: |
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Other operating income |
||||||||||||||||
Net gain on sale of property, plant and equipment |
$ | (36 | ) | $ | (11 | ) | $ | (464 | ) | $ | (5 | ) | ||||
Gain on sale of White Pine Copper Refinery |
| | (1,999 | ) | | |||||||||||
Other income |
(427 | ) | (392 | ) | (551 | ) | (417 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
(463 | ) | (403 | ) | (3,014 | ) | (422 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Other operating expense |
||||||||||||||||
Cost of non-producing properties |
3,490 | 3,680 | 8,310 | 11,713 | ||||||||||||
Other expense |
| 11 | 23 | 13 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 3,490 | $ | 3,691 | $ | 8,333 | $ | 11,726 | |||||||||
|
|
|
|
|
|
|
|
In June 2011, the Group disposed of its shares in the White Pine Copper Refinery for proceeds of $2,906 and recognized a gain on sale of $1,999.
Page 16
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
(d) | Finance income and expenses: |
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Finance income |
||||||||||||||||
Interest income |
$ | (1,813 | ) | $ | (1,784 | ) | $ | (5,926 | ) | $ | (3,641 | ) | ||||
Other finance income |
(53 | ) | (210 | ) | (64 | ) | (246 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
(1,866 | ) | (1,994 | ) | (5,990 | ) | (3,887 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Finance expense |
||||||||||||||||
Other finance expense |
994 | 268 | 2,739 | 946 | ||||||||||||
Unwinding of discounts on provisions |
842 | 718 | 2,563 | 2,153 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
1,836 | 986 | 5,302 | 3,099 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other finance (gains) losses |
||||||||||||||||
Net foreign exchange (gains) losses |
(7,934 | ) | 3,581 | (4,216 | ) | 4,210 | ||||||||||
Ineffective gains on cash flow hedges |
(299 | ) | 111 | (509 | ) | (914 | ) | |||||||||
Change in fair value of financial assets and liabilities at fair value through profit loss: |
||||||||||||||||
Classified as held-for-trading |
2,067 | (2,419 | ) | 2,967 | (2,419 | ) | ||||||||||
Remeasurement to fair value of existing interest in HudBay Peru (note 4) |
||||||||||||||||
Recognized in the income statement |
| | (881 | ) | | |||||||||||
Reclassified from equity |
| | (1,220 | ) | | |||||||||||
Net loss reclassified from equity on impairment of available-for-sale investments (note 14) |
2,546 | | 3,936 | | ||||||||||||
Net gain reclassified from equity on disposal of available-for-sale investments (note 14) |
| (1,069 | ) | | (2,163 | ) | ||||||||||
Other |
| 239 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
(3,620 | ) | 443 | 77 | (1,286 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net finance income |
$ | (3,650 | ) | $ | (565 | ) | $ | (611 | ) | $ | (2,074 | ) | ||||
|
|
|
|
|
|
|
|
During the three and nine months ended September 30, 2011, the Group recognized impairment losses on investments in listed shares and transferred pre-tax losses of $2,546 and $3,936, respectively, from the available-for-sale reserve within equity to the income statement.
Page 17
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
6. | Inventories |
Sep. 30, 2011 |
Dec. 31, 2010 |
Jan. 1, 2010 |
||||||||||
Current |
||||||||||||
Work in progress |
$ | 6,011 | $ | 18,775 | $ | 51,250 | ||||||
Finished goods |
77,052 | 81,277 | 59,595 | |||||||||
Materials and supplies |
12,846 | 15,590 | 15,095 | |||||||||
|
|
|
|
|
|
|||||||
Non-current |
95,909 | 115,642 | 125,940 | |||||||||
Materials and supplies |
5,461 | 6,052 | 5,188 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 101,370 | $ | 121,694 | $ | 131,128 | ||||||
|
|
|
|
|
|
During the nine months ended September 30, 2011, the Group recognized an expense of $5,351 in cost of sales related to a write-down of zinc inventories to net realizable value.
7. | Other financial assets |
Sep. 30, 2011 |
Dec. 31, 2010 |
Jan. 1, 2010 |
||||||||||
Current |
||||||||||||
Derivative assets |
$ | 3,723 | $ | 3,795 | $ | 955 | ||||||
|
|
|
|
|
|
|||||||
Non-current |
||||||||||||
Available-for-sale investments |
97,381 | 104,990 | 27,249 | |||||||||
Investments at fair value through profit or loss |
1,343 | 7,688 | 138 | |||||||||
Derivative assets |
| 603 | 258 | |||||||||
Restricted cash |
4,264 | 4,405 | 59,031 | |||||||||
|
|
|
|
|
|
|||||||
102,988 | 117,686 | 86,676 | ||||||||||
|
|
|
|
|
|
|||||||
$ | 106,711 | $ | 121,481 | $ | 87,631 | |||||||
|
|
|
|
|
|
Credit facility, letters of credit and restricted cash
On November 3, 2010, HudBay arranged a new US$300 million revolving credit facility with a syndicate of lenders. The facility has an initial term of four years, is secured by a pledge of assets of the parent company, and is unconditionally guaranteed by HudBays material subsidiaries. Upon closing, restricted cash on deposit to support letters of credit was reclassified to cash and cash equivalents. As at September 30, 2011, the Group has outstanding letters of credit in the amount of $61,170, of which $58,807 is supported by the revolving credit facility.
Page 18
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
8. | Discontinued operations |
Accounting policy
A discontinued operation is a component of the Groups business that represents a separate major line of business or geographical area of operations that has been disposed of or classified as held for sale. The operations and cash flows can be clearly distinguished from the rest of the Group, both operationally and for financial reporting purposes. When the Group classifies an operation as a discontinued operation, it re-presents the comparative income statement as if the operation had been discontinued from the start of the comparative year. In doing this, the Group excludes the results of the discontinued operations and any gain or loss from disposal from the income statement subtotal of profit or loss from continuing operations and presents them on a separate line as profit or loss (net of tax) from the discontinued operation.
Disposition of Fenix project operations
On September 9, 2011, HudBay sold its interest in the Fenix ferro-nickel project in Guatemala to the Solway Group for consideration of approximately US$140 million in cash at closing and will receive $30 million upon the satisfaction of certain conditions during the course of Solways development of the project. The Group has presented the results of the Fenix project as discontinued operations for current and comparative periods. For the three months ended September 30, 2011, the loss from discontinued operations includes losses of $20,416 transferred from the foreign currency translation reserve to the income statement upon disposal of the Fenix project, as well as additional losses on disposal of $2,061. For the nine months ended September 30, 2011, the loss from discontinued operations also included an impairment loss of $212,739 recognized during the three months ended June 30, 2011 to reduce the carrying value of the Fenix nickel project in Guatemala to an estimate of the fair value less costs to sell.
The following summarizes results from discontinued operations:
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Expenses |
$ | (2,554 | ) | $ | (9,359 | ) | $ | (3,636 | ) | $ | (14,235 | ) | ||||
Tax benefit |
| (240 | ) | (68 | ) | (663 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
(2,554 | ) | (9,119 | ) | (3,568 | ) | (13,572 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss on remeasurement to fair value less costs to sell |
(2,061 | ) | | (214,800 | ) | | ||||||||||
Foreign exchange losses transferred from the foreign currency reserve |
(20,416 | ) | | (20,416 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
(22,477 | ) | | (235,216 | ) | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from discontinued operations |
$ | (25,031 | ) | $ | (9,119 | ) | $ | (238,784 | ) | $ | (13,572 | ) | ||||
|
|
|
|
|
|
|
|
Page 19
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Loss from discontinued operations attributable to: |
||||||||||||||||
Owners of the Company |
$ | (25,031 | ) | $ | (9,134 | ) | $ | (235,270 | ) | $ | (13,465 | ) | ||||
Non-controlling interests |
| 15 | (3,514 | ) | (107 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | (25,031 | ) | $ | (9,119 | ) | $ | (238,784 | ) | $ | (13,572 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
(Loss) profit from continuing operations attributable to: |
||||||||||||||||
Owners of the Company |
$ | (14,474 | ) | $ | 7,376 | $ | 45,642 | $ | 26,721 | |||||||
Non-controlling interests |
(1,578 | ) | | (4,732 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
(16,052 | ) | 7,376 | 40,910 | 26,721 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss per share - discontinued operations |
||||||||||||||||
Basic |
$ | (0.15 | ) | $ | (0.06 | ) | $ | (1.41 | ) | $ | (0.09 | ) | ||||
Diluted |
(0.15 | ) | (0.06 | ) | (1.41 | ) | (0.09 | ) | ||||||||
(Loss) earnings per share - continuing operations |
||||||||||||||||
Basic |
$ | (0.08 | ) | $ | 0.05 | $ | 0.27 | $ | 0.18 | |||||||
Diluted |
(0.08 | ) | 0.05 | 0.27 | 0.18 |
9. | Assets held for sale |
Accounting policy
The Group classifies non-current assets, or disposal groups consisting of assets and liabilities, as held for sale when it expects to recover their carrying amounts primarily through sale rather than through continuing use. To meet criteria to be held for sale, the sale must be highly probable, and the assets or disposal groups must be available for immediate sale in their present condition. The Group must be committed to a plan to sell the assets or disposal group, and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.
The Group measures assets or disposal groups at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets, investment property or biological assets. Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognized in profit or loss; however, gains are not recognized in excess of any cumulative impairment loss. Upon classifying assets or disposal groups as held for sale, the Group presents the assets separately as a single amount and the liabilities separately as a single amount on the balance sheet.
Page 20
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
Zochem
At September 30, 2011, the Group was in advanced discussions regarding a sale of Zochem, its zinc oxide production facility in Ontario, and concluded it met criteria for classification as held for sale at that time. During the three months ended September 30, 2011, the Group recognized an impairment loss of $5,878 to re-measure the Zochem disposal group to its fair value less costs to sell of $16,294, which was lower than its carrying value prior to classification as held for sale. The Group determined the fair value based on offers received from third parties. The Group has applied the impairment to the property, plant and equipment of the Zochem operations. On the income statement, the impairment loss is presented within cost of sales. Zochem is reported within the HBMS operating segment.
As at September 30, 2011, the major classes of assets and liabilities of Zochem are as follows:
Assets |
||||
Trade and other receivables |
$ | 9,986 | ||
Inventories |
5,735 | |||
Other assets |
372 | |||
Property, plant and equipment |
2,919 | |||
|
|
|||
Zochem assets held for sale |
$ | 19,012 | ||
|
|
|||
Liabilities |
||||
Trade and other payables |
$ | (1,376 | ) | |
Taxes payable |
(1,026 | ) | ||
Derivative liabilities |
(252 | ) | ||
Provisions |
(64 | ) | ||
|
|
|||
Zochem liabilities associated with assets held for sale |
$ | (2,718 | ) | |
|
|
|||
Zochem net assets held for sale |
$ | 16,294 | ||
|
|
On November 1, 2011, the sale of Zochem to a third party was completed.
Page 21
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
10. | Income and mining taxes |
(a) | Tax expense: |
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Tax expense based on: |
||||||||||||||||
Current: |
||||||||||||||||
Taxable income |
$ | 12,333 | $ | 7,221 | $ | 35,903 | $ | 33,262 | ||||||||
Taxable mining profits |
(3,493 | ) | 5,539 | 16,770 | 21,106 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
8,840 | 12,760 | 52,673 | 54,368 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Deferred: |
||||||||||||||||
Income taxes - origination and reversal of temporary difference |
13,617 | 4,607 | 15,575 | 919 | ||||||||||||
Mining taxes - origination and reversal of temporary difference |
12,038 | 775 | 12,741 | 746 | ||||||||||||
Peruvian mining tax |
19,009 | | 19,009 | | ||||||||||||
Benefit arising from previously unrecognized tax loss, or temporary difference |
21 | (1,987 | ) | (1,696 | ) | (679 | ) | |||||||||
Relating to the write-down/reversal of write-down of a deferred tax asset |
| (1,115 | ) | | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
44,685 | 2,280 | 45,629 | 986 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 53,525 | $ | 15,040 | $ | 98,302 | $ | 55,354 | |||||||||
|
|
|
|
|
|
|
|
Page 22
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
(b) | Deferred tax assets and liabilities as represented on the balance sheet: |
Sep. 30, 2011 | Dec. 31, 2010 | Jan. 1, 2010 | ||||||||||
Deferred income tax asset |
$ | 12,839 | $ | 15,349 | $ | 26,363 | ||||||
Deferred mining tax asset - Canada |
4,316 | 17,057 | 18,246 | |||||||||
|
|
|
|
|
|
|||||||
17,155 | 32,406 | 44,609 | ||||||||||
|
|
|
|
|
|
|||||||
Deferred income tax liability |
(168,697 | ) | (24,302 | ) | (29,457 | ) | ||||||
Deferred mining tax liability - Peru |
(19,874 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
(188,571 | ) | (24,302 | ) | (29,457 | ) | |||||||
|
|
|
|
|
|
|||||||
$ | (171,416 | ) | $ | 8,104 | $ | 15,152 | ||||||
|
|
|
|
|
|
(c) | Changes in deferred tax assets and liabilities: |
Nine months ended September 30 |
||||||||
2011 | 2010 | |||||||
Balance, beginning of period |
$ | 8,104 | $ | 15,152 | ||||
Deferred tax expense |
(45,629 | ) | (986 | ) | ||||
OCI transactions |
5,455 | (2,406 | ) | |||||
Purchase price adjustment |
(128,836 | ) | | |||||
Foreign currency translation on HudBay Peru deferred tax liability |
(10,521 | ) | | |||||
Other |
11 | (187 | ) | |||||
|
|
|
|
|||||
$ | (171,416 | ) | $ | 11,573 | ||||
|
|
|
|
Page 23
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
11. | Share capital |
(a) | Preference shares: |
Authorized: Unlimited preference shares without par value
(b) | Common shares: |
Authorized: Unlimited common shares without par value
Issued and fully paid:
Nine months ended Sep. 30, 2011 |
Year ended Dec. 31, 2010 |
|||||||||||||||
Common shares |
Amount | Common shares |
Amount | |||||||||||||
Balance, beginning of period |
149,431,339 | $ | 642,161 | 153,854,655 | $ | 656,427 | ||||||||||
Exercise of options |
30,622 | 216 | 623,784 | 6,881 | ||||||||||||
Shares repurchased |
| | (5,047,100 | ) | (21,147 | ) | ||||||||||
Share issue costs, net of tax |
| (239 | ) | | | |||||||||||
Issued - acquisition of HudBay Peru (note 4) |
20,372,986 | 345,119 | | | ||||||||||||
Issued - acquisition of non-controlling interest (note 4) |
2,102,718 | 32,869 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
171,937,665 | $ | 1,020,126 | 149,431,339 | $ | 642,161 | ||||||||||
|
|
|
|
|
|
|
|
The Company paid dividends of $0.10 per share on March 31, 2011 to shareholders of record as of March 31, 2011 and on September 30, 2011 to shareholders of record as of September 15, 2011.
Page 24
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
12. | Share-based payment |
(a) | Cash-settled share-based payment: |
The Group has two cash-settled share-based payment plans, as described below.
Deferred share units
At September 30, 2011, the value of the outstanding liability related to the DSU plan was $2,145 (December 31, 2010 - $3,167). The following table outlines information related to DSUs granted in the period and the expense recognized in the period.
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Granted during the period: |
||||||||||||||||
Number of units |
15,683 | 30,995 | 43,325 | 89,657 | ||||||||||||
Weighted average price ($/unit) |
$ | 14.18 | $ | 12.04 | $ | 15.60 | $ | 12.57 | ||||||||
Expense (gain) recognized during the period1 |
$ | (791 | ) | $ | 964 | $ | (1,022 | ) | $ | 1,410 |
1 | This expense relates to the grant of DSUs, as well as mark-to-market adjustments, and is presented within selling and administrative expenses on the income statement. |
Restricted share units
At September 30, 2011, the value of the outstanding liability related to the RSU plan was $2,168 (December 31, 2010 - $1,641). The following table outlines information related to RSUs granted in the period and the expense recognized in the period.
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Granted during the period |
||||||||||||||||
Number of units |
6,559 | 151,591 | 323,116 | 435,880 | ||||||||||||
Weighted average price ($/unit) |
$ | 10.46 | $ | 13.02 | $ | 15.79 | $ | 13.25 | ||||||||
Expense (gain) recognized during the period1 |
$ | 102 | $ | 560 | $ | 1,432 | $ | 864 | ||||||||
Payments made during the period |
$ | 905 | $ | | $ | 905 | $ | |
1 | This net expense reflects recognition of RSU expense over the service period, as well as mark-to-market adjustments, and is presented mainly within cost of sales and selling and administrative expenses. |
Page 25
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
(b) | Equity-settled share-based payment - stock options: |
Nine months ended Sep. 30, 2011 |
Year ended Dec. 31, 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 |
4,368,784 | $ | 14.50 | 4,637,113 | $ | 14.25 | ||||||||||
Granted |
| | 900,000 | 12.17 | ||||||||||||
Exercised |
(30,622 | ) | 5.00 | (623,784 | ) | 8.42 | ||||||||||
Forfeited |
(276,671 | ) | 17.22 | (145,557 | ) | 10.42 | ||||||||||
Expired |
| | (398,988 | ) | 17.31 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
4,061,491 | $ | 14.39 | 4,368,784 | $ | 14.50 | ||||||||||
|
|
|
|
|
|
|
|
The following table summarizes the options outstanding at September 30, 2011:
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 - 10.20 |
981,653 | 3.8 | $ | 6.91 | 904,988 | $ | 6.82 | |||||||||||||
10.21 - 14.02 |
1,007,000 | 2.7 | 12.01 | 707,000 | 11.95 | |||||||||||||||
14.03 - 16.55 |
706,701 | 6.5 | 15.86 | 706,701 | 15.86 | |||||||||||||||
16.56 - 20.78 |
205,200 | 0.3 | 18.54 | 205,200 | 18.54 | |||||||||||||||
20.79 - 23.74 |
1,160,937 | 5.5 | 21.14 | 1,160,937 | 21.14 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
$ 2.59 - 23.74 |
4,061,491 | 4.32 | $ | 14.39 | 3,684,826 | $ | 14.70 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
13. | Earnings per share data |
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Weighted average common shares outstanding |
||||||||||||||||
Basic |
171,905,912 | 148,949,050 | 166,490,423 | 151,114,563 | ||||||||||||
Plus net incremental shares from assumed conversion: stock options |
442,299 | 738,960 | 597,738 | 684,604 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted weighted average common shares outstanding |
172,348,211 | 149,688,010 | 167,088,161 | 151,799,167 | ||||||||||||
|
|
|
|
|
|
|
|
When calculating earnings per share for periods where the Group has a loss, HudBays calculation of diluted earnings per share excludes any incremental shares from the assumed conversion of stock options as they would be anti-dilutive.
Page 26
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
14. | Other comprehensive income (loss) (OCI) |
Three months ended Sep. 30, 2011 |
Three months ended Sep. 30, 2010 |
|||||||||||||||||||||||
Pre-tax | Tax | Net of tax |
Pre-tax | Tax | Net of tax |
|||||||||||||||||||
Foreign currency translation |
||||||||||||||||||||||||
Net exchange gain (loss) on translation of foreign operations |
$ | 45,728 | $ | | $ | 45,728 | $ | (7,015 | ) | $ | | $ | (7,015 | ) | ||||||||||
Transfer to income statement on disposal of foreign operations |
20,416 | | 20,416 | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
66,144 | | 66,144 | (7,015 | ) | | (7,015 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Available-for-sale |
||||||||||||||||||||||||
Change in fair value of available-for-sale investments |
(34,126 | ) | 4,279 | (29,847 | ) | 29,521 | (3,729 | ) | 25,792 | |||||||||||||||
Transfer to income statement on impairment of investments |
2,546 | (320 | ) | 2,226 | | | | |||||||||||||||||
Transfer to income statement on sale of investments |
| | | (1,069 | ) | 165 | (904 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(31,580 | ) | 3,959 | (27,621 | ) | 28,452 | (3,564 | ) | 24,888 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flow hedge |
||||||||||||||||||||||||
Effective portion of change in fair value of cash flow hedge |
3,601 | (1,047 | ) | 2,554 | (7,237 | ) | 2,100 | (5,137 | ) | |||||||||||||||
Transfer to income statement as hedged transactions occurred |
(170 | ) | 19 | (151 | ) | (1,524 | ) | 520 | (1,004 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
3,431 | (1,028 | ) | 2,403 | (8,761 | ) | 2,620 | (6,141 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total OCI (loss) |
$ | 37,995 | $ | 2,931 | $ | 40,926 | $ | 12,676 | $ | (944 | ) | $ | 11,732 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Page 27
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
Nine months ended Sep. 30, 2011 |
Nine months ended Sep. 30, 2010 |
|||||||||||||||||||||||
Pre-tax | Tax | Net of tax |
Pre-tax | Tax | Net of tax |
|||||||||||||||||||
Foreign currency translation |
||||||||||||||||||||||||
Net exchange gain (loss) on translation of foreign operations |
$ | 31,349 | $ | | $ | 31,349 | $ | (4,481 | ) | $ | | $ | (4,481 | ) | ||||||||||
Transfer to income statement on disposal of foreign operations |
20,416 | | 20,416 | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
51,765 | | 51,765 | (4,481 | ) | | (4,481 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Available-for-sale |
||||||||||||||||||||||||
Change in fair value of available-for-sale investments |
(46,205 | ) | 5,795 | (40,410 | ) | 22,181 | (2,715 | ) | 19,466 | |||||||||||||||
Transfer to income statement on impairment of investments |
3,936 | (492 | ) | 3,444 | | | | |||||||||||||||||
Transfer to income statement on sale of investments |
(1,220 | ) | 152 | (1,068 | ) | (2,163 | ) | 309 | (1,854 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(43,489 | ) | 5,455 | (38,034 | ) | 20,018 | (2,406 | ) | 17,612 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash flow hedge |
||||||||||||||||||||||||
Effective portion of change in fair value of cash flow hedge |
6,041 | (1,741 | ) | 4,300 | 10,367 | (3,104 | ) | 7,263 | ||||||||||||||||
Transfer to income statement as hedged transactions occurred |
(231 | ) | 4 | (227 | ) | (2,782 | ) | 843 | (1,939 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
5,810 | (1,737 | ) | 4,073 | 7,585 | (2,261 | ) | 5,324 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total OCI (loss) |
$ | 14,086 | $ | 3,718 | $ | 17,804 | $ | 23,122 | $ | (4,667 | ) | $ | 18,455 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Gains and losses transferred from equity into profit or loss during the period are included in the following line items in the income statement:
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue |
$ | 170 | $ | 1,524 | $ | 231 | $ | 2,782 | ||||||||
Other finance gains/losses |
(2,546 | ) | 1,069 | (2,716 | ) | 2,163 | ||||||||||
Discontinued operations |
(20,416 | ) | | (20,416 | ) | | ||||||||||
Tax expense |
301 | (685 | ) | 336 | (1,152 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | (22,491 | ) | $ | 1,908 | $ | (22,565 | ) | $ | 3,793 | |||||||
|
|
|
|
|
|
|
|
Page 28
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
15. | Non-controlling interests |
Prior to the disposition of the Fenix project on September 9, 2011, the Group owned 98.2% of Compañía Guatemalteca de Níquel (CGN). As a result of the transaction, the Group is no longer required to account for the related non-controlling interest.
HudBay owns 51% of the Back Forty project in accordance with a Subscription, Option and Joint Venture Agreement with Aquila Resources Inc. (Aquila). HudBay has control over the Back Forty project and accordingly consolidates the Back Forty project in its consolidated financial statements.
In accordance with a Joint Venture Agreement with VMS Ventures Inc. (VMS), HudBay owns 70% of the Reed Lake project and the two claims immediately to the south. HudBay has control over the project and accordingly consolidates the Reed Lake project in its consolidated financial statements.
The Group acquired 90.5% of HudBay Peru on March 1, 2011 and increased its ownership throughout the year, resulting in a 100% ownership interest as at September 30, 2011 (note 4).
CGN | Back Forty Project |
Reed Lake Project |
HudBay Peru | Total | ||||||||||||||||
Balance, January 1, 2010 |
$ | 1,359 | $ | | $ | | $ | | $ | 1,359 | ||||||||||
Share of assets acquired |
| 10,221 | 1,122 | | 11,343 | |||||||||||||||
Share of OCI |
| (164 | ) | | | (164 | ) | |||||||||||||
Share of net loss |
(109 | ) | | | | (109 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, September 30, 2010 |
1,250 | 10,057 | 1,122 | | 12,429 | |||||||||||||||
Share of OCI |
| (162 | ) | | | (162 | ) | |||||||||||||
Share of net loss |
(121 | ) | (1,865 | ) | (859 | ) | | (2,845 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, December 31, 2010 |
1,129 | 8,030 | 263 | | 9,422 | |||||||||||||||
Share of assets acquired |
| | | 9,446 | 9,446 | |||||||||||||||
Share of OCI |
| 252 | | | 252 | |||||||||||||||
Share of net loss |
(3,514 | ) | (3,702 | ) | (1,052 | ) | 23 | (8,245 | ) | |||||||||||
Disposition of subsidiary |
2,385 | | | | 2,385 | |||||||||||||||
Acquisition of non-controlling interest |
| | | (9,469 | ) | (9,469 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance September 30, 2011 |
$ | | $ | 4,580 | $ | (789 | ) | $ | | $ | 3,791 | |||||||||
|
|
|
|
|
|
|
|
|
|
Page 29
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
16. | Financial instruments |
(a) | Fair value and carrying value of financial instruments: |
The following presents the fair value and carrying value of the Groups financial instruments and non-financial derivatives:
Sep. 30, 2011 | Dec. 31, 2010 | Jan. 1, 2010 | ||||||||||||||||||||||
Fair Value |
Carrying value |
Fair Value |
Carrying value |
Fair Value |
Carrying value |
|||||||||||||||||||
Financial assets |
||||||||||||||||||||||||
Loans and receivables |
||||||||||||||||||||||||
Cash and cash equivalents 1 |
$ | 871,089 | $ | 871,089 | $ | 901,693 | $ | 901,693 | $ | 886,814 | $ | 886,814 | ||||||||||||
Restricted cash1 |
4,264 | 4,264 | 4,405 | 4,405 | 59,031 | 59,031 | ||||||||||||||||||
Trade and other receivables1 2 |
31,758 | 31,758 | 68,778 | 68,778 | 36,755 | 36,755 | ||||||||||||||||||
Fair value through profit and loss |
||||||||||||||||||||||||
Trade and other receivables embedded derivatives3 |
(5,076 | ) | (5,076 | ) | 5,841 | 5,841 | 209 | 209 | ||||||||||||||||
Non-hedge derivative assets3 |
203 | 203 | 2,724 | 2,724 | 955 | 955 | ||||||||||||||||||
Investments at FVTPL4 |
1,343 | 1,343 | 7,688 | 7,688 | 138 | 138 | ||||||||||||||||||
Designated in cash flow hedges |
||||||||||||||||||||||||
Hedging derivative assets3 |
3,520 | 3,520 | 1,674 | 1,674 | 258 | 258 | ||||||||||||||||||
Available-for-sale |
||||||||||||||||||||||||
Available-for-sale investments4 |
97,381 | 97,381 | 104,990 | 104,990 | 27,249 | 27,249 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
1,004,482 | 1,004,482 | 1,097,793 | 1,097,793 | 1,011,409 | 1,011,409 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financial liabilities |
||||||||||||||||||||||||
Financial liabilities at amortized cost |
||||||||||||||||||||||||
Trade and other payables1 2 |
152,063 | 152,063 | 124,449 | 124,449 | 108,144 | 108,144 | ||||||||||||||||||
Fair value through profit and loss |
||||||||||||||||||||||||
Trade and other payables - embedded derivatives3 |
(968 | ) | (968 | ) | 941 | 941 | 557 | 557 | ||||||||||||||||
Non-hedge derivative liabilities3 |
2,430 | 2,430 | 17 | 17 | 152 | 152 | ||||||||||||||||||
Designated in cash flow hedges |
||||||||||||||||||||||||
Hedging derivative liabilities3 |
| | 4,383 | 4,383 | 9,823 | 9,823 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
153,525 | 153,525 | 129,790 | 129,790 | 118,676 | 118,676 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net financial assets |
$ | 850,957 | $ | 850,957 | $ | 968,003 | $ | 968,003 | $ | 892,733 | $ | 892,733 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
1 | Cash and cash equivalents, restricted cash, trade and other receivables and trade and other payables are recorded at carrying value, which approximates fair value due to their short-term nature and generally negligible credit losses. |
2 | Excludes embedded provisional pricing derivatives, as well as tax and other statutory amounts. |
3 | Derivatives and embedded provisional pricing derivatives are carried at their fair value, which is determined based on internal valuation models that reflect observable forward market commodity prices, currency exchange rates, and discount factors based on market US dollar interest rates and adjusted for credit risk. |
4 | Available-for-sale investments are carried at their fair value, which is determined using quoted market bid prices in active markets for listed shares and determined using valuation models for shares of private companies. Investments at fair-value-through-profit-loss (FVTPL) consist of warrants to purchase listed shares, which are carried at fair value as determined using a Black-Scholes model. |
Page 30
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
Fair value hierarchy
The table below provides an analysis by valuation method of financial instruments that are measured at fair value subsequent to recognition.
September 30, 2011 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Financial assets measured at fair value |
||||||||||||||||
Financial assets at FVTPL: |
||||||||||||||||
Embedded derivatives |
| (5,076 | ) | | (5,076 | ) | ||||||||||
Non-hedge derivatives |
| 203 | | 203 | ||||||||||||
Investments at FVTPL |
| 1,343 | | 1,343 | ||||||||||||
Hedging derivatives |
| 3,520 | | 3,520 | ||||||||||||
Available-for-sale investments |
95,381 | | 2,000 | 97,381 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
95,381 | (10 | ) | 2,000 | 97,371 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities measured at fair value |
||||||||||||||||
Financial liabilities at FVTPL: |
||||||||||||||||
Embedded derivatives |
| (968 | ) | | (968 | ) | ||||||||||
Non-hedge derivatives |
| 2,430 | | 2,430 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
| 1,462 | | 1,462 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2010 |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Financial assets measured at fair value |
||||||||||||||||
Financial assets at FVTPL: |
||||||||||||||||
Embedded derivatives |
| 5,841 | | 5,841 | ||||||||||||
Non-hedge zinc derivatives |
| 2,724 | | 2,724 | ||||||||||||
Investments at FVTPL |
| 7,688 | | 7,688 | ||||||||||||
Hedging derivatives |
| 1,674 | | 1,674 | ||||||||||||
Available for sale investments |
102,990 | | 2,000 | 104,990 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
102,990 | 17,927 | 2,000 | 122,917 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities measured at fair value |
||||||||||||||||
Financial liabilities at FVTPL: |
||||||||||||||||
Embedded derivatives |
| 941 | | 941 | ||||||||||||
Non-hedge derivatives |
| 17 | | 17 | ||||||||||||
Hedging derivatives |
| 4,383 | | 4,383 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
| 5,341 | | 5,341 | |||||||||||||
|
|
|
|
|
|
|
|
There were no transfers between levels during the period.
Page 31
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
(b) | Derivatives and hedging: |
Non-hedge derivative zinc contracts
HudBay enters into fixed price sales contracts with zinc and zinc oxide customers and, to ensure that the Group continues to receive a floating or unhedged realized zinc price, enters into forward zinc purchase contracts that effectively offset the fixed price sales contracts. The fixed-price sales contracts with customers are not recognized as derivatives, as they are executory contracts entered into and held for the purpose of the Groups expected sale requirements. However, the zinc forward purchase contracts are recorded as derivatives. Gains and losses on these contracts are recorded in revenues, and cash flows are classified in operating activities.
At September 30, 2011, the Group held contracts for forward zinc purchases of 11,640 tonnes that related to forward customer sales of zinc and zinc oxide. Prices ranged from US$1,732 to US$2,330 per tonne, and settlement dates extended out up to June 2012.
Cash flow hedging derivatives
In 2009, the Group entered into a foreign exchange swap contract to hedge foreign exchange risk for future receipts of US dollars and commodity swap contracts to hedge prices for a portion of future sales of zinc. These contracts expire in July 2012. The risk management objective for these hedging relationships is to mitigate the impact on the Group of fluctuating zinc prices and exchange rates. Cash flow hedge accounting has been applied to the hedging relationships. The effective portion of the change in fair value of cash flow hedging derivatives recognized in other comprehensive income is presented in note 14, and the ineffective portion recognized in other finance gains and losses in the income statement is presented in note 5d. Gains and losses reclassified from the cash flow hedge reserve to revenue are presented in note 14.
The following tables summarizes the Groups cash flow hedging derivatives, indicating the periods in which cash flows associated with the cash flow hedging derivatives are expected to occur:
September 30, 2011 |
Quantity | Weighted average price |
Fair value of derivative asset |
Expected cash flows |
||||||||||||
Zinc swaps - US$ denominated contracts |
||||||||||||||||
Metric tonnes | US$/MT | |||||||||||||||
Maturing between 0 to 12 months |
10,065 | 2,220 | 3,386 | 3,386 | ||||||||||||
Foreign currency swaps - sell US$/buy C$ |
||||||||||||||||
Value | Rate | |||||||||||||||
Maturing between 0 to 12 months |
14,951 | 1.0668 | 229 | 229 |
Page 32
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
December 31, 2010 |
Quantity | Weighted average price |
Fair value of derivative asset (liability) |
Expected cash flows |
||||||||||||
Zinc swaps - US$ denominated contracts |
||||||||||||||||
Maturing between: |
Metric tonnes | US$/MT | ||||||||||||||
0 to 12 months |
11,437 | 2,220 | (2,560 | ) | (2,560 | ) | ||||||||||
13 to 24 months |
7,320 | 2,220 | (1,826 | ) | (1,826 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
18,757 | 2,220 | (4,386 | ) | (4,386 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Foreign currency swaps - sell US$/buy C$ |
||||||||||||||||
Maturing between: |
Value | Rate | ||||||||||||||
0 to 12 months |
16,310 | 1.0668 | 1,071 | 1,071 | ||||||||||||
13 to 24 months |
10,873 | 1.0668 | 603 | 603 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
27,183 | 1.0668 | 1,674 | 1,674 | |||||||||||||
|
|
|
|
|
|
|
|
(c) | Embedded derivatives |
The Group records embedded derivatives 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 after title transfers 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.
Embedded derivatives 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 quotational period stipulated in the contract, with changes in fair value recognized in revenues for sales contracts and in cost of sales for purchase concentrate contracts. Cash flows related to provisional pricing embedded derivatives are classified in operating activities.
At September 30, 2011, the Groups net position consisted of contracts awaiting final pricing for sales of 2,557 tonnes of copper, purchases of 7,074 tonnes of zinc, sales of 1,507 ounces of gold and sales of 20,862 ounces of silver.
17. | Capital commitments |
As at September 30, 2011, the Group had outstanding capital commitments of approximately $133 million related to its Lalor project and $32 million related to its Constancia project, including amounts pursuant to contracts the Group is able to terminate upon relatively short notice.
Page 33
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
18. | Supplementary cash flow information |
(a) | Change in non-cash working capital: |
Three months ended September 30 |
Nine months ended September 30 |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Change in: |
||||||||||||||||
Trade and other receivables |
$ | (20,414 | ) | $ | (13,372 | ) | $ | 36,187 | $ | (22,846 | ) | |||||
Inventories |
6,333 | (13,135 | ) | 6,004 | 32,567 | |||||||||||
Prepaid expenses and other current assets |
43 | 2,384 | (854 | ) | 4,417 | |||||||||||
Trade and other payables |
34,942 | 9,392 | 7,501 | (8,886 | ) | |||||||||||
Provisions and other liabilities |
2,172 | 2,670 | (28,137 | ) | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 23,076 | $ | (12,061 | ) | $ | 20,701 | $ | 5,252 | ||||||||
|
|
|
|
|
|
|
|
(b) | Non-cash transactions: |
During the nine months ended September 30, 2011, the Group entered into the following non-cash investing and financing activities which are not reflected in the statement of cash flows:
| Remeasurements of the Groups provision for decommissioning liability led to increases in related assets of $20,117 (three months ended September 30, 2011 - $19,943). For the nine months ended September 30, 2010, such increases in property, plant and equipment were $12,093 (three months ended September 30, 2010 - $4,653); |
| Depreciation of $315 (three months ended September 30, 2011 - $35) was capitalized for fixed assets in construction; and |
| As at September 30, 2011, additions to property, plant and equipment of $19,400 were purchased using trade credit which was not yet paid. These additions will be reflected in the statement of cash flows in the period payment is made. |
Page 34
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
19. | Segmented information |
The Group is an integrated metals producer. When making decisions on expansions, opening or closing mines, as well as day to day operations, management evaluates the profitability of the overall operation of the Group. The Groups main mining operations are located in Manitoba and Saskatchewan and are included in the HBMS segment. The HBMS revenue segment generates the majority of revenues as it sells copper, zinc, gold, silver and other metals. The Peru segment consists of the Groups Constancia project in Peru, which HudBay acquired on March 1, 2011. The Other Segment includes operating segments that are not individually significant, as they do not meet the quantitative thresholds, and include the Balmat segment which consists of a zinc mine and concentrator, the Michigan segment which includes the Back Forty property and other exploration properties. The Balmat mine suspended operations on August 22, 2008. The group previously disclosed HMI Nickel as a segment; however, upon selling the Fenix project in September 2011 (note 8), HudBay reclassified these activities to loss from discontinued operations. Corporate activities are not considered a segment and are included as a reconciliation to total consolidated results. Accounting policies for each reported segment are the same. Segment profit or loss represents the profit earned by each segment without allocation of corporate costs. This is the measure reported to the chief operating decision-maker for the purposes of resource allocation and the assessment of segment performance. Total assets and liabilities do not reflect intercompany balances, which have been eliminated on consolidation.
Three months ended September 30, 2011
HBMS | Peru | Other | Corporate activities and unallocated costs |
Total | ||||||||||||||||
Revenue from external customers |
$ | 212,335 | $ | | $ | | $ | | $ | 212,335 | ||||||||||
Cost of sales not including depreciation and amortization and impairment loss |
120,790 | | | | 120,790 | |||||||||||||||
Cost of sales - depreciation and amortization |
27,166 | | | | 27,166 | |||||||||||||||
Cost of sales - impairment loss |
5,878 | | | | 5,878 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
58,501 | | | | 58,501 | |||||||||||||||
Selling and administrative expenses |
601 | | | 6,996 | 7,597 | |||||||||||||||
Exploration and evaluation |
7,940 | 2,270 | 1,208 | 2,636 | 14,054 | |||||||||||||||
Other operating income |
(226 | ) | | | (237 | ) | (463 | ) | ||||||||||||
Other operating expense |
677 | (285 | ) | 3,098 | | 3,490 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Results from operating activities |
$ | 49,509 | $ | (1,985 | ) | $ | (4,306 | ) | $ | (9,395 | ) | $ | 33,823 | |||||||
|
|
|
|
|
|
|
|
|||||||||||||
Finance income |
(1,866 | ) | ||||||||||||||||||
Finance expenses |
1,836 | |||||||||||||||||||
Other finance gains |
(3,620 | ) | ||||||||||||||||||
|
|
|||||||||||||||||||
Profit before tax |
37,473 | |||||||||||||||||||
Tax expense |
53,525 | |||||||||||||||||||
Profit from continuing operations |
(16,052 | ) | ||||||||||||||||||
Loss from discontinued operations |
(25,031 | ) | ||||||||||||||||||
|
|
|||||||||||||||||||
Loss for the period |
$ | (41,083 | ) | |||||||||||||||||
|
|
Page 35
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
Three months ended September 30, 2010
HBMS | Other | Corporate activities and unallocated costs |
Total | |||||||||||||
Revenue from external customers |
$ | 167,778 | $ | | $ | | $ | 167,778 | ||||||||
Cost of sales not including depreciation and amortization and impairment loss |
88,156 | | | 88,156 | ||||||||||||
Cost of sales - depreciation and amortization |
27,111 | | | 27,111 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
52,511 | | | 52,511 | ||||||||||||
Selling and administrative expenses |
763 | | 8,308 | 9,071 | ||||||||||||
Exploration and evaluation |
16,620 | 1,631 | 50 | 18,301 | ||||||||||||
Other operating income |
(403 | ) | | | (403 | ) | ||||||||||
Other operating expense |
1,945 | 1,739 | 7 | 3,691 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Results from operating activities |
$ | 33,586 | $ | (3,370 | ) | $ | (8,365 | ) | $ | 21,851 | ||||||
|
|
|
|
|
|
|||||||||||
Finance income |
(1,994 | ) | ||||||||||||||
Finance expenses |
986 | |||||||||||||||
Other finance losses |
443 | |||||||||||||||
|
|
|||||||||||||||
Profit before tax |
22,416 | |||||||||||||||
Tax expense |
15,040 | |||||||||||||||
Loss from continuing operations |
7,376 | |||||||||||||||
Loss from discontinued operations |
(9,119 | ) | ||||||||||||||
Loss for the period |
$ | (1,743 | ) | |||||||||||||
|
|
Nine months ended September 30, 2011
HBMS | Peru | Other | Corporate activities and unallocated costs |
Total | ||||||||||||||||
Revenue from external customers |
$ | 636,503 | $ | | $ | | $ | | $ | 636,503 | ||||||||||
Cost of sales not including depreciation and amortization and impairment loss |
341,725 | | | | 341,725 | |||||||||||||||
Cost of sales - depreciation and amortization |
78,624 | | | | 78,624 | |||||||||||||||
Cost of sales - impairment loss |
5,878 | | | | 5,878 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
210,276 | | | | 210,276 | |||||||||||||||
Selling and administrative expenses |
1,882 | | | 27,894 | 29,776 | |||||||||||||||
Exploration and evaluation |
20,698 | 4,168 | 9,089 | 2,625 | 36,580 | |||||||||||||||
Other operating income |
(2,777 | ) | | | (237 | ) | (3,014 | ) | ||||||||||||
Other operating expense |
2,435 | 815 | 5,083 | | 8,333 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Results from operating activities |
$ | 188,038 | $ | (4,983 | ) | $ | (14,172 | ) | $ | (30,282 | ) | $ | 138,601 | |||||||
|
|
|
|
|
|
|
|
|||||||||||||
Finance income |
(5,990 | ) | ||||||||||||||||||
Finance expenses |
5,302 | |||||||||||||||||||
Other finance losses |
77 | |||||||||||||||||||
|
|
|||||||||||||||||||
Profit before tax |
139,212 | |||||||||||||||||||
Tax expense |
98,302 | |||||||||||||||||||
Profit from continuing operations |
40,910 | |||||||||||||||||||
Loss from discontinued operations |
(238,784 | ) | ||||||||||||||||||
Loss for the period |
$ | (197,874 | ) |
Page 36
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
Nine months ended September 30, 2011
HBMS | Peru | Other | Corporate activities |
Total | ||||||||||||||||
Total assets |
$ | 955,860 | $ | 709,811 | $ | 23,235 | $ | 713,860 | $ | 2,402,766 | ||||||||||
Total liabilities |
(409,361 | ) | 187,892 | 130,688 | 697,465 | 606,684 | ||||||||||||||
Property, plant and equipment |
533,954 | 588,036 | 20,300 | 6,079 | 1,148,369 | |||||||||||||||
Additions to property, plant and equipment1: |
||||||||||||||||||||
- continuing operations |
130,916 | 18,768 | 3,607 | 4,815 | 158,106 | |||||||||||||||
- discontinued operations |
| | 7,163 | | 7,163 | |||||||||||||||
Additions to other non-current assets (intangibles) |
4,781 | | | | 4,781 |
1 | Additions to property, plant and equipment represent cash additions only. For non-cash additions, see note 18b. |
Nine months ended September 30, 2010
HBMS | Other | Corporate activities and unallocated costs |
Total | |||||||||||||
Revenue from external customers |
$ | 596,425 | $ | | $ | | $ | 596,425 | ||||||||
Cost of sales not including depreciation and amortization |
341,921 | | | 341,921 | ||||||||||||
Cost of sales - depreciation and amortization |
94,052 | | | 94,052 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
160,452 | | | 160,452 | ||||||||||||
Selling and administrative expenses |
2,078 | | 16,327 | 18,405 | ||||||||||||
Exploration and evaluation |
43,067 | 7,589 | 86 | 50,742 | ||||||||||||
Other operating income |
(422 | ) | | | (422 | ) | ||||||||||
Other operating expense |
2,767 | 8,962 | (3 | ) | 11,726 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Results from operating activities |
$ | 112,962 | $ | (16,551 | ) | $ | (16,410 | ) | $ | 80,001 | ||||||
|
|
|
|
|
|
|||||||||||
Finance income |
(3,887 | ) | ||||||||||||||
Finance expenses |
3,099 | |||||||||||||||
Other finance gains |
(1,286 | ) | ||||||||||||||
|
|
|||||||||||||||
Profit before tax |
82,075 | |||||||||||||||
Tax expense |
55,354 | |||||||||||||||
Profit from continuing operations |
26,721 | |||||||||||||||
Loss from discontinued operations |
(13,572 | ) | ||||||||||||||
|
|
|||||||||||||||
Profit for the period |
$ | 13,149 | ||||||||||||||
|
|
|||||||||||||||
Total assets1 |
$ | 832,467 | $ | 393,491 | $ | 783,391 | $ | 2,009,349 | ||||||||
Total liabilities1 |
347,598 | 29,384 | 7,280 | 384,262 | ||||||||||||
Property, plant and equipment1 |
417,112 | 383,186 | 2,711 | 803,009 | ||||||||||||
Additions to property, plant and equipment2: |
||||||||||||||||
- continuing operations |
76,068 | 3,290 | 23 | 79,381 | ||||||||||||
- discontinued operations |
| 1,828 | | 1,828 | ||||||||||||
Additions to other non-current assets (intangibles) |
2,562 | | | 2,562 | ||||||||||||
1 | Other includes amounts related to discontinued operations. |
2 | Additions to property, plant and equipment represent cash additions only. For non-cash additions, see note 18b. |
Page 37
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
20. | Transition to IFRS |
As stated in note 2a, the Group will present its first consolidated annual financial statements prepared in accordance with IFRS for the year ending December 31, 2011, which will include comparative figures for the year ended December 31, 2010.
The accounting policies disclosed in note 3 to the condensed consolidated interim financial statements for the three months ended March 31, 2011, have been applied in preparing the condensed consolidated interim financial statements for the three and nine months ended September 30, 2011, the comparative information presented in these interim financial statements for the three and nine months ended September 30, 2010 and the year ended December 31, 2010 and in the preparation of an opening IFRS balance sheet as at January 1, 2010 (the Groups transition date).
In preparing its opening IFRS balance sheet, the Group has adjusted amounts reported previously in financial statements prepared in accordance with Canadian GAAP. An explanation of the effect of transition from Canadian GAAP to IFRS on the Groups financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.
Exemptions applied:
IFRS 1, First-time Adoption of International Financial Reporting Standards, allows first-time adopters certain optional exemptions from full retrospective application of IFRSs. The Group applied the following exemptions as at January 1, 2010, its date of transition to IFRS:
| Business combination exemption The Group has elected not to apply IFRS 3, Business Combinations, retrospectively to acquisitions of subsidiaries or of interests in associates and joint ventures that occurred before January 1, 2010. This exemption also applies to purchases accounted for as asset acquisitions under Canadian GAAP that would qualify as business combinations under IFRS 3 (2008), which contains a broader definition of a business. The Group has determined that its 2008 acquisition of HMI Nickel would qualify as a business combination under IFRS 3 (2008). Accordingly, the Group has carried forward its Canadian GAAP accounting treatment for such acquisitions. In addition, and as a condition under IFRS 1 in applying this exemption, goodwill relating to business combinations that occurred prior to January 1, 2010 requires testing for impairment at the date of transition. However, no goodwill was recognized in the Canadian GAAP accounting treatment for such acquisitions. |
| Employee benefits exemptions The Group has elected to recognize all cumulative (and previously unrecognized) actuarial gains and losses in retained earnings for defined benefit plans as at January 1, 2010. The Group has also elected not to provide additional disclosures regarding employee benefit plans, including certain information in respect of defined benefit plans for the previous four annual periods, to the extent that such disclosures relate to a period prior to the Groups date of transition to IFRS. |
Page 38
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
| Exemption for decommissioning, restoration and similar liabilities included in the cost of property, plant and equipment The Group has elected not to apply IFRIC 1, Changes in Existing Decommissioning, Restoration and Similar Liabilities, retrospectively to determine the amount of decommissioning, restoration and similar liabilities to be included in the carrying value of property, plant and equipment as at January 1, 2010. Instead, the Group has determined such carrying values by determining the amount of the liability as at January 1, 2010 in accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets, estimating the amount that would have been included in the cost of the related asset when the liability first arose and calculating the accumulated depreciation on that amount as at January 1, 2010 based on the Groups current estimate of the useful life of the asset and the depreciation policy applied in accordance with IFRS. |
| Deemed cost exemption The Group has elected to use fair value as at September 30, 2008 as deemed cost for its Balmat property, plant and equipment as at this date. On September 30, 2008, the Group revalued these Balmat assets to their fair value of nil as a result of recognizing impairment losses, as previously reported in the Groups Canadian GAAP December 31, 2008 audited annual consolidated financial statements. |
| Cumulative translation differences exemption The Group has elected to deem cumulative translation differences for all foreign operations to be zero at January 1, 2010, and reclassify any such amounts determined in accordance with Canadian GAAP at that date to retained earnings. |
| Borrowing costs exemption The Group has elected to apply IAS 23, Borrowing Costs, prospectively to borrowing costs related to qualifying assets for which the commencement date for capitalization was on or after August 1, 2008. Accordingly, the Group has carried forward its Canadian GAAP accounting treatment for borrowing costs related to qualifying assets for which the commencement date for capitalization was prior to August 1, 2008. |
| Share-based payment exemption The Group has elected not to apply IFRS 2, Share-based Payment, retrospectively to equity instruments in share-based payment transactions that were granted on or before November 7, 2002, equity instruments granted after November 7, 2002 that vested before January 1, 2010, and liabilities for cash-settled share-based payment transactions that were settled before January 1, 2010. |
| Lease exemption The Group has elected to determine whether arrangements existing at January 1, 2010 contain a lease on the basis of facts and circumstances existing at that date. |
Page 39
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
Mandatory exceptions:
IFRS 1 requires certain mandatory exceptions to retrospective application of IFRSs. The following mandatory exceptions were applicable to the Groups transition to IFRS:
| Estimates Hindsight is not used to create or revise estimates. The Group has not revised estimates previously made under Canadian GAAP, except for adjustments required to reflect any difference in accounting policies or calculations. In particular, estimates at the date of transition to IFRSs of market prices, interest rates and foreign exchange rates reflect market conditions at that date. |
| Hedge accounting Hedging relationships cannot be retrospectively designated or retrospectively de-designated. The Group designated new hedging relationships in 2009 using documentation that satisfied both Canadian GAAP and IFRS requirements. In addition, in 2010, the Group continued to reclassify gains and losses from its hedging reserve to the income statement for a hedging relationship that was designated in 2007 under Canadian GAAP and discontinued in 2008 upon settlement of the hedging derivatives. This treatment was consistent with IFRS requirements. The Group did not record any retrospective adjustments to hedge accounting upon transition to IFRS. |
Reconciliation of equity as at January 1, 2010, September 30, 2010 and December 31, 2010
Notes | Jan. 1, 2010 (transition date) |
Sep. 30, 2010 | Dec. 31, 2010 | |||||||||||||
Total equity under Canadian GAAP |
$ | 1,698,484 | $ | 1,711,808 | $ | 1,748,981 | ||||||||||
|
|
|
|
|
|
|||||||||||
Adjustments to equity, net of tax |
||||||||||||||||
Exploration and evaluation |
a | (21,339 | ) | (41,777 | ) | (54,005 | ) | |||||||||
Decommissioning and restoration liabilities and assets |
b | (14,930 | ) | (23,717 | ) | (24,164 | ) | |||||||||
Property, plant and equipment |
c | (5,058 | ) | (10,413 | ) | (10,796 | ) | |||||||||
Functional currency |
d | (4,561 | ) | (12,550 | ) | (25,033 | ) | |||||||||
Employee benefits |
e | (3,641 | ) | (2,921 | ) | (2,682 | ) | |||||||||
Provisions |
f | (1,034 | ) | (779 | ) | (698 | ) | |||||||||
Own-use derivatives |
g | 307 | 943 | 1,896 | ||||||||||||
Non-controlling interest |
h | 1,356 | 55 | 49 | ||||||||||||
Effect of re-measuring taxes |
i | | 571 | 271 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Net adjustment to equity |
(48,900 | ) | (90,588 | ) | (115,162 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total equity under IFRSs |
$ | 1,649,584 | $ | 1,621,220 | $ | 1,633,819 | ||||||||||
|
|
|
|
|
|
Page 40
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
Reconciliation of statement of comprehensive income for the three and nine months ended September 30, 2010
Three months ended Sep. 30, 2010 |
Nine months ended Sep. 30, 2010 |
|||||||||||||||||||
Notes | Before tax | Net of tax | Before tax | Net of tax | ||||||||||||||||
Total comprehensive income under Canadian GAAP |
$ | 30,804 | $ | 71,704 | ||||||||||||||||
|
|
|
|
|||||||||||||||||
Adjustments to profit: |
||||||||||||||||||||
Exploration and evaluation |
a | (12,717 | ) | (7,716 | ) | (33,417 | ) | (20,438 | ) | |||||||||||
Decommissioning and restoration liabilities and assets |
b | (1,887 | ) | (3,163 | ) | (5,351 | ) | (8,783 | ) | |||||||||||
Property, plant and equipment |
c | (880 | ) | (549 | ) | (8,738 | ) | (5,355 | ) | |||||||||||
Functional currency |
d | (5,838 | ) | (5,838 | ) | (3,499 | ) | (3,499 | ) | |||||||||||
Employee benefits |
e | 345 | 252 | 999 | 720 | |||||||||||||||
Provisions |
f | 3 | 3 | 371 | 255 | |||||||||||||||
Own-use derivatives |
g | 4,411 | 3,165 | 887 | 636 | |||||||||||||||
Effect of re-measuring taxes |
i | | 386 | | 1,145 | |||||||||||||||
Share-based payment |
j | 44 | 44 | 91 | 91 | |||||||||||||||
Other |
3 | 3 | (3 | ) | (4 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total adjustment to profit |
(16,516 | ) | (13,413 | ) | (48,660 | ) | (35,232 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Adjustment to other comprehensive income (loss): |
||||||||||||||||||||
Functional currency |
d | (7,016 | ) | (7,016 | ) | (4,481 | ) | (4,481 | ) | |||||||||||
Available for sale investments |
| (386 | ) | | (387 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total adjustment to OCI (loss) |
(7,016 | ) | (7,402 | ) | (4,481 | ) | (4,868 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total adjustment to comprehensive income |
|
(23,532 | ) | (20,815 | ) | (53,141 | ) | (40,100 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total comprehensive income under IFRS |
$ | 9,989 | $ | 31,604 | ||||||||||||||||
|
|
|
|
Page 41
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
Reconciliation of statement of comprehensive income for the year ended December 31, 2010
Year ended Dec. 31 2010 |
||||||||||||
Notes | Before tax | Net of tax | ||||||||||
Total comprehensive income under Canadian GAAP |
$ | 105,290 | ||||||||||
|
|
|||||||||||
Adjustments to profit: |
||||||||||||
Exploration and evaluation |
a | (53,569 | ) | (32,666 | ) | |||||||
Decommissioning and restoration liabilities and assets |
b | (4,499 | ) | (9,236 | ) | |||||||
Property, plant and equipment |
c | (9,336 | ) | (5,738 | ) | |||||||
Functional currency |
d | (5,397 | ) | (5,397 | ) | |||||||
Employee benefits |
e | 1,330 | 959 | |||||||||
Provisions |
f | 473 | 337 | |||||||||
Own-use derivatives |
g | 2,215 | 1,589 | |||||||||
Effect of re-measuring taxes |
i | | 1,019 | |||||||||
Share-based payment |
j | 118 | 118 | |||||||||
Other |
(6 | ) | (6 | ) | ||||||||
|
|
|
|
|||||||||
Total adjustment to profit |
(68,671 | ) | (49,021 | ) | ||||||||
|
|
|
|
|||||||||
Adjustment to other comprehensive income (loss): |
||||||||||||
Functional currency |
d | (15,070 | ) | (15,070 | ) | |||||||
Available-for-sale investments |
i | (386 | ) | |||||||||
Other |
(2 | ) | (2 | ) | ||||||||
|
|
|
|
|||||||||
Total adjustment to OCI (loss) |
(15,072 | ) | (15,458 | ) | ||||||||
|
|
|
|
|||||||||
Total adjustment to comprehensive income |
|
(83,743 | ) | (64,479 | ) | |||||||
|
|
|
|
|||||||||
Total comprehensive income under IFRS |
$ | 40,811 | ||||||||||
|
|
Notes to reconciliations:
Transition to IFRSs has resulted in the following adjustments as a result of applying the Groups IFRS accounting policies as at January 1, 2010:
(a) | Exploration for and evaluation of mineral resources |
The Group has selected an IFRS policy to expense the cost of its exploration and evaluation (E&E) activities and to capitalize the cost of acquiring interests in mineral rights, licenses and properties in business combinations, asset acquisitions or option agreements. Application of this policy resulted in a transition adjustment to reverse the Lalor project assets previously capitalized under Canadian GAAP, as the amounts arose from E&E activities rather than acquisitions. Under IFRS, the Group began capitalizing Lalor project expenditures in January 2011, when it reached the end of the E&E phase. At that time, the Group had completed a preliminary feasibility study, some of the resources
Page 42
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
had been converted to reserves, and management had determined it was probable the property would be developed into a mine.
Under IFRS, the Group capitalizes option payments and records option payments received as a reduction to the cost of the related E&E asset, with any excess over cost recognized as a gain in the income statement. Upon transition to IFRS, the Group recorded adjustments to reduce the cost of E&E assets for option payments previously received and recorded in the income statement under Canadian GAAP. The Group also recorded adjustments to increase the cost of E&E assets for option payments it previously expensed under Canadian GAAP.
Balance sheet |
Jan. 1, 2010 |
Sep. 30, 2010 |
Dec. 31, 2010 |
|||||||||
Decrease in exploration and evaluation assets within property, plant and equipment: |
||||||||||||
- Lalor Project |
$ | (32,779 | ) | $ | (65,971 | ) | $ | (86,123 | ) | |||
- Option payments |
(882 | ) | (1,107 | ) | (1,107 | ) | ||||||
Tax effect: |
||||||||||||
- Income taxes |
9,070 | 18,055 | 23,474 | |||||||||
- Mining taxes |
3,252 | 7,246 | 9,751 | |||||||||
|
|
|
|
|
|
|||||||
Decrease in retained earnings |
$ | (21,339 | ) | $ | (41,777 | ) | $ | (54,005 | ) | |||
|
|
|
|
|
|
|||||||
Statement of comprehensive income |
Three months ended Sep. 30, 2010 |
Nine months ended Sep. 30, 2010 |
Year ended Dec. 31, 2010 |
|||||||||
Increase in exploration and evaluation expense |
$ | (12,717 | ) | $ | (33,417 | ) | $ | (53,569 | ) | |||
Tax effect: |
||||||||||||
- Income taxes |
3,420 | 8,985 | 14,404 | |||||||||
- Mining taxes |
1,581 | 3,994 | 6,499 | |||||||||
|
|
|
|
|
|
|||||||
Decrease in comprehensive income |
$ | (7,716 | ) | $ | (20,438 | ) | $ | (32,666 | ) | |||
|
|
|
|
|
|
Page 43
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
(b) | Decommissioning and restoration |
As noted above, the Group applied the IFRS 1 exemption related to decommissioning, restoration and similar liabilities included in the cost of property, plant and equipment.
Under Canadian GAAP, the Group applied a credit-adjusted, risk-free rate to measure its decommissioning and restoration liabilities and did not re-measure the liabilities as a result of changes in the discount rate. Under IFRS, the Group reflects risk in estimated future cash flows and applies a risk-free rate when measuring decommissioning and restoration liabilities and, in subsequent periods, re-measures the liabilities to reflect changes in the discount rate. Differences between historical, credit-adjusted Canadian GAAP discount rates and current, risk-free IFRS discount rates resulted in IFRS transition adjustments to increase decommissioning and restoration liabilities.
The increase in these liabilities also led to IFRS transition adjustments to increase the carrying value of decommissioning and restoration assets. Changes in decommissioning and restoration liabilities related to properties that have no remaining useful life are recorded against other operating expense. The changes to liability and asset balances also affected finance expense related to the unwinding of discounts on liabilities and depreciation expense.
Jan. 1, | Sep. 30, | Dec. 31, | ||||||||||
Balance sheet |
2010 | 2010 | 2010 | |||||||||
Increase in decommissioning, restoration and similar liabilities |
$ | (31,100 | ) | $ | (46,420 | ) | $ | (51,814 | ) | |||
Increase in decommissioning and restoration assets within property, plant and equipment |
24,275 | 34,244 | 40,490 | |||||||||
Tax effect: |
||||||||||||
- Income taxes |
(5,880 | ) | (8,231 | ) | (9,119 | ) | ||||||
- Mining taxes |
(2,169 | ) | (3,250 | ) | (3,668 | ) | ||||||
Increase in non-controlling interest |
(56 | ) | (60 | ) | (53 | ) | ||||||
|
|
|
|
|
|
|||||||
Decrease in retained earnings |
$ | (14,930 | ) | $ | (23,717 | ) | $ | (24,164 | ) | |||
|
|
|
|
|
|
|||||||
Three months | Nine months | Year ended | ||||||||||
ended | ended | Dec. 31, | ||||||||||
Statement of comprehensive income |
Sep. 30, 2010 | Sep. 30, 2010 | 2010 | |||||||||
Decrease in finance expense - unwinding of discounts on provisions |
$ | 461 | $ | 1,202 | $ | 1,389 | ||||||
Increase in other operating expense - cost of non-producing properties |
(1,289 | ) | (4,429 | ) | (2,562 | ) | ||||||
Increase in cost of sales - depreciation and amortization |
(1,059 | ) | (2,124 | ) | (3,326 | ) | ||||||
Tax effect: |
||||||||||||
- Income taxes |
(873 | ) | (2,351 | ) | (3,238 | ) | ||||||
- Mining taxes |
(403 | ) | (1,081 | ) | (1,499 | ) | ||||||
|
|
|
|
|
|
|||||||
Decrease in comprehensive income |
$ | (3,163 | ) | $ | (8,783 | ) | $ | (9,236 | ) | |||
|
|
|
|
|
|
Page 44
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
(c) | Property, plant and equipment |
IFRS requires capitalized costs to be directly attributable to bringing assets to a working condition for their intended use and requires depreciation to be calculated separately for individual components of an item of property, plant and equipment that have costs significant in relation to the total cost of the item. Under IFRS, components may be physical or non-physical. Costs of major inspections and overhauls are capitalized as separate components and depreciated over the useful lives of the major inspection or overhaul. Requirements under Canadian GAAP, while similar, are less specific.
Application of IFRS required the Group to account for components at a more detailed level. Identification of additional components with shorter useful lives than that of the item of property, plant and equipment resulted in IFRS transition adjustments to increase accumulated depreciation. For certain equipment, the increase in accumulated depreciation also reflected a change in depreciation method from unit-of-production to straight-line because the expected pattern of future economic benefits was different at the lower level of componentization.
The Group recorded IFRS transition adjustments to increase the carrying value of property, plant and equipment for major inspection and overhauls of mobile equipment that required capitalization as separate components under IFRS but were expensed under Canadian GAAP.
In addition, IFRS requires depreciation of equipment used in construction projects to be capitalized. Canadian GAAP requirements, while similar, are less specific. The Group has recorded IFRS adjustments to reflect the capitalization of depreciation of equipment used in capital mine development. This resulted in increases to the capital cost of mining properties.
The Group recorded IFRS transition adjustments to decrease the carrying value of property, plant and equipment for owners costs that were capitalized to a development project under Canadian GAAP but under IFRS are not considered directly attributable to bringing the assets to a working condition for their intended use.
These changes resulted in adjustments to the Groups depreciation expense throughout its 2010 transition year.
Page 45
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
Jan. 1, | Sep. 30, | Dec. 31, | ||||||||||
Balance sheet |
2010 | 2010 | 2010 | |||||||||
Decrease in property, plant and equipment |
$ | (7,994 | ) | $ | (16,732 | ) | $ | (17,330 | ) | |||
Tax effect: |
||||||||||||
- Income taxes |
2,149 | 4,499 | 4,656 | |||||||||
- Mining taxes |
787 | 1,820 | 1,878 | |||||||||
|
|
|
|
|
|
|||||||
Decrease in retained earnings |
$ | (5,058 | ) | $ | (10,413 | ) | $ | (10,796 | ) | |||
|
|
|
|
|
|
|||||||
Three months ended |
Nine months ended |
Year ended Dec. 31, |
||||||||||
Statement of comprehensive income |
Sep. 30, 2010 | Sep. 30, 2010 | 2010 | |||||||||
Increase in cost of sales - depreciation and amortization and other cost of sales |
$ | (880 | ) | $ | (8,738 | ) | $ | (9,336 | ) | |||
Tax effect: |
||||||||||||
- Income taxes |
236 | 2,350 | 2,507 | |||||||||
- Mining taxes |
95 | 1,033 | 1,091 | |||||||||
|
|
|
|
|
|
|||||||
Decrease in comprehensive income |
$ | (549 | ) | $ | (5,355 | ) | $ | (5,738 | ) | |||
|
|
|
|
|
|
Page 46
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
(d) | Functional currency |
IFRS requirements for determining the functional currency of an entity are more specific than those in Canadian GAAP. Under Canadian GAAP, the measurement currency of all Group entities was the Canadian dollar. Under IFRS, the Group determined the functional currency of its Guatemalan operations is the US dollar. To simplify the calculation of the transition adjustments, the Group elected the IFRS 1 exemption to deem cumulative translation differences to be zero as at January 1, 2010; accordingly, the Group recorded the differences identified against retained earnings, rather than determining the portion that would otherwise have been recognized as cumulative translation differences in the foreign currency reserve. The Group gained control of the Back Forty project in Michigan during the third quarter of 2010 and identified a similar difference in functional currency between Canadian GAAP and IFRS.
Jan. 1, | Sep. 30, | Dec. 31, | ||||||||||
Balance sheet |
2010 | 2010 | 2010 | |||||||||
Decrease in capital works in progress within property, plant and equipment |
$ | (4,566 | ) | $ | (12,315 | ) | $ | (24,302 | ) | |||
Decrease in E&E assets within within property, plant and equipment |
(18 | ) | (450 | ) | (979 | ) | ||||||
Decrease in decommissioning and restoration liabilities |
24 | 218 | 240 | |||||||||
(Increase) decrease in other liabilities |
(1 | ) | (3 | ) | 8 | |||||||
|
|
|
|
|
|
|||||||
Decrease in equity |
$ | (4,561 | ) | $ | (12,550 | ) | $ | (25,033 | ) | |||
|
|
|
|
|
|
|||||||
Three months ended |
Nine months ended |
Year ended Dec. 31, |
||||||||||
Statement of comprehensive income |
Sep. 30, 2010 | Sep. 30, 2010 | 2010 | |||||||||
Change in other finance losses - foreign exchange |
$ | (5,838 | ) | $ | (3,499 | ) | $ | (5,397 | ) | |||
Decrease in other comprehensive income - net loss on translation of foreign operations |
(7,016 | ) | (4,481 | ) | (15,070 | ) | ||||||
|
|
|
|
|
|
|||||||
Decrease in comprehensive income |
$ | (12,854 | ) | $ | (7,980 | ) | $ | (20,467 | ) | |||
|
|
|
|
|
|
Page 47
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
(e) | Employee benefits |
Under IFRS, past service costs are recognized over the vesting period, whereas Canadian GAAP allows recognition of past service costs over the expected average remaining service period. As a result, the Group recorded a transition adjustment to charge unamortized, vested past service costs to retained earnings. Also, as noted above, the Group elected the IFRS 1 exemption to reset unamortized actuarial gains and losses to zero as at January 1, 2010 with an adjustment against retained earnings.
IFRSs currently in effect provide a policy choice for ongoing recognition of actuarial gains and losses. Entities may opt to recognize actuarial gains and losses in profit or loss, applying either the corridor method or an approach that results in faster recognition; alternately, entities may recognize actuarial gains and losses immediately in other comprehensive income. The Group chose to continue to apply the corridor method to recognize actuarial gains and losses in profit or loss under IFRS.
The transition adjustments described above, together with the Groups policy choice for recognition of actuarial gains and losses under the corridor method, caused ongoing IFRS adjustments during the Groups 2010 transition year.
Jan. 1, | Sep. 30, | Dec. 31, | ||||||||||
Balance sheet |
2010 | 2010 | 2010 | |||||||||
Charge unamortized, vested past service costs to retained earnings: increase in pension obligations |
$ | (3,923 | ) | $ | (2,942 | ) | $ | (2,617 | ) | |||
Charge unamortized actuarial gains and losses to retained earnings: |
||||||||||||
- Decrease in pension obligations |
4,376 | 4,394 | 4,400 | |||||||||
- Increase in other employee benefits |
(3,988 | ) | (3,988 | ) | (3,988 | ) | ||||||
Tax effect - income taxes |
(106 | ) | (385 | ) | (477 | ) | ||||||
|
|
|
|
|
|
|||||||
Decrease in retained earnings |
$ | (3,641 | ) | $ | (2,921 | ) | $ | (2,682 | ) | |||
|
|
|
|
|
|
|||||||
Three months ended |
Nine months ended |
Year ended Dec. 31, |
||||||||||
Statement of comprehensive income |
Sep. 30, 2010 | Sep. 30, 2010 | 2010 | |||||||||
Decrease in cost of sales - other cost of sales |
$ | 345 | $ | 999 | $ | 1,330 | ||||||
Tax effect - income taxes |
(93 | ) | (279 | ) | (371 | ) | ||||||
|
|
|
|
|
|
|||||||
Increase in comprehensive income |
$ | 252 | $ | 720 | $ | 959 | ||||||
|
|
|
|
|
|
Page 48
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
(f) | Provisions |
IFRS requires recognition of provisions that are constructive obligations, which arise when an entitys past practice or sufficiently detailed public statements have created a valid expectation in other parties that it will carry out an action. The Group recorded transition adjustments for donation commitments previously made that require recognition under IFRS as constructive obligations but under Canadian GAAP were recorded as payments were made.
Jan. 1, | Sep. 30, | Dec. 31, | ||||||||||
Balance sheet |
2010 | 2010 | 2010 | |||||||||
Increase in other provisions |
||||||||||||
- Current (presented in other liabilities) |
$ | (546 | ) | $ | (575 | ) | $ | (524 | ) | |||
- Non-current |
(810 | ) | (410 | ) | (359 | ) | ||||||
Tax effect - income taxes |
317 | 201 | 181 | |||||||||
Decrease in non-controlling interest |
5 | 5 | 4 | |||||||||
|
|
|
|
|
|
|||||||
Decrease in retained earnings |
$ | (1,034 | ) | $ | (779 | ) | $ | (698 | ) | |||
|
|
|
|
|
|
|||||||
Three months ended |
Nine months ended |
Year ended Dec. 31, |
||||||||||
Statement of comprehensive income |
Sep. 30, 2010 | Sep. 30, 2010 | 2010 | |||||||||
Decrease in cost of sales - other cost of sales |
$ | 3 | $ | 171 | $ | 237 | ||||||
Decrease in selling and administrative expenses |
| 200 | 200 | |||||||||
Decrease in other operating expenses |
| | 36 | |||||||||
Tax effect - income taxes |
| (116 | ) | (136 | ) | |||||||
|
|
|
|
|
|
|||||||
Increase in comprehensive income |
$ | 3 | $ | 255 | $ | 337 | ||||||
|
|
|
|
|
|
Page 49
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
(g) | Own-use derivatives |
Under IFRS, contracts to buy or sell non-financial items that meet the definition of a derivative but were entered into and are held in accordance with the Groups expected purchase, sale or usage requirements are exempt from being treated as derivatives. This exemption is applied automatically under IFRS. Under Canadian GAAP, this exemption from derivative treatment is elective, not mandatory, and must be documented before it can be applied.
The Group recorded an IFRS transition adjustment to de-recognize derivative assets and liabilities recorded under Canadian GAAP for fixed-price zinc sales contracts that are accounted for using the own-use exemption under IFRS. Under Canadian GAAP, the Group had chosen not to apply the elective exemption to these contracts.
Jan. 1, | Sep. 30, | Dec. 31, | ||||||||||
Balance sheet |
2010 | 2010 | 2010 | |||||||||
Decrease in derivative assets |
$ | (151 | ) | $ | (111 | ) | $ | (17 | ) | |||
Decrease in derivative liabilities |
596 | 1,443 | 2,677 | |||||||||
Tax effect - income taxes |
(138 | ) | (389 | ) | (764 | ) | ||||||
|
|
|
|
|
|
|||||||
Increase in retained earnings |
$ | 307 | $ | 943 | $ | 1,896 | ||||||
|
|
|
|
|
|
|||||||
Three months ended |
Nine months ended |
Year ended Dec. 31, |
||||||||||
Statement of comprehensive income |
Sep. 30, 2010 | Sep. 30, 2010 | 2010 | |||||||||
Increase in revenue - zinc |
$ | 4,411 | $ | 887 | $ | 2,215 | ||||||
Tax effect - income taxes |
(1,246 | ) | (251 | ) | (626 | ) | ||||||
|
|
|
|
|
|
|||||||
Increase in comprehensive income |
$ | 3,165 | $ | 636 | $ | 1,589 | ||||||
|
|
|
|
|
|
Page 50
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
(h) | Non-controlling interest |
IFRS requires presentation of non-controlling interests within equity on the balance sheet, separate from the equity of the owners of the parent entity. The Group has recorded a transition adjustment to reclassify non-controlling interests to equity from other long-term liabilities. The Group reflected the same reclassification as at January 1, 2010 in its Canadian GAAP financial statements upon early adoption of a new Canadian GAAP standard for non-controlling interests. This transition adjustment had no impact on retained earnings.
In addition, the Group recorded changes to non-controlling interests as a result of other transition adjustments.
Balance sheet |
Jan. 1, 2010 |
Sep. 30, 2010 |
Dec. 31, 2010 |
|||||||||
Decrease in other long-term liabilities |
$ | 1,305 | $ | | $ | | ||||||
Effect on non-controlling interest as a result of other transition adjustments |
51 | 55 | 49 | |||||||||
|
|
|
|
|
|
|||||||
Increase in equity (non-controlling interest) |
1,356 | 55 | 49 | |||||||||
Effect on non-controlling interest arising from a change in functional currency |
| (164 | ) | (326 | ) | |||||||
|
|
|
|
|
|
|||||||
Total increase (decrease) in non-controlling interest |
$ | 1,356 | $ | (109 | ) | $ | (277 | ) | ||||
|
|
|
|
|
|
(i) | Equity reclassifications and adjustments for tax purposes |
Under IFRS, current and deferred taxes are normally recognized in the income statement except to the extent that tax arises from an item that has been recognized outside the income statement. Accordingly, the effect of re-measuring taxes that were initially recognized outside the income statement is recorded in equity or other comprehensive income as applicable. The practice of tracking the re-measurement of taxes back to the item that originally triggered the recognition is commonly referred to as backwards tracing. Canadian GAAP prohibits backwards tracing, except on business combinations and financial reorganizations; accordingly, the effect of re-measuring taxes is generally recognized in the income statement, even if the taxes were initially recognized outside the income statement.
Under Canadian GAAP, the Group recognized the effect of re-measuring taxes related to available-for-sale investments, cash flow hedges and certain share issue costs in the income statement. Upon transition to IFRS, HudBay recorded an adjustment to reclassify the effect of re-measuring taxes related to these items within equity, from retained earnings to reserves within share capital. These backwards tracing adjustments had no impact on total equity. Backwards tracing adjustments during the 2010 fiscal year also affected income tax expense.
In the past under Canadian GAAP, the Group recognized the effect of the renunciation of tax deductions to holders of flow-through shares as a cost of issuing equity while under IFRS the renunciation of tax deductions is treated as a future tax expense. Upon transition to IFRS, HudBay recorded an adjustment to reclassify the effect of the renunciation of tax deductions related to flow-through shares within equity, from reserves within share capital to retained earnings.
Page 51
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
In addition, during the three months ended June 30, 2010, the Group adjusted its estimate of deferred mining taxes related to IFRS adjustments as a result of changes in assumptions related to the tax rate that will be applicable when temporary differences reverse. The province of Manitoba imposes a mining tax rate based on the level of mining profit of mineral products mined in the province. Consequently, changes in assumptions regarding future mining profit can significantly affect the applicable tax rate.
Balance sheet |
Jan. 1, 2010 |
Sep. 30, 2010 |
Dec. 31, 2010 |
|||||||||
Backwards tracing - share issue costs |
||||||||||||
- Increase to share capital |
$ | (5,931 | ) | $ | (5,931 | ) | $ | (5,931 | ) | |||
Flow through shares |
||||||||||||
- Increase to share capital |
(6,369 | ) | (6,369 | ) | (6,369 | ) | ||||||
Backwards tracing - other comprehensive income |
||||||||||||
- Increase to available-for-sale reserve |
(491 | ) | (491 | ) | (491 | ) | ||||||
- Decrease to hedging reserve |
140 | 140 | 140 | |||||||||
Effect of change in estimates |
||||||||||||
- Income taxes - increase to deferred tax liability |
| | (300 | ) | ||||||||
- Mining taxes - increase to deferred tax asset |
| 571 | 571 | |||||||||
|
|
|
|
|
|
|||||||
Decrease in retained earnings |
$ | (12,651 | ) | $ | (12,080 | ) | $ | (12,380 | ) | |||
|
|
|
|
|
|
|||||||
Statement of comprehensive income |
Three months ended Sep. 30, 2010 |
Nine months ended Sep. 30, 2010 |
Year ended Dec. 31, 2010 |
|||||||||
Transfer from available-for-sale reserve to income statement: |
||||||||||||
Decrease in income tax expense |
$ | 386 | $ | 386 | $ | 386 | ||||||
Decrease in OCI |
(386 | ) | (386 | ) | (386 | ) | ||||||
Decrease in income tax expense |
| 188 | 62 | |||||||||
Decrease in mining tax expense |
| 571 | 571 | |||||||||
|
|
|
|
|
|
|||||||
Increase in comprehensive income |
$ | | $ | 759 | $ | 633 | ||||||
|
|
|
|
|
|
Page 52
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
(j) | Share-based payment |
IFRS requires measurement of equity-settled instruments based on the number of equity instruments that are expected to vest, unless forfeitures are due to market-based conditions. Under Canadian GAAP, HudBay accrues compensation cost as if all equity instruments granted were expected to vest and recognizes the effect of actual forfeitures as they occur.
Upon transition to IFRS, the Group calculated an adjustment to reflect the effect of estimating forfeitures for unvested stock options outstanding as at January 1, 2010 and reclassified amounts within equity, from other capital reserve to retained earnings. The Group determined its estimate of forfeitures using historical information available at the transition date.
This transition adjustment had no impact on total equity.
Balance sheet |
Jan. 1, 2010 |
Sep. 30, 2010 |
Dec. 31, 2010 |
|||||||||
Decrease in other capital reserve |
$ | 232 | $ | 323 | $ | 350 | ||||||
|
|
|
|
|
|
|||||||
Increase in retained earnings |
$ | 232 | $ | 323 | $ | 350 | ||||||
|
|
|
|
|
|
|||||||
Statement of comprehensive income |
Three months ended Sep. 30, 2010 |
Nine months ended Sep. 30, 2010 |
Year ended Dec. 31, 2010 |
|||||||||
Decrease in selling and administrative expenses - share-based payment |
$ | 44 | $ | 91 | $ | 118 | ||||||
|
|
|
|
|
|
|||||||
Increase in comprehensive income |
$ | 44 | $ | 91 | $ | 118 | ||||||
|
|
|
|
|
|
Page 53
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
Effect of transition to IFRS on statement of cash flows for the three months ended September 30, 2010:
Canadian GAAP | IFRS changes | IFRS | ||||||||||
Net cash flows from operating activities |
$ | 31,933 | $ | (13,045 | ) | $ | 18,888 | |||||
Net cash flows from investing activities |
(76,047 | ) | 13,045 | (63,002 | ) | |||||||
Net cash flows from financing activities |
(13,514 | ) | | (13,514 | ) | |||||||
Effect of movement in exchange rates on cash and cash equivalents |
(2,411 | ) | | (2,411 | ) | |||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in cash and cash equivalents |
(60,039 | ) | | (60,039 | ) | |||||||
Cash and cash equivalents, beginning of period |
911,778 | | 911,778 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents, end of period |
$ | 851,739 | $ | | $ | 851,739 | ||||||
|
|
|
|
|
|
Effect of transition to IFRS on statement of cash flows for the nine months ended ended September 30, 2010:
Canadian GAAP | IFRS changes | IFRS | ||||||||||
Net cash flows from operating activities |
$ | 190,726 | $ | (36,099 | ) | $ | 154,627 | |||||
Net cash flows from investing activities |
(151,172 | ) | 36,099 | (115,073 | ) | |||||||
Net cash flows from financing activities |
(72,859 | ) | | (72,859 | ) | |||||||
Effect of movement in exchange rates on cash and cash equivalents |
(1,770 | ) | | (1,770 | ) | |||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in cash and cash equivalents |
(35,075 | ) | | (35,075 | ) | |||||||
Cash and cash equivalents, beginning of period |
886,814 | | 886,814 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents, end of period |
$ | 851,739 | $ | | $ | 851,739 | ||||||
|
|
|
|
|
|
Effect of transition to IFRS on statement of cash flows for the year ended December 31, 2010:
Canadian GAAP | IFRS changes | IFRS | ||||||||||
Net cash flows from operating activities |
$ | 255,590 | $ | (64,280 | ) | $ | 191,310 | |||||
Net cash flows from investing activities |
(162,275 | ) | 64,280 | (97,995 | ) | |||||||
Net cash flows from financing activities |
(75,610 | ) | | (75,610 | ) | |||||||
Effect of movement in exchange rates on cash and cash equivalents |
(2,826 | ) | | (2,826 | ) | |||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in cash and cash equivalents |
14,879 | | 14,879 | |||||||||
Cash and cash equivalents, beginning of period |
886,814 | | 886,814 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents, end of period |
$ | 901,693 | $ | | $ | 901,693 | ||||||
|
|
|
|
|
|
Page 54
HUDBAY MINERALS INC.
Notes to Unaudited Condensed Consolidated Interim Financial Statements
(Unaudited and in thousands of Canadian dollars)
For the three and nine months ended September 30, 2011
Significant reclassifications in the Groups statement of cash flows for the nine months ended September 30, 2010 include:
| Expenditures of $33,192 (three months ended September 30, 2010 - $12,717; year ended December 31, 2010 - $53,344) on the Groups Lalor project have been classified in operating activities, consistent with the adjustment to reverse the Lalor project assets previously capitalized under Canadian GAAP. |
| Expenditures of $810 (three months ended September 30, 2010 - $0; year ended December 31, 2010 - $810) on major overhauls and inspections have been classified as investing activities. These costs are capitalized under IFRS but were previously expensed under Canadian GAAP. |
| Option payments received of $225 (three months ended September 30, 2010 - $0; year ended December 31, 2010 - $225) have been classified in investing activities. These amounts were recognized in the income statement under Canadian GAAP. |
| Interest income received of $3,437 (three months ended September 30, 2010 - $1,673; year ended December 31, 2010 - $5,664) has been reclassified from operating activities to investing activities, consistent with the Groups IFRS policy choice. |
Page 55
Exhibit 99.2
HudBay Minerals Inc.
Managements Discussion and Analysis of
Results of Operations and Financial Condition
For the three and nine months ended
September 30, 2011
November 2, 2011
TABLE OF CONTENTS
Page | ||||
Forward-Looking Information |
2 | |||
Note to U.S. Investors |
3 | |||
Documents Incorporated by Reference |
3 | |||
Our Business |
3 | |||
Key Financial and Production Results |
6 | |||
Executive Summary |
7 | |||
Recent Developments |
7 | |||
Financial Review |
10 | |||
Trend Analysis and Quarterly Review |
18 | |||
Financial Condition, Cash Flows, Liquidity and Capital Resources |
19 | |||
Capital Commitments |
21 | |||
Risk Management |
22 | |||
Operations Overview |
23 | |||
Outstanding Share Data |
28 | |||
Non-IFRS Measures |
29 | |||
Adoption of IFRS |
33 | |||
Changes in Internal Control Over Financial Reporting |
37 |
NOTES TO READER
This Managements Discussion and Analysis (MD&A) dated November 2, 2011 is intended to supplement and complement HudBay Minerals Inc.s unaudited condensed consolidated interim financial statements and related notes for the three and nine months ended September 30, 2011 (the interim financial statements). We will adopt International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) for the first time in our consolidated annual financial statements for the year ending December 31, 2011, which will include comparative figures for the year ended December 31, 2010. Accordingly, the interim financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting and IFRS 1 First-time Adoption of International Financial Reporting Standards.
We previously prepared our financial statements in accordance with Canadian generally accepted accounting principles (GAAP). For more information regarding our conversion to IFRS, refer to the heading Accounting Changes - Adoption of IFRS on page 33 of this MD&A and to note 20 of the interim financial statements, which contains further information and a reconciliation to IFRS of our previously reported financial information prepared under Canadian GAAP. For a description of accounting policies applied, refer to note 3 of the interim financial statements for the three months ended March 31, 2011. Except as otherwise noted, the financial information contained in this MD&A and our interim financial statements has been prepared in accordance with IFRS.
This MD&A should also be read in conjunction with both the audited annual consolidated financial statements and annual MD&A for the year ended December 31, 2010. Additional information regarding HudBay, including its audited annual consolidated financial statements and annual MD&A for the year ended December 31, 2010 and its most recent Annual Information Form (AIF) dated March 31, 2011, is available on SEDAR at www.sedar.com.
Page 1
All amounts are in Canadian dollars unless otherwise noted.
References to HudBay, the Company, we, us, our or similar terms refer to HudBay Minerals Inc. and its direct and indirect subsidiaries. HBMS refers to Hudson Bay Mining and Smelting Co., Limited and HudBay Peru refers to HudBay Peru Inc. (previously named Norsemont Mining Inc.), both wholly-owned subsidiaries of HudBay. HMI Nickel refers to HMI Nickel Inc., which was amalgamated into HudBay Minerals Inc. during the third quarter of 2011. CGN refers to Compañía Guatemalteca de Níquel, S.A., which was sold as part of the Fenix disposition in third quarter of 2011. WPCR refers to the White Pine Copper Refinery Inc., which was sold during the second quarter of 2011. Zochem refers to Zochem Inc., which was sold in November 2011.
Forward-Looking Information
This MD&A contains forward-looking information within the meaning of applicable Canadian and United States securities legislation. Forward-looking information includes, but is not limited to, information with respect to the Companys ability to develop its Lalor and Constancia projects, the Back Forty project and 777 North expansion, the ability of management to execute on key strategic and operational objectives and meet production forecasts, exploration expenditures and activities and the possible success of such exploration activities, the estimation of mineral reserves and resources, the realization of mineral estimates, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of the development of new deposits, mineral pricing, reclamation costs, economic outlook, government regulation of mining operations, mine life projections, the ability to maintain a regular dividend on its common shares, the availability of third party concentrate for processing in HudBays facilities and the availability of third party processing facilities for HudBays concentrate, business and acquisition strategies and the timing and possible outcome of pending litigation. Often, but not always, forward-looking information can be identified by the use of forward-looking words like plans, expects, or does not expect, is expected, budget, scheduled, estimates, forecasts, intends, understands, anticipates, or does not anticipate, or believes or variations of such words and phrases or statements that certain actions, events or results may, could, would, might, or will be taken, occur, or be achieved. Forward-looking information is based on the opinions and estimates of management as of the date such information is provided and is subject to known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information, including the ability to develop and operate the Lalor and Constancia projects on an economic basis and in accordance with applicable timelines, geological and technical conditions at Lalor differing from areas successfully mined by us in the past, the ability to meet required solvency tests to support a dividend payment, risks associated with the mining industry such as economic factors (including future commodity prices, currency fluctuations and energy prices), failure of plant, equipment, processes and transportation services to operate as anticipated, dependence on key personnel and employee relations, environmental risks, government regulation, actual results of current exploration activities, possible variations in ore grade or recovery rates, permitting timelines, capital expenditures, reclamation activities, land titles, and social and political developments and other risks of the mining industry as well as those risk factors discussed or referred to in our AIF under the heading Risk Factors. Although we have attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. In addition, certain forward-looking information in this MD&A relate to prospective results of operations, financial position or cash flows based on assumptions about future economic conditions or courses of action. Such information is provided in attempt to assist the reader in identifying trends and anticipated events that may affect our business, results of operations and financial position and may not be appropriate for other purposes. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. HudBay does not undertake to update any forward-looking information, except as required by applicable securities laws, or to comment on analyses, expectations or statements made by third parties in respect of HudBay, its financial or operating results or its securities.
Page 2
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 differ from the requirements of United States securities laws applicable to U.S. companies. We will adopt IFRS as issued by the IASB for the first time in our consolidated annual financial statements for the year ending December 31, 2011, which will include comparative figures for the year ended December 31, 2010. Accordingly, the interim financial statements and related notes for the three and nine months ended September 30, 2011 are prepared in accordance with IAS 34 Interim Financial Reporting and IFRS 1 First-time Adoption of International Financial Reporting Standards.
Information concerning our mineral properties has been prepared in accordance with the requirements of Canadian securities laws, which differ in material respects from the requirements of the U.S. Securities and Exchange Commission (the SEC) Industry Guide 7. Under SEC Industry Guide 7, mineralization may not be classified as a reserve unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time of the reserve determination, and the SEC does not recognize the reporting of mineral deposits which do not meet the SEC Industry Guide 7 definition of Reserve. In accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects (NI 43-101) of the Canadian Securities Administrators, the terms mineral reserve, proven mineral reserve, probable mineral reserve, mineral resource, measured mineral resource, indicated mineral resource and inferred mineral resource are defined in the Canadian Institute of Mining, Metallurgy and Petroleum (the CIM) Definition Standards for Mineral Resources and Mineral Reserves adopted by the CIM Council on December 11, 2005. While the terms mineral resource, measured mineral resource, indicated mineral resource and inferred mineral resource are recognized and required by NI 43-101, the SEC does not recognize them. You are cautioned that, except for that portion of mineral resources classified as mineral reserves, mineral resources do not have demonstrated economic value. Inferred mineral resources have a high degree of uncertainty as to their existence and as to whether they can be economically or legally mined. Under Canadian securities laws, estimates of inferred mineral resources may not form the basis of an economic analysis. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Therefore, you are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be economically or legally mined, or that it will ever be upgraded to a higher category. Likewise, you are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be upgraded into mineral reserves. You are urged to consider closely the disclosure on the technical terms in Schedule A Glossary of Mining Terms of our Annual Information Form (AIF) for the fiscal year ended December 31, 2010, available on SEDAR at www.sedar.com and incorporated by reference as Exhibit 99.1 in HudBays Form 40-F filed on March 31, 2011 (File No. 001-34244).
Qualified Person
The technical and scientific information contained in this MD&A has been approved by Cashel Meagher, P. Geo, our Vice-President, South America. Mr. Meagher is a qualified person pursuant to NI 43-101.
Our Business
HudBay Minerals Inc. (the Company or HudBay) is a Canadian integrated mining company governed by the Canada Business Corporations Act with assets in North and South America principally focused on the discovery, production and marketing of base and precious metals. Through its subsidiaries, HudBay owns copper/zinc/gold mines, ore concentrators and zinc production facilities in northern Manitoba and Saskatchewan, and a copper project in Peru. HudBay produces copper concentrate (containing copper, gold and silver) and zinc metal. HudBay also has equity investments in a number of exploration companies with promising mineral properties. HudBays shares are listed on the Toronto and New York stock exchanges under the symbol HBM.
Page 3
HIGHLIGHTS
| Strong third quarter production and cost results as full year mine performance is still on target |
| Operating cash flow before changes in non-cash working capital (a non-IFRS measure) grew to $58.3 million in the third quarter of 2011 from $25.6 million in the same period last year |
| Lalor development proceeding well with the ventilation shaft now sunk to the 190 metre level and the planned 3,200 metre access ramp currently advanced to 2,900 metres |
| Applications submitted for key development permits for the Reed copper deposit |
| Exploration drilling at Constancias high-grade Pampacancha deposit continues to demonstrate the continuity of the deposit. A resource estimate on Pampacancha is expected by the first quarter of 2012. Front end engineering and design well advanced with long lead orders commencing |
In the third quarter, we recorded a loss of $41.1 million, as compared to a loss of $1.7 million for the third quarter of 2010. Year to date, we recorded a loss of $197.9 million as compared to a profit of $13.1 million for the same period in 2010.
Included in the loss for the third quarter of 2011 were the following non-cash, unusual charges:
Pre-tax | After-tax | Per Share | ||||||||||
$ millions | $ millions | $ /share | ||||||||||
Impairment on the Groups investment in Zochem (allocated to Zochem property, plant and equipment) |
5.9 | 5.0 | 0.03 | |||||||||
Impairments on available-for-sale investments |
2.5 | 2.2 | 0.01 | |||||||||
Impairments on zinc inventory |
5.4 | 2.9 | 0.02 | |||||||||
Foreign currency translation and other loss on disposal of Fenix |
22.5 | 22.5 | 0.13 | |||||||||
Impact on deferred taxes of changes to Peruvian tax law |
19.0 | 19.0 | 0.11 | |||||||||
Impact on deferred taxes of change in discount rates on decommissioning and restoration liabilities |
7.9 | 7.9 | 0.05 | |||||||||
|
|
|
|
|
|
|||||||
63.2 | 59.5 | 0.35 | ||||||||||
|
|
|
|
|
|
Page 4
During the third quarter of 2011, we recognized $2.5 million ($2.2 million after-tax) in impairment losses related to available-for-sale investments and $5.4 million ($2.9 million after-tax) in impairments in the carrying value of our zinc inventory as a result of lower market prices.
On September 9, 2011, we completed the sale of 100% of our interest in the Fenix ferro-nickel project in Guatemala, which has been presented as a discontinued operation. Upon completion of the sale, we recognized a loss on disposal of $22.5 million, including accumulated foreign exchange losses transferred from the foreign currency translation reserve within equity to the income statement. We have also disposed of Zochem for cash proceeds of approximately US$15 million and recognized an impairment loss of $5.9 million ($5.0 million after-tax) as a result.
In addition, a significant decline in long-term Canadian risk-free interest rates during the third quarter of 2011 resulted in an increase in the present value estimate of our decommissioning and restoration liabilities and required the recognition of a corresponding deferred tax expense of $7.9 million. We also recorded $19.0 million in deferred tax expense as a result of changes to Peruvian mining tax laws during the third quarter.
Page 5
Key Financial and Production Results
Financial Condition ($000s) |
Sep. 30, 2011 |
Dec. 31, 2010 |
||||||
Cash and cash equivalents |
871,089 | 901,693 | ||||||
Working capital |
860,822 | 883,486 | ||||||
Total assets |
2,402,766 | 2,092,060 | ||||||
Equity1 |
1,792,291 | 1,624,397 |
Financial Performance |
Three Months Ended | Nine Months Ended | ||||||||||||||||
($000s except per share and cash cost amounts) |
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
||||||||||||||
Revenue |
212,335 | 167,778 | 636,503 | 596,425 | ||||||||||||||
Profit before tax |
37,473 | 22,416 | 139,212 | 82,075 | ||||||||||||||
(Loss) profit from continuing operations |
(16,052 | ) | 7,376 | 40,910 | 26,721 | |||||||||||||
Basic and diluted (loss) earnings per share1 |
(0.23 | ) | (0.01 | ) | (1.14 | ) | 0.09 | |||||||||||
(Loss) profit for the period |
(41,083 | ) | (1,743 | ) | (197,874 | ) | 13,149 | |||||||||||
Operating cash flow 2 3 |
58,316 | 25,597 | 168,119 | 136,387 | ||||||||||||||
Operating cash flow per share 2 3 |
0.34 | 0.17 | 1.01 | 0.90 | ||||||||||||||
Cash cost (on a co-product basis) 2 |
||||||||||||||||||
Copper |
($/pound) |
1.63 | 1.34 | 1.40 | 1.45 | |||||||||||||
Zinc |
($/pound) |
0.94 | 0.83 | 0.98 | 0.89 | |||||||||||||
Gold |
($/troy oz) |
500 | 323 | 346 | 382 | |||||||||||||
Cash cost per pound of zinc sold 2 |
US | (0.66 | ) | US | (0.27 | ) | US | (0.73 | ) | US | (0.39 | ) | ||||||
Production (HBMS contained metal in concentrate)4 |
||||||||||||||||||
Copper |
(tonnes) |
14,264 | 14,913 | 40,490 | 38,753 | |||||||||||||
Zinc |
(tonnes) |
18,160 | 18,091 | 54,246 | 58,194 | |||||||||||||
Gold |
(troy oz.) |
24,749 | 23,789 | 67,551 | 64,801 | |||||||||||||
Silver |
(troy oz.) |
233,868 | 205,522 | 630,601 | 633,613 | |||||||||||||
Metal Sold |
||||||||||||||||||
Copper |
Cathode & anodes (tonnes) |
| 2,797 | 481 | 31,745 | |||||||||||||
Payable metal in concentrate (tonnes) |
15,222 | 6,321 | 38,544 | 6,864 | ||||||||||||||
Zinc |
Refined 5(tonnes) |
23,587 | 25,698 | 73,946 | 77,741 | |||||||||||||
Gold |
Contained in slimes & anode (troy oz.) |
| 6,296 | 2,324 | 53,920 | |||||||||||||
Payable metal in concentrate (troy oz.) |
21,784 | 10,789 | 59,921 | 11,781 | ||||||||||||||
Silver |
Contained in slimes & anode (troy oz.) |
| 53,695 | 30,313 | 768,223 | |||||||||||||
Payable metal in concentrate (troy oz.) |
147,825 | 85,044 | 486,884 | 96,264 |
1 | Attributable to owners of the Company. |
2 | Refer to page 29 for non-IFRS measures. Cash costs on a co-product basis have not been presented for 2010 as the smelter was in operation for a portion of 2010. |
3 | Before changes in non-cash working capital. |
4 | Metal reported in concentrate is prior to refining losses or deductions associated with smelter terms. |
5 | Zinc sales include sales to our Zochem facility of 6,848 tonnes in the third quarter of 2011. Zochem had sales of 7,880 tonnes of zinc oxide. |
Page 6
Recent Developments
| Disposition of Fenix project in Guatemala |
On September 9, 2011, we sold our interest in the Fenix ferro-nickel project in Guatemala to the Solway Group for consideration of approximately US$140 million in cash at closing. We will also receive $30 million upon the satisfaction of certain conditions during the course of Solways development of the project. The Fenix project and related entities were recorded as discontinued operations in the interim financial statements.
| Acquisition of HudBay Peru (formerly Norsemont Mining Inc.) completed |
On July 5, 2011, we completed a compulsory acquisition of the remaining common shares of HudBay Peru that we did not already own. We now own 100% of HudBay Perus issued and outstanding common shares. We had previously acquired a 90.5% interest in HudBay Peru on March 1, 2011.
| Dividend paid |
Semi-annual dividend in the amount of $0.10 per common share paid on September 30, 2011 to shareholders of record on September 15, 2011.
| Sale of Zochem |
On November 1, 2011 we sold Zochem, our zinc oxide production facility, to a third party for cash consideration of approximately $15 million, subject to customary working capital adjustments. As at September 30, 2011, we classified Zochems assets and liabilities as held for sale in our interim financial statements.
Page 7
OPERATIONS REVIEW
Constancia Feasibility Study Optimization Ongoing
Our previously announced $116 million pre-construction program for Constancia is progressing well. The program contemplates early equipment procurement for long lead items, a resource model update, metallurgical review, pit optimization study, geotechnical and condemnation drilling.
Front End Engineering and Design are well advanced and orders for the grinding mills and other long-lead time items are expected to be completed during the fourth quarter. The new resource model on the main pit is also being incorporated into the new project economic model which will form the basis of the formal project commitment recommendation to our Board of Directors, expected in the first quarter of 2012.
Constancia Exploration Results
Two exploration drilling rigs continued at Pampacancha, south of previously reported Hole PO-11-072, which intersected two main intervals of mineralization, including 121.45 metres of 1.62% copper, 13.62 g/t silver and 1.02 g/t gold and 87.50 metres of 0.46% copper, 2.30 g/t silver and 0.22 g/t gold. Assays from Hole PO-11-086 intercepted 49 metres with 1.83% copper and 0.95 g/t gold, which demonstrates the continuity of high grade copper and gold mineralization in the Pampacancha deposit. HudBay expects to announce a NI 43-101 mineral resource estimate at Pampacancha in early 2012.
In June and July of 2011 a Titan 24 IP/DC/MT survey was completed over the Constancia property on eight reconnaissance lines for a total of 38.4 kilometres. The survey was designed to test the response from Constancia to create a target template to be used elsewhere in the region. HudBay also used this system to test the limits of the companys geophysical knowledge beyond the depth of investigation as the previous conventional survey methods were somewhat limited. Several targets have been identified near surface and at depth at the Chilloroya and Pampacancha prospects including one near Constancia. These targets are currently in the interpretation/planning stages. Drill testing of these targets will begin in 2012.
For additional detail on Pampacancha and the Constancia project generally, please refer to NI 43-101 technical report filed by HudBay Peru Inc. (formerly Norsemont Mining Inc.) entitled Norsemont Mining Constancia Project Technical Report 21 February 2011 available at www.sedar.com and available at www.sedar.com and the companys press release dated June 14, 2011 entitled HudBay Minerals Intersect 2.4% Copper Equivalent Over 120 Meters at Constancias Pampacancha Deposit.
Lalor Construction Advancing
On July 5, 2011, our board of directors authorized an additional $144 million in expenditures to construct a new concentrator and paste backfill plant at the Lalor site. This change in capital expenditures increases the overall budget to $704 million, which consists of $441 million for the construction of the mine and associated infrastructure and $263 million for a concentrator and backfill plant adjacent to the main production shaft. The total expenditures include approximately $166 million spent on the project to September 30, 2011. The new concentrator will have a milling capacity of 4,500 tonnes per day and is expected to allow for reduced operating costs, improved economies of scale and efficiencies as opposed to upgrading the current Snow Lake concentrator
We expect the remaining capital spending to occur over the 2011-2014 period as follows:
(in $ millions) | ||||
2011 - Q4 |
$ | 40 | ||
2012 |
153 | |||
2013 |
200 | |||
2014 |
145 | |||
|
|
|||
Total |
$ | 538 | ||
|
|
Page 8
The Lalor project has now gone over 693 days without a lost time accident. The company continues to make significant progress on the planned 3,200 metre access ramp at the Lalor project, having advanced close to 2,900 metres since the start of the project in December 2009. By the fourth quarter of 2011, the ramp is intended to extend to the 810 metre base of the ventilation shaft, which is now approximately 23% complete. By early 2012, diamond drilling from underground will commence for the first time at Lalor. Initial drilling will focus on delineating the first ore production and finalizing infrastructure development. Initial ore production up the ventilation shaft is expected by the middle of 2012.
Construction is progressing well on the main site with the water treatment plant building completed and electrical and mechanical installation ongoing. The main shaft collar presink has been completed and the sinking galloway for the main shaft sinking was put in place mid-October. The bin house steel, waste bunker and the hoist house are well advanced. Work over the next few months will be focused on the headframe steel erection and cladding. Detailed engineering around the design of the new concentrator is underway with procurement expected to commence early in 2012.
Two drills continued to operate near the Lalor project testing geophysical targets. These drills will continue to operate for the remainder of the year. The targets being tested are peripheral to the Lalor deposit and are part of a program exploring for new zones of mineralization.
Reed Copper Deposit
Base Metal Zone Mineral Resource March 31, 2011 1
Category |
Tonnes (Millions) | Au (g/t) | Ag (g/t) | Cu (%) | Zn (%) | |||||||||||||||
Indicated |
2.55 | 0.6 | 7.9 | 4.5 | 0.9 | |||||||||||||||
Inferred |
0.17 | 0.4 | 4.5 | 4.3 | 0.5 |
1 | Mineral resources that are not mineral reserves do not have demonstrated economic viability. |
We submitted applications for key development permits for the Reed copper deposit to the Manitoba government in the third quarter. Approval of these permits could allow for early site development. A preliminary economic assessment study is expected to be completed in the fourth quarter.
Two exploration drills have been operating within three kilometres of the Reed copper deposit targeting regional geophysical anomalies. The drills also followed up on the intersection in Hole RLE006, which intersected 7.18 metres of 7.44% copper. These results included 3.95 metres of 9.31% copper, 1.87% zinc, 3.59 g/t gold and 35.53 g/t silver from Hole RLE021 and 4.15 metres of 2.16% copper, 0.18% zinc, 0.71 g/t gold and 8.01 g/t silver from Hole RLE022. Drilling will be shutdown during October but will resume drilling once winter conditions allow access to the area.
Page 9
FINANCIAL REVIEW
Impairments caused loss in the third quarter of 2011
In the third quarter, we recorded a loss of $41.1 million, as compared to a loss of $1.7 million for the third quarter of 2010. Year-to-date, we recorded a loss of $197.9 million as compared to a profit of $13.1 million for the same period in 2010. For an explanation of classification of expenses on our income statement, refer to Adoption of IFRS on page 33. Significant variances affecting the third quarter results compared to the same period in 2010 are as follows:
(in $ millions) |
Three Months Ended Sep. 30, 2011 |
Nine Months Ended Sep. 30, 2011 |
||||||
Increase (decrease) in components of profit or loss: |
||||||||
Revenues |
44.6 | 40.1 | ||||||
Cost of sales |
||||||||
Depreciation and amortization |
(0.1 | ) | 15.4 | |||||
Impairment loss |
(5.9 | ) | (5.9 | ) | ||||
Other cost of sales |
(32.6 | ) | 0.2 | |||||
Selling and administrative expenses |
1.5 | (11.4 | ) | |||||
Exploration and evaluation |
4.2 | 14.2 | ||||||
Other operating income |
0.1 | 2.6 | ||||||
Other operating expenses |
0.2 | 3.4 | ||||||
Finance income |
(0.1 | ) | 2.1 | |||||
Finance expenses |
(0.9 | ) | (2.2 | ) | ||||
Other finance (gains) losses |
4.0 | (1.4 | ) | |||||
Tax |
(38.5 | ) | (42.9 | ) | ||||
|
|
|
|
|||||
(Decrease) increase in profit from continuing operations compared to the same period in 2010 |
(23.5 | ) | 14.2 | |||||
|
|
|
|
|||||
Increase in loss from discontinued operations |
(15.9 | ) | (225.2 | ) | ||||
|
|
|
|
|||||
Decrease in profit for the period |
(39.4 | ) | (211.0 | ) | ||||
|
|
|
|
The decline in profit during the three month period was as a result of losses of $22.5 million recognized on disposal of the Fenix project, impairment losses recognized on the Groups Zochem operations of $5.9 million available for sale investments of $2.5 million and a write-down of inventory to net realizable value of $5.4 million, in addition to deferred tax expenses totaling $19.0 million related to changes in Peruvian mining tax rates and $7.9 million related to the impact of the change in discount rates on decommissioning and restoration liabilities. Profits from continuing operations for the first nine months increased as a result of higher revenue resulting from increased commodity prices and sales volumes. The significant decline in profit for the period for the nine month period was primarily due to the non-cash impairment loss of $212.7 million which was recognized on the Fenix project in the second quarter.
Page 10
Revenue increased in the third quarter of 2011
Total revenue for the third quarter was $212.3 million; $44.6 million higher than the same quarter in 2010. Year-to-date revenue was $636.5 million, $40.1 million higher than the same period in 2010. These variances are due to the following:
(in $ millions) |
Three Months Ended Sep. 30, 2011 |
Nine Months Ended Sep. 30, 2011 |
||||||
Metal prices1 |
||||||||
Higher copper prices |
2.9 | 58.0 | ||||||
Higher zinc prices |
6.1 | 12.3 | ||||||
Higher gold prices |
8.2 | 25.5 | ||||||
Sales volumes |
||||||||
Higher (lower) copper sales volumes |
49.2 | 3.6 | ||||||
Higher (lower) zinc sales volumes |
(4.8 | ) | (8.9 | ) | ||||
Higher (lower) gold sales volumes |
7.9 | (5.3 | ) | |||||
Other |
||||||||
Unfavourable change in foreign exchange |
(10.0 | ) | (33.4 | ) | ||||
Other volume and pricing differences |
(9.9 | ) | 6.3 | |||||
Treatment and refining charges |
(5.0 | ) | (18.0 | ) | ||||
|
|
|
|
|||||
Increase in net revenues in 2011 compared to 2010 |
44.6 | 40.1 | ||||||
|
|
|
|
1 | See discussion below for further information regarding metal prices |
Our revenue, segmented by significant product type is summarized below:
Three Months Ended | Nine Months Ended | |||||||||||||||
(in $ millions) |
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
||||||||||||
Copper |
122.7 | 75.4 | 337.8 | 293.4 | ||||||||||||
Zinc |
35.1 | 43.7 | 117.2 | 135.1 | ||||||||||||
Gold |
37.5 | 22.8 | 96.2 | 80.8 | ||||||||||||
Silver |
5.9 | 3.0 | 18.9 | 16.0 | ||||||||||||
Other |
20.6 | 27.5 | 91.6 | 78.3 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross revenue |
221.8 | 172.4 | 661.7 | 603.6 | ||||||||||||
Less: treatment and refining charges |
(9.5 | ) | (4.6 | ) | (25.2 | ) | (7.2 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Revenue |
212.3 | 167.8 | 636.5 | 596.4 | ||||||||||||
|
|
|
|
|
|
|
|
Page 11
Our realized prices for the third quarter of 2011 are summarized below:
Realized prices1
for quarter ended |
Realized prices1
for nine months ended |
|||||||||||||||||||||||||
LME
Q3 20112 |
Sep. 30 2011 |
Sep. 30 2010 |
LME YTD 2011 2 |
Sep. 30 2011 |
Sep. 30 2010 |
|||||||||||||||||||||
Prices in US$ |
||||||||||||||||||||||||||
Copper |
US$/lb. | 4.08 | 3.75 | 3.60 | 4.20 | 4.02 | 3.32 | |||||||||||||||||||
Zinc3 |
US$/lb. | 1.01 | 1.06 | 0.96 | 1.04 | 1.08 | 1.01 | |||||||||||||||||||
Gold |
US$/troy oz. | 1,700 | 1,776 | 1,283 | 1,530 | 1,584 | 1,186 | |||||||||||||||||||
Silver |
US$/troy oz. | 38.79 | 41.25 | 21.06 | 36.21 | 37.44 | 17.85 | |||||||||||||||||||
Prices in C$ |
||||||||||||||||||||||||||
Copper |
C$/lb. | 4.00 | 3.66 | 3.75 | 4.11 | 3.93 | 3.45 | |||||||||||||||||||
Zinc3 |
C$/lb. | 0.99 | 1.04 | 1.00 | 1.02 | 1.06 | 1.05 | |||||||||||||||||||
Gold |
C$/troy oz. | 1,667 | 1,732 | 1,336 | 1,496 | 1,546 | 1,230 | |||||||||||||||||||
Silver |
C$/troy oz. | 38.02 | 40.22 | 21.93 | 35.41 | 36.53 | 18.52 | |||||||||||||||||||
Exchange rate |
US$1 to C$ | 0.98 | 1.04 | 0.98 | 1.04 |
1 | Realized prices exclude refining and treatment charges and are on the sale of finished metal or metal in concentrate. Realized prices for copper in 2010 reflect an average of prices realized for copper cathode and spent anode sales and sales of contained copper in concentrate. Realized prices for gold and silver in 2010 reflect an average of prices realized for precious metal slimes and spent anode sales and sales of contained gold and silver in concentrate. |
2 | London Metal Exchange (LME) average for copper, zinc and gold prices. London Spot US equivalent for silver prices. |
3 | Zinc revenues include unrealized fixed price zinc hedges not included in the above realized prices. For the quarter, the unrealized components of our metal swap cash flow hedges resulted in a loss of US$0.06/lb. for zinc. Refer to Base Metal Price Strategic Risk Management on page 22. |
The price, quantity and mix of metals sold, along with movements in the Canadian dollar, affect our revenue, operating cash flow and profit. Revenue from metal sales can vary from quarter to quarter due to production levels, shipping volumes, and transfer of risk and title with customers.
Outlook (see Forward-Looking Information - page 2)
Revenues will continue to be affected by the volume of purchased zinc concentrates and the market prices of copper, zinc, gold and silver, together with fluctuation of the US dollar exchange rate compared to the Canadian dollar. Average market prices for copper and gold in 2011 to date have been higher than average prices in 2010, although copper and zinc prices have recently declined to near average 2010 levels as a result of global economic uncertainty.
In addition, we expect the sale of excess copper concentrate inventory over the balance of 2011 will result in higher copper and gold sales quantities in 2011 compared to 2010, assuming that we achieve our production objectives.
Page 12
Cost of sales increased in the third quarter of 2011
Three Months Ended | Nine Months Ended | |||||||||||||||
($000s) |
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
||||||||||||
Non-IFRS detailed cost of sales1 |
||||||||||||||||
Mines |
||||||||||||||||
777 |
13,409 | 12,364 | 40,159 | 39,153 | ||||||||||||
Trout Lake |
10,404 | 9,704 | 34,323 | 27,810 | ||||||||||||
Chisel North |
5,304 | 4,999 | 16,998 | 10,467 | ||||||||||||
Concentrators |
||||||||||||||||
Flin Flon |
6,000 | 6,211 | 19,581 | 17,143 | ||||||||||||
Snow Lake |
1,194 | 1,798 | 3,942 | 3,285 | ||||||||||||
Metallurgical plants |
||||||||||||||||
Zinc plant |
19,205 | 18,116 | 59,488 | 54,375 | ||||||||||||
Copper smelter |
| | | 20,896 | ||||||||||||
Zochem |
2,952 | 5,511 | 14,242 | 20,281 | ||||||||||||
Other |
||||||||||||||||
Services and site administration |
14,183 | 12,285 | 41,243 | 35,225 | ||||||||||||
Purchased concentrate (before inventory changes) |
14,578 | 12,889 | 41,863 | 30,202 | ||||||||||||
HBMS employee profit sharing |
4,933 | 2,913 | 13,669 | 10,597 | ||||||||||||
Net profits interest |
6,034 | 6,481 | 16,467 | 13,846 | ||||||||||||
Distribution, anode freight and refining |
15,238 | 7,348 | 34,303 | 22,211 | ||||||||||||
Other |
1,112 | 909 | 1,859 | 5,086 | ||||||||||||
Changes in domestic inventory |
893 | (13,372 | ) | (1,763 | ) | 31,344 | ||||||||||
Depreciation and amortization |
27,166 | 27,111 | 78,624 | 94,052 | ||||||||||||
Inventory write-down |
5,351 | | 5,351 | | ||||||||||||
Asset impairment |
5,878 | | 5,878 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of sales, per financial statements |
153,834 | 115,267 | 426,227 | 435,973 | ||||||||||||
|
|
|
|
|
|
|
|
1 | Refer to Non-IFRS Measures on page 29. |
Total cost of sales for the quarter was $153.8 million, reflecting an increase of $38.6 million from the third quarter of 2010, due mainly to impairment losses of $5.9 million recognized related to Zochem and $5.4 million related to write-downs of zinc inventories, increases of $7.9 million related to distribution, anode freight and refining and $14.2 million related to changes in inventory.
Year-to-date cost of sales was $426.2 million, reflecting a decrease of $9.7 million from year-to-date 2010, resulting mainly from decreases from changes in inventory of $33.1 million, elimination of smelter costs of $20.9 million, reduction of depreciation of $15.4 million offset in part by increases in distribution, anode freight and refining of $12.1 million and increases in zinc concentrate purchases of $11.7 million as well as increases of $13.0 million for Trout lake and Chisel North mines.
Page 13
Three Months Ended | Nine Months Ended | |||||||||||||||||||
Unit Operating Costs |
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
||||||||||||||||
Mines |
||||||||||||||||||||
777 |
$/tonne | 36.58 | 33.13 | 36.20 | 34.84 | |||||||||||||||
Trout Lake |
$/tonne | 84.53 | 69.91 | 90.28 | 65.95 | |||||||||||||||
Chisel North |
$/tonne | 83.95 | 75.35 | 85.25 | 64.84 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Total Mines |
$/tonne | 52.67 | 46.80 | 54.16 | 45.18 | |||||||||||||||
Concentrators |
||||||||||||||||||||
Flin Flon |
$/tonne | 11.23 | 12.28 | 12.92 | 11.09 | |||||||||||||||
Snow Lake |
$/tonne | 31.00 | 26.54 | 26.78 | 23.13 | |||||||||||||||
Metallurgical Plant |
||||||||||||||||||||
Zinc Plant |
$/lb. Zn | 0.334 | 0.315 | 0.347 | 0.335 |
For the third quarter, other significant variances in expenses for 2011 as compared to 2010 include the following:
| Selling and administrative expenses decreased by $1.5 million compared to the same period in 2010, totaling $7.6 million for the third quarter of 2011. The decrease was mainly due to a reduction in share-based compensation expense caused by lower share prices during the period. |
| Exploration and evaluation decreased by $4.2 million to $14.1 million in the third quarter of 2011. In 2010, we expensed costs relating to Lalor, as it was in the exploration and evaluation stage. In 2011, the project fulfilled the criteria of a development project, and we began capitalizing Lalor costs. |
| Other finance gains/losses increased from a loss of $0.4 million in the third quarter of 2010 to a gain of $3.6 million in the third quarter of 2011. The increase in the gain was mainly driven by foreign exchange gains of $7.9 million offset by mark-to-market losses on warrants and impairment of available-for-sale investments totaling $4.6 million. |
For the year to date, other significant variances in expenses from operations for 2011 as compared to 2010 include the following:
| Selling and administrative expenses increased by $11.4 million, totaling $29.8 million year-to-date 2011. The increase was mainly due to costs of $5.8 million arising from the acquisition of HudBay Peru in the first quarter of 2011, severance costs in the second quarter, a higher headcount and corporate development costs, partially offset by a decrease in stock-based compensation expense. |
Page 14
| Exploration and evaluation decreased by $14.2 million to $36.6 million year-to-date in 2011. The main contributor to the decrease is the change in status of Lalor from exploration and evaluation stage to development stage. |
| Other operating income increased by $2.6 million, mainly as a result of a gain recognized on our sale of WPCR during the second quarter of 2011. |
| Other operating expenses decreased by $3.4 million to $8.3 million. In the second quarter of 2010, we recognized an expense of $5 million related to an additional decommissioning and restoration obligation at Balmat. Partially offsetting this, discount rates for decommissioning and restoration liabilities dropped more significantly over the third quarter of 2011 as compared to the third quarter of 2010, resulting in higher increase in other operating expense related to the decommissioning and restoration liabilities recognized for properties that have no remaining useful lives. |
| Finance income increased by $2.1 million, mainly due to higher interest rates on cash and cash equivalents. |
| Other finance gains/losses decreased by $1.4 million, mainly due to impairment of available-for-sale investments of $3.9 million offset by a foreign exchange gain of $4.2 million compared to a foreign exchange loss of $4.2 million in 2010, offset by a decrease in mark-to-market of warrants of $5.3 million. |
Page 15
Tax Expense
During the nine months ended September 30, 2011, tax expense increased by $42.9 million compared to the same period in 2010.
Three Months Ended | Nine Months Ended | |||||||||||||||
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
|||||||||||||
($000s) | ||||||||||||||||
Non-cash - income tax expense (benefit) 1 |
$ | 13,638 | $ | 1,505 | $ | 13,879 | $ | 240 | ||||||||
Non-cash - mining tax expense (benefit) 1 |
31,047 | 775 | 31,750 | 746 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-cash tax expense |
44,685 | 2,280 | 45,629 | 986 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Estimated current taxes payable - income tax |
12,333 | 7,221 | 35,903 | 33,262 | ||||||||||||
Estimated current taxes payable - mining tax |
(3,493 | ) | 5,539 | 16,770 | 21,106 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total estimated current taxes payable |
8,840 | 12,760 | 52,673 | 54,368 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Tax expense |
$ | 53,525 | $ | 15,040 | $ | 98,302 | $ | 55,354 | ||||||||
|
|
|
|
|
|
|
|
1 | Non-cash tax expenses represent our draw-down/increase of non-cash future income and mining tax assets/liabilities. |
Income Tax Expense
Our effective income tax rate on profit from continuing operations for year-to-date 2011 was approximately 35.8% (year-to-date 2010 - 40.8%). As a result, year-to-date, we recorded a net income tax expense of $49.8 million.
Based on the statutory income tax rate of 29.2%, we would have expected to record a tax expense of approximately $40.6 million based on profit from continuing operations before tax of $139.2 million; however we recorded a tax expense of $49.8 million (year-to-date 2010 - tax expense of $33.5 million). The significant items causing the Companys effective income tax rate to be different than the 29.2% statutory income tax rate include:
| HudBay Peru transaction costs of $5.7 million which are not deductible for income tax purposes. |
| Increases to our decommissioning and restoration liabilities resulting from a significant decrease in discount rates required us to record a corresponding non-cash increase to property, plant and equipment. We recognized deferred tax expense of $7.9 million related to the increase in the property, plant and equipment; however, we did not recognize a deferred tax recovery related to the increase in the decommissioning and restoration liabilities because we determined we are not more likely than not to realize the benefit of the recovery. |
| Certain of our foreign operations recorded losses of $5.8 million (year-to-date 2010 - $10.3 million). These losses cause deductible temporary differences. We have determined that we are not more likely than not to realize the benefit related to these deductible temporary differences; accordingly we have not recorded a related deferred tax asset. |
Page 16
Mining Tax Expense
Manitoba
The Province of Manitoba imposes mining tax on net earnings related to the sale of mineral products mined in Manitoba (mining taxable profit) at the following rates:
| 10% of total mining taxable profit if mining profit is $50 million or less; |
| 15% of total mining taxable profit if mining profits are between $55 million and $100 million; and |
| 17% of total mining taxable profit if mining profits exceed $105 million. |
We have accumulated mining tax pools over the years and recorded the related benefits as future mining tax assets. We estimate that the tax rate that will be applicable when temporary differences reverse will be 17%.
Based on the statutory mining tax rate of 17%, we would have expected to record a tax expense of approximately $23.7 million based on profit from continuing operations before tax of $139.2 million; however, we recorded a tax expense of $48.5 million (year to date 2010 tax expense of $21.8 million) mainly as a result of the change in Peruvian mining taxes below. Year to date 2011, our effective rate for mining taxes was approximately 34.8% (year to date 2010 - 26.6%). 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 costs related to foreign operations are not deductible in computing mining profits.
Peru
In the third quarter, the Peruvian government enacted a new mining tax (the Special Mining Tax) that will be imposed on the mining sector in parallel with the existing royalty regime, which in turn will be amended in order to be applied on companies´ operating income, rather than sales (the Modified Royalty). The addition of the Special Mining Tax and the changes to the Modified Royalty require us to record deferred tax expense at the tax rate we expect to apply when temporary differences reverse. We recorded deferred tax expense of $19.0 million in the third quarter related to these tax changes.
Page 17
TREND ANALYSIS AND QUARTERLY REVIEW
The following table sets forth selected consolidated financial information for each of our eight most recently completed quarters.
2011 | 2010 | 2009 1 | ||||||||||||||||||||||||||||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | |||||||||||||||||||||||||
($000s) | ||||||||||||||||||||||||||||||||
Revenue |
212,335 | 246,823 | 177,345 | 184,607 | 167,778 | 187,341 | 241,306 | 166,673 | ||||||||||||||||||||||||
Profit (loss) before tax |
37,473 | 67,368 | 34,371 | 26,596 | 22,415 | 15,969 | 43,689 | 11,857 | ||||||||||||||||||||||||
(Loss) profit from continuing operations |
(16,052 | ) | 41,092 | 15,870 | 13,696 | 7,374 | 165 | 19,180 | 7,171 | |||||||||||||||||||||||
(Loss) profit from discontinued operations |
(25,031 | ) | (212,970 | ) | (783 | ) | (5,826 | ) | (9,119 | ) | 4,134 | (8,587 | ) | 194 | ||||||||||||||||||
(Loss) profit |
(41,083 | ) | (171,878 | ) | 15,087 | 7,869 | (1,743 | ) | 4,299 | 10,593 | 7,365 | |||||||||||||||||||||
(Loss) earnings per share: |
||||||||||||||||||||||||||||||||
Basic |
(0.23 | ) | (0.97 | ) | 0.11 | 0.07 | (0.01 | ) | 0.03 | 0.07 | 0.05 | |||||||||||||||||||||
Diluted |
(0.23 | ) | (0.97 | ) | 0.11 | 0.07 | (0.01 | ) | 0.03 | 0.07 | 0.05 |
1 | We adopted IFRS in fiscal 2011 with a transition date of January 1, 2010. The quarterly data for 2009 is presented in conformity with Canadian GAAP and has not been restated under IFRS. Accordingly, it may not be comparable with the information for fiscal 2010 and 2011. See Adoption of IFRS on page 33 for a description of the significant differences between Canadian GAAP and IFRS for HudBay. |
In the third quarter of 2011, we recorded a loss mainly as a result of higher deferred tax expense of $26.9 million arising from changes in Peruvian mining tax rates and an increase in the present value of decommissioning and restoration obligations, together with a loss of $22.5 million on disposal of the Fenix project. In the second quarter of 2011 we recognized an impairment loss of $212.7 million on the Fenix project.
Profits in 2010 were affected by increased expenditures on Lalor. Under IFRS, we expensed Lalor costs in 2010, as a reserve statement had not been completed until December 31, 2010, at which time we began to capitalize costs directly attributable to developing Lalor. 2010 revenues were significantly higher compared to 2009 due to higher copper and zinc prices, offset by lower sales volumes and a stronger Canadian dollar.
The price, quantity and mix of metals sold, along with movements in the Canadian dollar, affect our revenue, operating cash flow and earnings. Revenue from metal sales can vary from quarter to quarter due to production levels, shipping volumes, and risk and title transfer terms with customers.
Page 18
FINANCIAL CONDITION, CASH FLOWS, LIQUIDITY AND CAPITAL RESOURCES
Financial Condition
Financial Condition as at September 30, 2011 as compared to December 31, 2010
Cash and cash equivalents decreased by $30.6 million from December 31, 2010 to $871.1 million as at September 30, 2011. The decrease in our cash and cash equivalents during 2011 was due mainly to our acquisition of HudBay Peru, payment of taxes, dividends and capital expenditures, and the purchase of strategic investments, partially offset by proceeds from the sale of Fenix. We hold our cash and cash equivalents in low-risk, liquid investments with major Canadian financial institutions.
Working capital decreased by $22.7 million to $860.8 million from December 31, 2010 to September 30, 2011. In addition to the lower cash and cash equivalents position, receivables decreased by $44.4 million due to timing of payments and inventory decreased by $19.7 million. Taxes payable decreased due to payments that were made during the quarter (including changes to Zochem which is classified as assets held for sale at September 30, 2011). Offsetting these decreases in current assets were decreases in current liabilities; in particular, other liabilities decreased by $39.2 million as we recognized previously deferred revenue.
Cash Flows
The following table summarizes our cash flows for the three and nine months ended September 30, 2011 and September 30, 2010.
Three Months Ended | Nine Months Ended | |||||||||||||||
($000s) |
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
||||||||||||
Profit before tax |
37,473 | 22,416 | 139,212 | 82,075 | ||||||||||||
Loss from discontinued operations |
(25,031 | ) | (9,119 | ) | (238,784 | ) | (13,572 | ) | ||||||||
Items not affecting cash |
60,828 | 24,271 | 320,364 | 89,729 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
73,270 | 37,568 | 220,792 | 158,232 | |||||||||||||
Net change in non-cash working capital items |
23,076 | (12,061 | ) | 20,701 | 5,252 | |||||||||||
Taxes paid |
(17,886 | ) | (6,619 | ) | (88,377 | ) | (8,857 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash generated by operating activities |
78,460 | 18,888 | 153,116 | 154,627 | ||||||||||||
Cash used in investing activities |
56,511 | (63,002 | ) | (152,323 | ) | (115,073 | ) | |||||||||
Cash used in financing activities |
(17,111 | ) | (13,514 | ) | (34,438 | ) | (72,859 | ) | ||||||||
Effect of movement in exchange rates on cash and cash equivalents |
5,519 | (2,411 | ) | 3,041 | (1,770 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Increase (decrease) in cash and cash equivalents |
123,379 | (60,039 | ) | (30,604 | ) | (35,075 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating cash flow before changes in non-cash working capital1 |
58,316 | 25,597 | 168,119 | 136,387 | ||||||||||||
|
|
|
|
|
|
|
|
1 | Refer to non-IFRS measures on page 29. |
Page 19
Cash Flow from Operating Activities
Operating cash flow before changes in non-cash working capital (refer to non-IFRS measures on page 29) increased to $58.3 million from $25.6 million in 2010 mainly as a result of higher sales volumes and higher prices received for copper and gold. Including the effect of changes in non-cash working capital (including taxes receivable and payable), operating activities generated $78.5 million of cash flows in the third quarter, representing a $59.6 million increase compared to the same period in 2010. This increase was mainly driven by stronger sales volumes and higher metal prices together with favourable movements in non-cash working capital balances. Year-to-date operating cash flow before changes in non-cash working capital was $168.1 million, reflecting an increase of $31.7 million from the same period in 2010.
Cash Flow from Investing and Financing Activities
During the third quarter of 2011, our investing and financing activities generated cash of $39.4 million, primarily driven by proceeds of $136.9 from the disposition of Fenix, offset by capital expenditures of $69.2 million, the acquisition of $8.7 million in strategic investments and the payment of $17.2 million in common dividends
Year-to-date, we used $186.8 million in investing and financing activities as we invested in Lalor and acquired HudBay Peru.
Capital Expenditures
The following summarizes cash additions1 to capital assets for the periods indicated:
Three Months Ended | Nine Months Ended | |||||||||||||||
(in $ millions) |
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
||||||||||||
Plant and Equipment |
7.4 | 15.4 | 24.7 | 44.1 | ||||||||||||
Capital Development |
3.3 | 6.3 | 12.9 | 28.7 | ||||||||||||
Capitalized Exploration |
5.5 | 5.4 | 12.2 | 7.2 | ||||||||||||
Capitalized Fenix Project |
| 0.4 | 7.2 | 1.9 | ||||||||||||
Capitalized Lalor Project |
46.7 | 4.7 | 113.6 | 6.7 | ||||||||||||
Capitalized Constancia Project |
20.0 | | 24.9 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
82.9 | 32.2 | 195.5 | 88.6 | |||||||||||||
Less: capital accruals |
(13.7 | ) | (1.8 | ) | (25.4 | ) | (4.9 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
69.2 | 30.4 | 170.1 | 83.7 | ||||||||||||
|
|
|
|
|
|
|
|
1 | Excludes non-cash additions such as changes resulting from estimates relating to decommissioning and restoration liabilities and capitalized depreciation. |
Our capital expenditures for the nine months ended September 30, 2011 was $86.4 million higher than the same period in 2010, primarily due to higher capitalized expenditures at Lalor. Reduced sustaining capital expenditures were partially offset by capitalized expenditures at Lalor and Constancia.
Page 20
Three Months Ended | Nine Months Ended | |||||||||||||||
(in $ millions) |
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
||||||||||||
777 Mine |
3.7 | 4.0 | 16.2 | 14.8 | ||||||||||||
Trout Lake Mine |
| 2.5 | | 11.3 | ||||||||||||
Chisel North Mine |
0.1 | 0.8 | 0.5 | 8.6 | ||||||||||||
Flin Flon and Snow Lake Concentrators |
0.1 | 0.3 | 0.4 | 1.8 | ||||||||||||
Flin Flon and Snow Lake Other |
4.9 | 9.1 | 14.2 | 26.3 | ||||||||||||
Zinc Plant |
2.2 | 2.9 | 3.3 | 8.5 | ||||||||||||
Other |
| 5.5 | 5.2 | 6.1 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Sustaining capital expenditures |
11.0 | 25.1 | 39.8 | 77.4 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Lalor Project |
46.7 | 4.7 | 113.6 | 6.7 | ||||||||||||
Fenix Project |
| 0.4 | 7.2 | 1.9 | ||||||||||||
Constancia Project |
20.0 | | 24.9 | | ||||||||||||
777 North |
1.8 | 1.8 | 6.4 | 1.8 | ||||||||||||
Back Forty Project |
3.4 | 0.2 | 3.6 | 0.8 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Growth capital expenditures |
71.9 | 7.1 | 155.7 | 11.2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Less: capital accruals |
(13.7 | ) | (1.8 | ) | (25.4 | ) | (4.9 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
69.2 | 30.4 | 170.1 | 83.7 | ||||||||||||
|
|
|
|
|
|
|
|
Liquidity
We have US$300 million revolving credit facility with a syndicate of banks. As at September 30, 2011, we were in compliance with all financial covenants required by such facilities. As at September 30, 2011, we had $61.2 million in letters of credit outstanding which would otherwise have been secured with cash and cash equivalents.
Our cash and cash equivalents balance of $871.1 million provides a substantial cushion against unanticipated demands on liquidity, although expenditures on the Lalor Project and the Constancia Project are expected to utilize part of this cash balance. We are pursuing long-term debt financing to maintain our financial flexibility in anticipation of a formal decision in early 2012 to commence construction at Constancia.
Capital Commitments
As at September 30, 2011, we had outstanding capital commitments of approximately $133 million related to our Lalor Project and $32 million related to our Constancia Project, including amounts pursuant to contracts the Group is able to terminate upon relatively short notice.
Page 21
RISK MANAGEMENT
From time to time we maintain price protection programs and conduct commodity price risk management to reduce risk through the use of financial instruments.
Base Metal Price Strategic Risk Management
Our strategic objective is to provide our investors with exposure to base metal prices, unless a reason exists to implement a hedging arrangement. We may hedge base metal prices from time to time to ensure we will have sufficient cash flow to meet our growth objectives, or to maximize debt capacity (and correspondingly minimize equity dilution) to the extent that third party financing may be needed to fund growth initiatives. However, we will generally prefer to raise financing for attractive growth opportunities through equity issuance if the only alternative is to engage in a substantial amount of strategic metal price hedging. We may also hedge base metal prices to manage the risk of putting higher cost operations into production or the risk associated with provisional pricing terms in concentrate purchase and sales agreements.
In October 2009, we implemented a price protection program for the restart of our Chisel North mine. We entered into zinc commodity swap contracts with an average volume of approximately 2.0 million pounds of zinc per month for the period May 2010 through July 2012, at an average price of approximately $1.01 per pound. This volume represents approximately 50% of the anticipated production from Chisel North. Hedge accounting was applied to these transactions.
Zinc and Zinc Oxide Customer Risk Management
To provide a service to customers who purchase zinc and zinc oxide from our plants and require known future prices, we enter into fixed price sales contracts. To ensure that we continue to receive a floating or unhedged realized zinc price, we enter into forward zinc purchase contracts that effectively offset the fixed price sales contracts with our customers.
Foreign Exchange Risk Management
In October 2009, we also entered into foreign exchange forwards to hedge anticipated US dollar revenues. We agreed to sell US dollars and purchase C$1.45 million per month for the same period as the zinc swap contracts described above, at an average rate of approximately C$1.07 per US dollar. Hedge accounting was applied to these transactions.
Hedging Gains and Losses
During the nine months ended September 30, 2011, we reclassified pre-tax net gains of $0.2 million from other comprehensive income (OCI) to profit related to the zinc and foreign exchange hedges described above. Of the $1.0 million pre-tax losses in the hedging reserve at September 30, 2011, $1.0 million will be reclassified to the income statement in the next twelve months.
Page 22
OPERATIONS OVERVIEW
Mines
Three Months Ended | Nine Months Ended | |||||||||||||||||
Mines |
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
||||||||||||||
777 |
||||||||||||||||||
Ore |
tonnes | 366,566 | 373,216 | 1,109,393 | 1,123,833 | |||||||||||||
Copper |
% | 3.23 | 3.26 | 3.18 | 2.77 | |||||||||||||
Zinc |
% | 3.66 | 3.57 | 3.60 | 4.05 | |||||||||||||
Gold |
g/tonne | 2.50 | 2.15 | 2.30 | 2.06 | |||||||||||||
Silver |
g/tonne | 28.48 | 25.22 | 25.68 | 26.06 | |||||||||||||
Trout Lake |
||||||||||||||||||
Ore |
tonnes | 123,089 | 138,813 | 380,206 | 421,718 | |||||||||||||
Copper |
% | 1.91 | 2.73 | 2.12 | 2.43 | |||||||||||||
Zinc |
% | 3.00 | 2.40 | 3.40 | 2.80 | |||||||||||||
Gold |
g/tonne | 1.23 | 1.74 | 1.13 | 1.37 | |||||||||||||
Silver |
g/tonne | 13.51 | 10.16 | 12.41 | 12.58 | |||||||||||||
Chisel North Zinc Ore |
||||||||||||||||||
Ore |
tonnes | 40,669 | 66,343 | 148,316 | 146,106 | |||||||||||||
Zinc |
% | 10.64 | 6.53 | 7.82 | 7.11 | |||||||||||||
Chisel North Copper Ore |
||||||||||||||||||
Ore |
tonnes | 22,516 | | 51,083 | | |||||||||||||
Copper |
% | 1.40 | | 1.50 | | |||||||||||||
Zinc |
% | 1.98 | | 2.31 | | |||||||||||||
Gold |
g/tonne | 1.70 | | 2.19 | | |||||||||||||
Silver |
g/tonne | 17.57 | | 22.05 | | |||||||||||||
Total Mines 1 |
||||||||||||||||||
Ore |
tonnes | 552,840 | 578,372 | 1,688,998 | 1,691,657 | |||||||||||||
Copper |
% | 2.64 | 2.79 | 2.63 | 2.47 | |||||||||||||
Zinc |
% | 3.96 | 3.63 | 3.88 | 4.00 | |||||||||||||
Gold |
g/tonne | 2.06 | 1.87 | 1.89 | 1.78 | |||||||||||||
Silver |
g/tonne | 25.94 | 22.71 | 23.14 | 22.87 |
1 | For unit operating costs, refer to page 14. |
777 Mine
Ore production at our 777 mine for the third quarter was 2% lower, as compared to the same period in 2010. The copper grade was lower by 1%, and the zinc grade was higher by 3%, due to the areas we mined during the quarter. The gold grade was 16% higher, and the silver grade was 13% higher, also due to the areas mined in the quarter. Operating costs per tonne of ore in the third quarter of 2011 at $36.58 were 11% higher as compared to the same period in 2010, primarily due to higher operating development costs.
Page 23
Ore production at the 777 mine for year-to-date 2011 decreased by 1% compared to 2010. Compared with grades in 2010, the copper grade was 15% higher, zinc grade was 11% lower, gold grade was 12% higher and silver grade was 1% lower. The higher copper grades are attributed to the areas mined. Operating costs at $36.20 per tonne of ore were 4% higher as compared to 2010.
Trout Lake Mine
Ore production at Trout Lake for the third quarter of 2011 was 11% lower as compared to the same quarter in 2010. The decrease in production was in line with expectations for the quarter, and Trout is expected to exhaust its reserves in mid-2012. Copper grade was 30% lower and zinc grade was 25% higher due to the areas mined during the quarter. Also due to the areas mined, gold grade was 29% lower and silver grades were 33% higher. Operating costs per tonne of ore were 21% higher as compared to the third quarter of 2010, as we are directly expensing more development costs due to Trouts short remaining mine life. We expect development activities will be lower during the fourth quarter of the 2011.
Ore production at Trout Lake decreased by 10% for year-to-date 2011 compared to year-to-date 2010. Copper grade was 13% lower due to difficulty in mining some pillars. Zinc grade was 21% higher, gold grade was 18% lower and silver grade was 1% lower. Operating costs per tonne of ore mined were 37% higher, as we expensed all development costs in 2011 due to the short remaining reserve life.
Chisel North Mine
On October 9, 2009, we announced that we would restart operations at our Chisel North mine in Snow Lake and commenced full production in the second quarter of 2010.
Ore production at Chisel North for the third quarter of 2011 was 63,185 tonnes and was in line with expectations for the quarter. We mined 40,669 tonnes of zinc ore at a grade of 10.6% for processing at the Snow Lake concentrator, as well as 22,516 tonnes of copper ore for processing at the Flin Flon concentrator. Operating cost per tonne of ore was $83.95 an increase of 11% as compared to the same quarter in 2010.
Ore production at Chisel North for year-to-date 2011 was 36% higher compared to year-to-date 2010, mostly due to the full year-to-date operation in 2011 and the additional production of copper ore. Zinc ore grade was 10% higher. Operating cost per tonne was 31% higher, related primarily to the higher cost of underground consumables, increased maintenance costs and higher development costs.
Page 24
Concentrators
Three Months Ended | Nine Months Ended | |||||||||||||||||
Concentrators |
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
||||||||||||||
Flin Flon Concentrator |
||||||||||||||||||
Ore |
tonnes | 534,222 | 505,857 | 1,515,032 | 1,545,866 | |||||||||||||
Copper |
% | 2.82 | 3.11 | 2.84 | 2.67 | |||||||||||||
Zinc |
% | 3.36 | 3.27 | 3.47 | 3.72 | |||||||||||||
Gold |
g/tonne | 2.10 | 2.02 | 1.99 | 1.89 | |||||||||||||
Silver |
g/tonne | 23.81 | 21.31 | 22.08 | 22.49 | |||||||||||||
Copper concentrate |
tonnes | 58,779 | 58,835 | 164,294 | 155,520 | |||||||||||||
Concentrate grade |
% Cu | 24.27 | 25.35 | 24.65 | 24.92 | |||||||||||||
Zinc concentrate |
tonnes | 28,582 | 26,359 | 85,319 | 92,833 | |||||||||||||
Concentrate grade |
% Zn | 52.05 | 52.15 | 51.38 | 52.21 | |||||||||||||
Copper recovery |
% | 94.7 | 94.9 | 94.1 | 93.9 | |||||||||||||
Zinc recovery |
% | 82.9 | 83.0 | 83.4 | 84.2 | |||||||||||||
Gold recovery |
% | 68.9 | 72.5 | 70.1 | 69.9 | |||||||||||||
Silver recovery |
% | 57.2 | 59.3 | 58.7 | 56.7 | |||||||||||||
Snow Lake Concentrator |
||||||||||||||||||
Ore |
tonnes | 38,506 | 67,732 | 147,173 | 141,997 | |||||||||||||
Zinc |
% | 8.73 | 6.64 | 7.35 | 7.12 | |||||||||||||
Zinc concentrate |
tonnes | 6,327 | 8,751 | 20,392 | 19,475 | |||||||||||||
Concentrate grade |
% Zn | 51.89 | 49.63 | 51.05 | 49.95 | |||||||||||||
Zinc recovery |
% | 97.6 | 96.5 | 96.3 | 96.3 |
For unit operating costs, refer to page 14.
Three Months Ended | Nine Months Ended | |||||||||||||||||
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
|||||||||||||||
HBMS contained metal in concentrate |
||||||||||||||||||
Copper |
tonnes | 14,264 | 14,913 | 40,490 | 38,753 | |||||||||||||
Zinc |
tonnes | 18,160 | 18,091 | 54,246 | 58,194 | |||||||||||||
Gold |
troy oz. | 24,749 | 23,789 | 67,551 | 64,801 | |||||||||||||
Silver |
troy oz. | 233,868 | 205,522 | 630,601 | 633,613 |
Page 25
Flin Flon Concentrator
For the third quarter of 2011, ore processed increased by 6% compared to the same period in 2010. Throughput was restricted in the third quarter of 2010 due to operational start-up delays in the new copper filter plant. Copper head grade was 9% lower and zinc head grade was essentially unchanged. The gold head grade was 4% higher, and the silver head grade was 12% higher. Recovery of copper and zinc to concentrate were marginally lower. Operating cost per tonne of ore processed decreased by 9%, primarily related to volumes.
Ore processed for year-to-date 2011 decreased by 2% compared to 2010 levels. Zinc head grade was 7% lower than last year, while copper head grade was 6% higher, consistent with the ore received from the 777 and Trout Lake mines. Recovery of zinc to concentrate was 1% lower, and copper to concentrate was similar to the same period in 2010. Operating costs per tonne of ore processed were 17% higher, primarily related to higher maintenance and consumable costs.
Snow Lake Concentrator
On October 30, 2009, we announced the restart of the Chisel North mine and concentrator. Full production was reached in the second quarter of 2010.
During the third quarter of 2011 the concentrator treated 38,506 tonnes of zinc ore at a grade of 8.73%, with a recovery of 97.6%. Operating costs for the third quarter were $31.00 per tonne milled an increase of 17% from the same period.
Year-to-date, ore processed was 4% higher in 2011 than in 2010. In 2011, zinc ore head grade was higher by 3%, and zinc recovery to concentrate was essentially unchanged. Year-to-date operating costs at $26.78 per tonne where 16% higher than for 2010.
Page 26
Metallurgical Plants
Metal Produced and Sold
Three Months Ended | Nine Months Ended | |||||||||||||||||
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
|||||||||||||||
Refined Metal Produced 1 |
||||||||||||||||||
Metal from HBMS Concentrates |
||||||||||||||||||
Copper 2 |
tonnes | | | | 19,770 | |||||||||||||
Zinc |
tonnes | 17,282 | 19,877 | 54,431 | 58,821 | |||||||||||||
Gold 2 |
troy oz. | | | | 35,649 | |||||||||||||
Silver 2 |
troy oz. | | | | 372,372 | |||||||||||||
Metal from HBMS Purchased Concentrates |
||||||||||||||||||
Copper 2 |
tonnes | | | | 48 | |||||||||||||
Zinc |
tonnes | 8,740 | 6,247 | 23,364 | 15,802 | |||||||||||||
Total HBMS Metal Produced |
||||||||||||||||||
Copper 2 |
tonnes | | | | 19,818 | |||||||||||||
Zinc |
tonnes | 26,022 | 26,124 | 77,795 | 74,623 | |||||||||||||
Gold 2 |
troy oz. | | | | 35,649 | |||||||||||||
Silver 2 |
troy oz. | | | | 372,372 | |||||||||||||
Metal Sold |
||||||||||||||||||
Copper |
tonnes | |||||||||||||||||
Cathode & anodes3 |
| 2,797 | 481 | 31,745 | ||||||||||||||
Payable metal in concentrate3 |
15,222 | 6,321 | 38,544 | 6,864 | ||||||||||||||
Zinc refined |
tonnes | 23,587 | 25,698 | 73,946 | 77,741 | |||||||||||||
Gold |
troy oz. | |||||||||||||||||
Contained in slimes and anode |
(122 | ) | 6,296 | 2,324 | 53,920 | |||||||||||||
Payable metal in concentrate3 |
21,784 | 10,789 | 59,921 | 11,781 | ||||||||||||||
Silver |
troy oz. | |||||||||||||||||
Contained in slimes and anode |
(200 | ) | 53,695 | 30,313 | 768,223 | |||||||||||||
Payable metal in concentrate3 |
147,825 | 85,044 | 486,884 | 96,264 |
1 | Due to the closure of the copper smelter in 2010, we now produce refined zinc and copper concentrate only. |
2 | Production excludes recycled spent anode and represents non-recycled anode production only. |
3 | Copper concentrate was not sold in the first quarter of 2010 while the smelter was in operation. Only minimal amounts of cathode and anode were sold during the first quarter of 2011. |
Page 27
Metallurgical Plant Production
Three Months Ended | Nine Months Ended | |||||||||||||||||
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
|||||||||||||||
Zinc Plant |
||||||||||||||||||
Zinc Concentrate Treated |
||||||||||||||||||
Domestic |
tonnes | 33,688 | 46,770 | 113,449 | 125,262 | |||||||||||||
Purchased |
tonnes | 16,572 | 12,776 | 45,909 | 30,907 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
tonnes | 50,260 | 59,546 | 159,358 | 156,169 | |||||||||||||
Zinc Oxide |
||||||||||||||||||
Zinc from HudBay |
tonnes | 6,848 | 8,080 | 21,691 | 20,290 | |||||||||||||
Zinc from others |
tonnes | | 896 | 1,351 | 4,092 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total zinc consumption |
tonnes | 6,848 | 8,976 | 23,042 | 24,382 | |||||||||||||
Zinc oxide produced |
tonnes | 8,449 | 10,982 | 28,469 | 29,935 | |||||||||||||
Zinc oxide sold |
tonnes | 7,880 | 10,668 | 28,520 | 29,464 |
For unit operating costs, refer to page 14.
Zinc Plant
Our Flin Flon, Manitoba zinc plant uses leading-edge technology to produce special high grade zinc and includes an oxygen plant, a two-stage pressure leaching plant, a four-step solution purification, an electrolysis plant and a casting plant.
Production of cast zinc in the third quarter of 2011 was similar to the same quarter in 2010. Operating costs per pound of zinc metal produced were 6% higher during the third quarter of 2010.
Year-to-date, production was 77,795 tonnes of cast metal, 3% higher than in 2010 which included a biennial shutdown. Operating costs per pound were up 4%.
Zinc Oxide Facility Zochem
During the third quarter of 2011, Zochem consumed 6,848 tonnes of HBMS zinc. In comparison to the third quarter of 2010, sales volumes decreased by 26%, while production levels decreased by 23%.
Year-to-date, Zochem consumed 21,691 tonnes of HBMS zinc and 1,351 tonnes of third party zinc, resulting in a production of 28,469 tonnes of zinc oxide. In comparison to the third quarter of 2010, sales volumes decreased by 3%, while production levels decreased by 5% in response to the lower customer demand.
We have sold our interests in Zochem to a third party, effective November 1, 2011.
OUTSTANDING SHARE DATA
As of November 1, 2011, there were 171,937,665 common shares of HudBay issued and outstanding. In addition, options for a maximum aggregate of 4,061,491 common shares were outstanding.
Page 28
NON-IFRS MEASURES
Operating cash flow before changes in non-cash working capital, operating cash flow per share, detailed operating expenses, co-product cash costs and cash cost per pound of zinc sold are included in this MD&A because these measures are performance indicators that we use to monitor performance. We use these measures to assess how well we are performing relative to plan and to assess the overall effectiveness and efficiency of mining, processing and refining operations. We believe that the inclusion of these measures in the MD&A helps an investor to assess performance through the eyes of management and that certain investors use these measures to assess our performance. These measures do not have a meaning presented by IFRS and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently.
Operating cash flow before changes in non-cash working capital and operating cash flow per share
This measure is intended to provide an indication of our operating cash flow generation prior to the impact of fluctuations in working capital accounts, including taxes payable and receivable (but excluding the effect of OCI items and other adjustments). Under Canadian GAAP, Changes in non-cash working capital in our statement of cash flows included changes in taxes payable and receivable (but excluded the effect of OCI items and other adjustments), whereas IFRS presentation requires that taxes paid be presented separately in the statement of cash flows. This non-IFRS measure generates results that are comparable to our previous non-GAAP presentation of operating cash flow before changes in non-cash working capital.
The following table presents our calculations of operating cash flow before changes in non-cash working capital and operating cash flow per share for the three and nine months ended September 30, 2011 and September 30, 2010.
Three Months Ended | Nine Months Ended | |||||||||||||||
($000s except share and per share amounts) |
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
||||||||||||
Cash generated by operating activities, per financial statements |
78,460 | 18,888 | 153,116 | 154,627 | ||||||||||||
Adjustments: |
||||||||||||||||
Changes in non-cash working capital |
(23,076 | ) | 12,061 | (20,701 | ) | (5,252 | ) | |||||||||
Changes in non-cash tax receivable |
3,930 | 64 | 11,498 | (15,249 | ) | |||||||||||
Changes in non-cash tax payable |
(998 | ) | (5,416 | ) | 24,206 | 2,261 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating cash flow before changes in non-cash working capital |
58,316 | 25,597 | 168,119 | 136,387 | ||||||||||||
Weighted average shares outstanding |
171,905,912 | 148,949,050 | 166,490,423 | 151,114,563 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating cash flow per share |
$ | 0.34 | $ | 0.17 | $ | 1.01 | $ | 0.90 | ||||||||
|
|
|
|
|
|
|
|
Page 29
Cash cost per pound of zinc sold
For the third quarter of 2011, our cash cost per pound of zinc sold, net of by-product credits, was negative US$0.66 per pound, representing costs associated with HBMS operations, as calculated in the following table.
Three Months Ended | Nine Months Ended | |||||||||||||||
($000s except as noted) |
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
||||||||||||
Other cost of sales |
120,790 | 88,156 | 341,725 | 341,921 | ||||||||||||
Impairment loss |
5,878 | | 5,878 | | ||||||||||||
Selling and other operating expense |
1,278 | 2,708 | 4,318 | 4,845 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
127,946 | 90,864 | 351,921 | 346,766 | |||||||||||||
Less by-product credits 1 |
(161,488 | ) | (106,930 | ) | (468,338 | ) | (415,635 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash cost net of by-products |
(33,542 | ) | (16,066 | ) | (116,417 | ) | (68,869 | ) | ||||||||
Exchange rate (US$1 to C$) 2 |
0.980 | 1.039 | 0.978 | 1.036 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash cost net of by-products |
US | (34,227 | ) | US | (15,463 | ) | US | (119,036 | ) | US | (66,476 | ) | ||||
Zinc sales (000s lbs.) |
52,000 | 56,654 | 163,023 | 171,389 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash cost per pound of zinc sold, net of by-product credits in US$/lb. |
US | (0.66 | ) | US | (0.27 | ) | US | (0.73 | ) | US | (0.39 | ) | ||||
|
|
|
|
|
|
|
|
1 | By-product credits include revenues from sale of copper, gold, silver, the value added by converting zinc to zinc oxide, and by-product sales. |
2 | Weighted average exchange rate for sales during the period. |
For the third quarter, our cash cost per pound of zinc sold was negative US$0.66, a net decrease of US$0.39 as compared to the same period in 2010, and for the year-to-date was negative US$0.73, a net decrease of US$0.34 from 2010. Our cash cost decreased overall due to higher prices and sales volumes of by-product credits.
Co-product cash costs per unit sold
In the third quarter of 2010, we introduced co-product cash costs as a new non-IFRS measure (see Non-IFRS Measures above). We believe that these costs serve as meaningful indicators for investors to evaluate our operations. Costs for the second quarter of 2010 have not been included for comparability because they included substantial purchased copper concentrate volumes together with the cost of the smelter and refinery, which were decommissioned in 2010.
Whereas cash costs net of by product credits present the cash costs of a single metal, assuming that all other metals are by products of the given metal, co product cash costs present a cost of producing each of our primary metals, copper, zinc and gold, based on an allocation of costs among the metals. Costs that can be readily associated with a specific metal are allocated to that metal. Mining and milling costs for HudBays Trout Lake and 777 mines are allocated proportionately based on the value of the contained metals at prevailing metals prices. Operating overhead expenses and site administrative expenses (in both cases, excluding costs not related to HudBays HBMS operations) are generally allocated equally between zinc and copper with some further cost allocation to gold. Impairment charges on zinc inventory in a period are deducted from cost of sales in order to better match costs as they are incurred with sales; the deducted charges will be added back to cost of sales in future periods when the inventory in question is sold.
Page 30
We treat zinc oxide production as a by-product of zinc production, so the costs of our Zochem operation are allocated to zinc operating expenses, and zinc oxide revenues are deducted from total zinc cash costs. Similarly, we treat silver production as a by-product of gold production. Copper by-products include the one-time sale of copper bearing material from the closure of the WPCR. Other miscellaneous revenues are allocated among zinc, copper and gold in the same manner as general and administrative costs unless specific to either the zinc or copper processing.
While we expect the impact of fluctuating metals prices to be less significant on co-product cash costs than it is on by-product cash costs, changes in relative metals prices may cause our reported cash costs to vary substantially over time, irrespective of our operational results. Significant management judgment is also required in determining how costs should be allocated among metals. Caution should also be exercised in using co-product cash costs to evaluate the profitability of a particular metal, as the profitability of our polymetallic mines is dependent on the production of all of our principal metals.
Three Months Ended September 30, 2011
(000s except as noted) |
Copper | Zinc | Gold | Total | ||||||||||||
Other cost of sales |
48,645 | 57,496 | 14,649 | 120,790 | ||||||||||||
Impairment loss on zinc inventory |
| (5,351 | ) | | (5,351 | ) | ||||||||||
Treatment and refining costs1 |
7,398 | | 2,190 | 9,588 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
56,043 | 52,145 | 16,839 | 125,027 | |||||||||||||
Zinc oxide and by-product revenues |
(1,457 | ) | (3,367 | ) | (6,000 | ) | (10,824 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Co-product costs |
54,586 | 48,778 | 10,839 | 114,203 | ||||||||||||
Sales volume2 |
33,556 | 52,002 | 21,663 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Co-product cash costs per unit2 sold |
$ | 1.63 | $ | 0.94 | $ | 500 | ||||||||||
|
|
|
|
|
|
1 | Treatment and refining costs are deducted from revenue. |
2 | Copper and zinc sales volumes are denoted in 000s pounds, and gold sales volumes are denoted in troy oz. |
Nine Months Ended September 30, 2011
(000s except as noted) |
Copper | Zinc | Gold | Total | ||||||||||||
Other costs of sales |
120,651 | 186,284 | 34,790 | 341,725 | ||||||||||||
Impairment loss on zinc inventory |
| (5,351 | ) | | (5,351 | ) | ||||||||||
Treatment and refining costs1 |
19,426 | | 5,817 | 25,243 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
140,077 | 180,933 | 40,607 | 361,617 | |||||||||||||
Zinc oxide and by-product revenues |
(19,531 | ) | (20,928 | ) | (19,076 | ) | (59,535 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Co-product costs |
120,546 | 160,005 | 21,531 | 302,082 | ||||||||||||
Sales volume2 |
86,036 | 163,024 | 62,245 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Co-product cash costs per unit2 sold |
$ | 1.40 | $ | 0.98 | $ | 346 | ||||||||||
|
|
|
|
|
|
1 | Treatment and refining costs are deducted from revenue. |
2 | Copper and zinc sales volumes are denoted in 000s pounds, and gold sales volumes are denoted in troy oz. |
Page 31
Three Months Ended September 30, 2010
(000s except as noted) |
Copper | Zinc | Gold | Total | ||||||||||||
Other cost of sales |
23,810 | 56,389 | 7,957 | 88,156 | ||||||||||||
Treatment and refining costs1 |
3,681 | | 920 | 4,601 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
27,491 | 56,389 | 8,877 | 92,757 | |||||||||||||
Zinc oxide and by-product revenues |
(641 | ) | (9,302 | ) | (3,362 | ) | (13,305 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Co-product costs |
26,850 | 47,087 | 5,515 | 79,452 | ||||||||||||
Sales volume2 |
20,104 | 56,655 | 17,085 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Co-product cash costs per unit2 sold |
$ | 1.34 | $ | 0.83 | $ | 323 | ||||||||||
|
|
|
|
|
|
1 | Treatment and refining costs are deducted from revenue. |
2 | Copper and zinc sales volumes are denoted in 000s pounds, and gold sales volumes are denoted in troy oz. |
Nine Months Ended September 30, 2010
(000s except as noted) |
Copper | Zinc | Gold | Total | ||||||||||||
Other cost of sales |
119,966 | 180,467 | 41,488 | 341,921 | ||||||||||||
Treatment and refining costs1 |
6,305 | | 920 | 7,225 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
126,271 | 180,467 | 42,408 | 349,146 | |||||||||||||
Zinc oxide and by-product revenues |
(2,647 | ) | (28,627 | ) | (17,334 | ) | (48,608 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Co-product costs |
123,624 | 151,840 | 25,074 | 300,538 | ||||||||||||
Sales volume2 |
85,119 | 171,391 | 65,702 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Co-product cash costs per unit2 sold |
$ | 1.45 | $ | 0.89 | $ | 382 | ||||||||||
|
|
|
|
|
|
1 | Treatment and refining costs are deducted from revenue. |
2 | Copper and zinc sales volumes are denoted in 000s pounds, and gold sales volumes are denoted in troy oz. |
Co-product costs per unit sold in the third quarter of 2011 were $1.63 per pound of copper, $500 per ounce of gold and $0.94 per pound of zinc. For the first nine months of 2011, co-product costs of copper decreased compared to the same period in 2010 mainly as a result of higher by-product credits from the sale of miscellaneous copper bearing material, while zinc co-product costs increased mainly as a result of reduced zinc oxide and other by-product credits.
Page 32
ACCOUNTING CHANGES
Adoption of International Financial Reporting Standards (IFRS)
The Canadian Accounting Standards Board set January 1, 2011 as the date that IFRS replaces existing Canadian GAAP for public companies with fiscal years beginning on or after that date, with comparative figures presented in the financial statements also required to comply with IFRS.
In accordance with these requirements, we adopted IFRS in the quarter ended March 31, 2011, with effect from January 1, 2010.
We engaged external consultants to assist us through this complex transition project, which involved individuals from many aspects of the business, including accounting and finance, tax, information technology, legal, investor relations, logistics and operations. We established a project structure, including a charter and a detailed project plan that included phases for planning and assessment, design and implementation. We also conducted workshops and training. The project plan included activities in respect of all of our direct and indirect subsidiaries in all jurisdictions which were established as at December 31, 2010. The implementation phase is substantially complete and will culminate with the issue of our annual 2011 IFRS financial statements. Our execution of our IFRS project implementation plan included the review of related controls and we concluded that the adoption of IFRS did not require material changes to our internal controls. Our project team provided regular status and informational updates to our IFRS Steering Committee and the Audit Committee of the board of directors. Our IFRS Committee and the Audit Committee have approved our IFRS accounting policies. However IFRS Standards are evolving and subject to change going forward.
The following reconciliations summarize the effect of adjustments we made to convert our Canadian GAAP financial statements to IFRS for our 2010 transition year, with descriptions of significant adjustments provided below. For further explanation of the effect of transition from Canadian GAAP to IFRS on our financial position, financial performance and cash flows, refer to note 20 of our September 30, 2011 interim financial statements.
Reconciliation of equity as at January 1, 2010, September 30, 2010 and December 31, 2010
Notes | Jan.1, 2010 (transition date) |
Sep. 30, 2010 |
Dec. 31, 2010 |
|||||||||||
Total equity under Canadian GAAP |
1,698,484 | 1,711,808 | 1,748,981 | |||||||||||
|
|
|
|
|
|
|||||||||
Adjustments, net of tax |
||||||||||||||
Exploration and evaluation |
a | (21,339 | ) | (41,777 | ) | (54,005 | ) | |||||||
Decommissioning and restoration liabilities and assets |
b | (14,930 | ) | (23,717 | ) | (24,164 | ) | |||||||
Property, plant and equipment |
c | (5,058 | ) | (10,413 | ) | (10,796 | ) | |||||||
Functional currency |
d | (4,561 | ) | (12,550 | ) | (25,033 | ) | |||||||
Employee benefits |
(3,641 | ) | (2,921 | ) | (2,682 | ) | ||||||||
Provisions |
(1,034 | ) | (779 | ) | (698 | ) | ||||||||
Own-use derivatives |
307 | 943 | 1,896 | |||||||||||
Non-controlling interest |
1,356 | 55 | 49 | |||||||||||
Effect of re-measuring taxes |
| 571 | 271 | |||||||||||
|
|
|
|
|
|
|||||||||
Net adjustment to equity |
(48,900 | ) | (90,588 | ) | (115,162 | ) | ||||||||
|
|
|
|
|
|
|||||||||
Total equity under IFRS |
1,649,584 | 1,621,220 | 1,633,819 | |||||||||||
|
|
|
|
|
|
Page 33
Reconciliation of statement of comprehensive income for the three and nine months ended September 30, 2010
Three Months Ended Sep. 30, 2010 |
Nine months ended Sep. 30, 2010 |
|||||||||||||||||
Notes | Before tax | Net of tax | Before tax | Net of tax | ||||||||||||||
Total comprehensive income under Canadian GAAP |
30,804 | 71,704 | ||||||||||||||||
|
|
|
|
|||||||||||||||
Adjustments to profit (loss), net of tax: |
||||||||||||||||||
Exploration and evaluation |
a | (12,717 | ) | (7,716 | ) | (33,417 | ) | (20,438 | ) | |||||||||
Decommissioning and restoration liabilities and assets |
b | (1,887 | ) | (3,163 | ) | (5,351 | ) | (8,783 | ) | |||||||||
Property, plant and equipment |
c | (880 | ) | (549 | ) | (8,738 | ) | (5,355 | ) | |||||||||
Functional currency |
d | (5,838 | ) | (5,838 | ) | (3,499 | ) | (3,499 | ) | |||||||||
Employee benefits |
345 | 252 | 999 | 720 | ||||||||||||||
Provisions |
3 | 3 | 371 | 255 | ||||||||||||||
Own-use derivatives |
4,411 | 3,165 | 887 | 636 | ||||||||||||||
Effect of re-measuring taxes |
| 386 | | 1,145 | ||||||||||||||
Share-based payment |
44 | 44 | 91 | 91 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Net adjustment to profit (loss) |
(16,516 | ) | (13,413 | ) | (48,660 | ) | (35,232 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Adjustment to OCI (loss): |
||||||||||||||||||
Functional currency |
d | (7,016 | ) | (7,016 | ) | (4,481 | ) | (4,481 | ) | |||||||||
Other |
| (386 | ) | | (387 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Adjustments to OCI (loss) |
(7,016 | ) | (7,402 | ) | (4,481 | ) | (4,868 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total adjustment to comprehensive income |
(23,532 | ) | (20,815 | ) | (53,141 | ) | (40,100 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income under IFRS |
9,989 | 31,604 | ||||||||||||||||
|
|
|
|
Page 34
Reconciliation of statement of comprehensive income for the year ended December 31, 2010
Year ended Dec. 31, 2010 |
||||||||||
Notes | Before tax | Net of tax | ||||||||
Total comprehensive income under Canadian GAAP |
105,290 | |||||||||
|
|
|||||||||
Adjustments to profit (loss), net of tax: |
||||||||||
Exploration and evaluation |
a | (53,569 | ) | (32,666 | ) | |||||
Decommissioning and restoration liabilities and assets |
b | (4,499 | ) | (9,236 | ) | |||||
Property, plant and equipment |
c | (9,336 | ) | (5,738 | ) | |||||
Functional currency |
d | (5,397 | ) | (5,397 | ) | |||||
Employee benefits |
1,330 | 959 | ||||||||
Provisions |
473 | 337 | ||||||||
Own-use derivatives |
2,215 | 1,589 | ||||||||
Effect of re-measuring taxes |
| 1,019 | ||||||||
Share-based payment |
118 | 118 | ||||||||
Other |
(6 | ) | (6 | ) | ||||||
|
|
|
|
|||||||
Net adjustment to profit (loss) |
(68,671 | ) | (49,021 | ) | ||||||
|
|
|
|
|||||||
Adjustment to OCI (loss): |
||||||||||
Functional currency |
d | (15,070 | ) | (15,070 | ) | |||||
Available-for-sale investments |
(386 | ) | ||||||||
Other |
(2 | ) | (2 | ) | ||||||
|
|
|
|
|||||||
Adjustments to OCI (loss) |
(15,072 | ) | (15,458 | ) | ||||||
|
|
|
|
|||||||
Total adjustment to comprehensive income |
(83,743 | ) | (64,479 | ) | ||||||
|
|
|
|
|||||||
Total comprehensive income under IFRS |
40,811 | |||||||||
|
|
Explanation of significant adjustments
a. | Exploration for and evaluation of mineral resources (E&E) Under IFRS, we expense the cost of our E&E activities and capitalize the cost of acquiring interests in mineral rights, licenses and properties in business combinations, asset acquisitions or option agreements. We interpret the end of the E&E phase to be the point at which we have completed a preliminary feasibility study, some of the resources have been converted to reserves, and management has determined that it is probable the property will be developed into a mine. To apply this policy, we recognized IFRS adjustments to reverse the Lalor project assets previously capitalized under Canadian GAAP, as the amounts arose from E&E activities rather than acquisitions. We determined that the Lalor project reached the end of the E&E phase as at December 31, 2010 and entered the development phase at that time; accordingly, in 2011, we are capitalizing Lalor project expenditures and presenting them within capital works in progress in property, plant and equipment. |
b. | Decommissioning and restoration - Under Canadian GAAP, we applied a credit-adjusted, risk-free rate to measure our decommissioning and restoration liabilities (previously called asset retirement obligations), and we did not re-measure the liabilities as a result of changes in the discount rate. Under IFRS, we apply a risk-free rate when measuring decommissioning and restoration liabilities and, in subsequent periods, we re-measure the liabilities to reflect changes in the discount rate. We also applied an optional exemption under IFRS 1, First-time Adoption of |
Page 35
International Financial Reporting Standards, as explained in note 20 to our September 30, 2011 interim financial statements. Application of these changes resulted in increases to decommissioning and restoration liabilities and to the carrying value of related decommissioning and restoration assets within property, plant and equipment. For properties that have no remaining useful life, we recorded changes in the liabilities against other operating expense. The changes to liability and asset balances also affected finance expense related to the unwinding of discounts on the liabilities and depreciation expense during our 2010 transition year. |
a. | Property, plant and equipment IFRS requires depreciation to be calculated separately for individual components of an item of property, plant and equipment that have costs significant in relation to the total cost of the item. Requirements under Canadian GAAP, while similar, are less specific. We identified additional components from those previously recorded under Canadian GAAP, resulting in IFRS adjustments to increase accumulated depreciation. For certain equipment, the adjustment also reflected a change in depreciation method from unit-of-production to straight-line because the expected pattern of future economic benefits was different at the lower level of componentization. We also recorded adjustments to increase the carrying value of property, plant and equipment for major inspections and overhauls of mobile equipment that require capitalization as separate components under IFRS but were expensed under Canadian GAAP. We recorded additional adjustments for assets related to mine development, as IFRS requires depreciation of equipment used in construction projects to be capitalized, and Canadian GAAP requirements, while similar, were also less specific. We recorded IFRS adjustments to reflect the capitalization of depreciation of equipment used in capital mine development, resulting in increases to the capital cost of mining properties. These IFRS adjustments to property, plant and equipment also resulted in additional adjustments to depreciation expense during our 2010 transition year. |
b. | Functional currency - IFRS requirements for determining the functional currency of an entity are more specific than the equivalent requirements under Canadian GAAP. We assessed the functional currency for each of HudBays entities under IFRS. During our 2010 transition year, we recorded IFRS adjustments for our Guatemalan operations and for our Back Forty project in Michigan, which we determined have a US dollar functional currency under IFRS but had Canadian dollar functional currency under Canadian GAAP. To simplify our calculation of the transition adjustments, we elected the optional IFRS 1 exemption to deem cumulative translation differences to be zero as at January 1, 2010 (with an offsetting adjustment to retained earnings). Under Canadian GAAP, we did not previously have a currency translation adjustment, as the measurement currency of all HudBay entities was Canadian dollars. |
In addition to the accounting policy changes described above, extensive changes to financial statement presentation and disclosure were required upon adoption of IFRS. In particular, under IFRS we classify expenses within the income statement by function instead of by nature, as follows:
| Cost of sales consists of expenses related to production, including the cost of inventory sold during the period and other expenses of operating sites, including depreciation and amortization, site administration and share-based payment expenses. Under Canadian GAAP, we presented depreciation and amortization and share-based payment expenses on separate lines of the income statement and presented site administration costs in general and administrative expenses. |
| Selling and administrative expenses consists of corporate office expenses and selling expenses, including related share-based payment expense and depreciation and amortization. |
| Exploration and evaluation consists of expenses related to the exploration for and evaluation of mineral properties, including related share-based payment expense. |
| Other operating expense consists of expenses relating to operating activities other than production, selling and administration. The most significant component of this function is expenses of non-producing properties, such as those in the development phase and those under care and |
Page 36
maintenance. Expenses of non-producing properties include amounts related to changes in estimates of decommissioning and restoration liabilities for properties with no remaining useful life, as well as share-based payment expense and depreciation and amortization. Under Canadian GAAP, we presented expenses of non-producing properties within operating expense. |
| Finance income consists mainly of interest income earned on cash and cash equivalents. |
| Finance expense this includes the unwinding of the discount rate on our decommissioning and restoration liabilities. Under Canadian GAAP, we referred to this as accretion expense and presented it on a separate line on the income statement. |
| Other finance gains/losses contains items that tend to fluctuate between gain and loss from period to period, such as foreign exchange gains/losses and mark-to-market gains/losses. Under Canadian GAAP, we presented foreign exchange gains/losses on a separate line on the income statement. |
On the cash flow statement, our most significant reclassification resulted from expensing the cost of expenditures on the Lalor project before it reached the end of the E&E phase; accordingly, under IFRS, we present these cash outflows within operating activities, whereas under Canadian GAAP we presented them within investing activities. In addition, under IFRS we classify interest income received within financing activities, whereas under Canadian GAAP we presented it in operating activities.
For a full description of our significant IFRS accounting policies, refer to note 3 of our March 31, 2011 interim financial statements.
The accounting policy changes described above are based on the IFRS expected to be in effect at the end of our first IFRS reporting period, which is the year ended December 31, 2011. We continue to monitor changing standards to enable us to assess their effect on our IFRS financial statements. Any subsequent changes to IFRS or their interpretations that become effective and are adopted for our December 31, 2011 annual financial statements could result in revisions to accounting policies applied in the interim financial statements, and if applicable, the opening balance sheet and reconciliations set out in note 20 of our September 30, 2011 interim financial statements.
New standards and interpretations not yet adopted
For information on new standards and interpretations not yet adopted, refer to note 3 of our September 30, 2011 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.
During the second quarter of 2011, we implemented a new enterprise resource planning (ERP) information system at HBMS, which included the replacement of its key financial systems. The implementation of the new ERP system followed our project plans, which included a number of typical project controls, such as the testing of data conversion and system reports, user training and user acceptance testing, in order to support ICFR during and after the implementation.
We did not make any other changes to ICFR during the quarter ended September 30, 2011 that materially affected or are reasonably likely to materially affect our ICFR.
Page 37
Exhibit 99.3
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, David Garofalo, 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 September 30, 2011. |
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 issuers 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 issuers 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 issuers GAAP. |
5.1 | Control framework: The control framework the issuers other certifying officer(s) and I used to design the issuers ICFR is the Integrated Framework (COSO Framework) published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
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 issuers ICFR that occurred during the period beginning on July 1, 2011 and ended on September 30, 2011 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: November 2, 2011
(signed) David Garofalo
David Garofalo
President and Chief Executive Officer
Exhibit 99.4
FORM 52-109F2
CERTIFICATION OF INTERIM FILINGS
FULL CERTIFICATE
I, David S. Bryson, 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 September 30, 2011. |
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 issuers 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 issuers 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 issuers GAAP. |
5.1 | Control framework: The control framework the issuers other certifying officer(s) and I used to design the issuers ICFR is the Integrated Framework (COSO Framework) published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). |
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 issuers ICFR that occurred during the period beginning on July 1, 2011 and ended on September 30, 2011 that has materially affected, or is reasonably likely to materially affect, the issuers ICFR. |
Date: November 2, 2011
(signed) David S. Bryson
David S. Bryson
Senior Vice President and Chief Financial Officer
Exhibit 99.5
![]() |
HudBay Minerals Inc. 25 York Street Suite 800 Toronto ON M5J 2V5 Canada
Tel 416362-8181 Fax 416362-7844 hudbayminerals.com |
News release
TSX, NYSE HBM
2011 No. 38
HudBay Minerals Releases Third Quarter 2011 Results
Strong Production Results as Company Still on Track to Meet
2011 Guidance
Highlights
| Strong third quarter production and cost results as full year mine performance still on target |
| Operating cash flow before changes in non-cash working capital* grew to $58.3 million in the third quarter of 2011 from $25.6 million in the same period last year |
| Lalor development proceeding well with the ventilation shaft now sunk to the 190 metre level and the planned 3,200 metre access ramp currently advanced to 2,900 metres |
| Applications submitted for key development permits for the Reed copper deposit |
| Exploration drilling at Constancias high-grade Pampacancha deposit continues to demonstrate the continuity of the deposit. A resource estimate on Pamapcancha is expected by Q1 2012. Front end engineering and design well advanced with long lead orders commencing |
Toronto, Ontario November 2, 2011 HudBay Minerals Inc. (HudBay, the company ) (TSX:HBM) (NYSE:HBM) today released its third quarter 2011 financial results. The company reported a net loss of $41.1 million, or $0.23 per share, in the third quarter of 2011, compared to a loss of $0.01 per share in the third quarter of 2010. Operating cash flow before changes in non-cash working capital* more than doubled to $58.3 million, or $0.34 per share, in the third quarter of 2011 from $25.6 million, or $0.17 per share, in 2010 mainly as a result of higher sales volumes and higher prices received for copper and gold.
![]() |
HudBay Minerals Inc. 25 York Street Suite 800 Toronto ON M5J 2V5 Canada
Tel 416362-8181 Fax 416362-7844 hudbayminerals.com |
Third quarter 2011 profit under IFRS was negatively affected by a number of non-cash, unusual charges, all of which are presented after-tax:
Impairment on the companys investment in Zochem Inc. | $5.0 million ($0.03 per share) | |
Impairments on available-for-sale investments | $2.2 million ($0.01 per share) | |
Impairments on zinc inventory | $2.9 million ($0.02 per share) | |
Foreign currency translation and other loss on disposal of Fenix | $22.5 million ($0.13 per share) | |
Impact on deferred taxes of changes to Peruvian tax law | $19.0 million ($0.11 per share) | |
Impact on deferred taxes of change in discount rates on decommissioning and restoration liabilities | $7.9 million ($0.05 per share) |
Our operating mines delivered very strong performance during the third quarter of 2011. With the transportation bottleneck in Manitoba resolved, our sales volumes have increased significantly, resulting in strong cash flows, said David Garofalo, HudBays president and chief executive officer. We also continue to execute well on our production growth objectives as Lalor advances to first production by the middle of 2012 and Constancia project engineering, optimization and exploration are expected to lead to a formal project decision by the first quarter of 2012. In addition, the submission of permit applications for the Reed copper deposit and continued pre-feasibility work on Back Forty give HudBay incremental growth opportunities.
Strong Revenue Growth Due to Higher Metals Prices and Sales Volumes
Revenues increased to $212.3 million in the third quarter of 2011 compared to $167.8 million in 2010. Revenue growth was driven by higher metal prices and sales volumes. Increased availability of railcars helped to substantially eliminate the stockpile of copper concentrate in Flin Flon that had previously accumulated. HudBay continues to expect copper concentrate sales to exceed production in the fourth quarter of 2011, resulting in the sale of most of the remaining excess inventory.
Due to the extraction of higher-value copper ore, copper and gold grades at 777 are anticipated to be higher than 2011 guidance, whereas 777 zinc grades are expected to be lower than 2011 guidance. The reduced 777 zinc grades are expected to be partially offset by higher zinc grades from Trout Lake, which are expected to average 3.4% for 2011 compared to previous guidance of 2.8%.
Co-product costs per unit sold in the third quarter of 2011 were $1.63 per pound of copper, $500 per ounce of gold and $0.94 per pound of zinc.* For the first nine months of 2011, co-product costs of copper decreased compared to the same period in 2010 mainly as a result of higher by-product credits from the sale of miscellaneous copper bearing material, while zinc co-product costs increased mainly as a result of reduced zinc oxide and other by-product credits.
HudBay continued to achieve good cost control at its operations, with operating costs per tonne at the 777 mine, the Flin Flon concentrator and zinc plant all expected to remain within the range of guidance for 2011 as set forth in HudBays press release dated December 13, 2010. Mining operating costs at the Trout Lake mine remain above comparable 2010 levels due to additional expensed development work associated with extending mine life. Trout Lakes mine life is now expected to be extended to June 2012 from early 2012 as previously projected.
Strong Cash Flow Generation
Operating cash flow before changes in non-cash working capital* increased to $58.3 million, or $0.34 per share, in the third quarter of 2011 from $25.6 million, or $0.17 per share, in 2010 mainly as a result of higher sales volumes and higher prices received for copper and gold. Capital expenditures increased to $69.2 million due to the acceleration of construction at Lalor and commencement of pre-construction activities at Constancia, offset in part by reduced sustaining capital expenditures.
3
Cash and cash equivalents increased to $871.1 million at September 30, 2011 from $747.7 million at June 30, 2011. The increase in cash and cash equivalents during the third quarter 2011 was due mainly to proceeds realized on the sale of the Fenix project of US $140 million and operating cash flow of $78.5 million, only partly offset by capital investments of $69.2 million, strategic investments of $8.7 million and payment of dividends of $17.2 million.
Together with our unused credit lines, HudBay has available liquidity of approximately $1.1 billion and no debt. While the company believes that the Lalor and Constancia projects can be financed from existing resources and future cash flows, it expects to arrange additional debt financing at either the corporate or project level to maintain optimum financial flexibility.
Lalor Development and Site Construction Proceeding Well;
Ramp Nearing Completion and First Underground Drilling Expected in Q1 2012
The Lalor project has now gone over 693 days without a lost time accident. The company continues to make significant progress on the planned 3,200 metre access ramp at the Lalor project, having advanced close to 2,900 metres since the start of the project in December 2009. By the fourth quarter of 2011, the ramp is intended to extend to the 810 metre base of the ventilation shaft, which is now approximately 23% complete. By early 2012, diamond drilling from underground will commence for the first time at Lalor. Initial drilling will focus on delineating the first ore production and finalizing infrastructure development. Initial ore production up the ventilation shaft is expected by the middle of 2012.
Construction is progressing well on the main site with the water treatment plant building completed and electrical and mechanical installation ongoing. The main shaft collar presink has been completed and the sinking galloway for the main shaft sinking was put in place mid-October. The bin house steel, waste bunker and the hoist house are well advanced. Work over the next few months will be focused on the headframe steel erection and cladding. Detailed engineering around the design of the new concentrator is underway with procurement expected to commence early in 2012.
Two drills continued to operate near the Lalor project testing geophysical targets. These drills will continue to operate for the remainder of the year. The targets being tested are peripheral to the Lalor deposit and are part of a program exploring for new zones of mineralization.
4
Exploration Drilling Continues at the Constancia Project;
Hole PO-11-086 intercepted 49 metres with 1.83% copper and 0.95 g/t gold at Pampacancha
Two exploration drilling rigs continued at Pampacancha, south of previously reported Hole PO-11-072, which intersected two main intervals of mineralization, including 121.45 metres of 1.62% copper, 13.62 g/t silver and 1.02 g/t gold and 87.50 metres of 0.46% copper, 2.30 g/t silver and 0.22 g/t gold. Assays from Hole PO-11-086 intercepted 49 metres with 1.83% copper and 0.95 g/t gold, which demonstrates the continuity of high grade copper and gold mineralization in the Pampacancha deposit. HudBay expects to announce a NI 43-101 mineral resource estimate at Pampacancha in early 2012.
In June and July of 2011 a Titan 24 IP/DC/MT survey was completed over the Constancia property on eight reconnaissance lines for a total of 38.4 kilometres. The survey was designed to test the response from Constancia to create a target template to be used elsewhere in the region. HudBay also used this system to test the limits of the companys geophysical knowledge beyond the depth of investigation as the previous conventional survey methods were somewhat limited. Several targets have been identified near surface and at depth at the Chilloroya and Pampacancha prospects including one near Constancia. These targets are currently in the interpretation/planning stages. Drill testing of these targets will begin in 2012.
For additional detail on Pampacancha and the Constancia project generally, please refer to NI 43-101 technical report filed by HudBay Peru Inc. (formerly Norsemont Mining Inc.) entitled Norsemont Mining Constancia Project Technical Report 21 February 2011, available at www.sedar.com and the companys press release dated June 14, 2011 entitled HudBay Minerals Intersects 2.4% Copper Equivalent Over 120 Meters at Constancias Pampacancha Deposit.
HudBays previously announced $116 million pre-construction program for Constancia is progressing well. The program contemplates early equipment procurement for long lead items, a resource model update, metallurgical review, pit optimization study, geotechnical and condemnation drilling. Front End Engineering and Design are well advanced and orders for the grinding mills and other long-lead time items are expected to be completed during the fourth quarter. The new resource model on the main pit is also being incorporated into the new project economic model, which will form the basis of the formal project commitment recommendation to our Board of Directors, expected in the first quarter of 2012.
Reed Copper Deposit;
Permit Applications Submitted in Q3 2011
Pursuant to a joint venture with VMS Ventures Inc. (VMS), HudBay has a 70% interest in the Reed copper deposit, which is a high-grade near-surface copper deposit that could be accessed via a ramp with the ore trucked to HudBays Flin Flon concentrator.
Applications for key development permits for the Reed copper deposit were submitted to the Manitoba government in the third quarter. Approval of these permits could allow for early site development. A preliminary economic assessment study is expected to be completed in the fourth quarter.
Two exploration drills have been operating within three kilometres of the Reed copper deposit targeting regional geophysical anomalies. The drills also followed up on the intersection in Hole RLE006, which intersected 7.18 metres of 7.44% copper. These results included 3.95 metres of 9.31% copper, 1.87% zinc, 3.59 g/t gold and 35.53 g/t silver from Hole RLE021 and 4.15 metres of 2.16% copper, 0.18% zinc, 0.71 g/t gold and 8.01 g/t silver from Hole RLE022. Drilling will be shut down during October but will resume drilling once winter conditions allow access to the area.
5
Key Financial Results
($000s except per share amounts) |
Three Months
Ended September 30 |
Nine Months
Ended September 30 |
||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue |
212,335 | 167,778 | 636,503 | 596,425 | ||||||||||||
Profit before tax |
37,473 | 22,416 | 139,212 | 82,075 | ||||||||||||
(Loss) profit from continuing operations |
(16,052 | ) | 7,376 | 40,910 | 26,721 | |||||||||||
Basic and diluted (loss) earnings per share1 |
(0.23 | ) | (0.01 | ) | (1.14 | ) | 0.09 | |||||||||
(Loss) profit for the period |
(41,083 | ) | (1,743 | ) | (197,874 | ) | 13,149 | |||||||||
Operating cash flow2, 3 |
58,316 | 25,597 | 168,119 | 136,387 | ||||||||||||
Operating cash flow per share2, 3 |
0.34 | 0.17 | 1.01 | 0.90 | ||||||||||||
Cash and cash equivalents |
871,089 | 851,739 | 871,089 | 851,739 | ||||||||||||
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Total assets |
2,402,766 | 2,009,348 | 2,402,766 | 2,009,348 | ||||||||||||
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|
1 | Attributable to owners of the Company |
2 | Refer to Non-IFRS measures at the conclusion of this press release. |
3 | Before changes in non-cash working capital. |
Results for the third quarters of 2011 and 2010 have been presented in accordance with International Financial Reporting Standards (IFRS).
Compared to results for the third quarter of 2010 previously reported under Canadian generally accepted accounting standards (CGAAP), IFRS profit for the third quarter of 2010 includes additional exploration expenses of $12.7 million related mainly to the Lalor project. Other differences between CGAAP and IFRS and their impact on the companys financial results are described in HudBays interim financial statements for the third quarter of 2011.
During the third quarter of 2011, HudBay recognized $2.5 million ($2.2 million after-tax) in impairment losses related to available-for-sale investments and $5.4 million ($2.9 million after-tax) in impairments in the carrying value of HudBays zinc inventory as a result of lower market prices.
On September 9, 2011, HudBay completed the sale of 100% of the companys interest in the Fenix ferro-nickel project in Guatemala, which has been presented as a discontinued operation. Upon completion of the sale, HudBay recognized a loss on disposal of $22.5 million, including accumulated foreign exchange losses transferred from the foreign currency translation reserve within equity to the income statement. HudBay has also disposed of its Zochem Inc. subsidiary for cash proceeds of approximately US$15 million and recognized an impairment loss of $5.9 million ($5.0 million after-tax) as a result.
In addition, a significant decline in long-term Canadian risk-free interest rates during the third quarter of 2011 resulted in an increase in the present value estimate of the companys decommissioning and restoration liabilities and required the recognition of a corresponding deferred tax expense of $7.9 million. $19.0 million in deferred tax expense was also recorded as a result of changes to Peruvian mining tax laws during the third quarter.
6
For additional information on HudBays third quarter 2011 financial results, please refer to the Third Quarter 2011 Supplemental Disclosure document at http://media3.marketwire.com/docs/2011Q3SUPPHBM.pdf.
Non-IFRS Measures
Operating cash flow before changes in non-cash working capital, operating cash flow per share, cash cost per pound of zinc sold and co-product cash costs per unit sold are included in this news release because these measures are performance indicators that HudBay uses internally to monitor performance. The company uses these measures to assess how well it is performing compared to plan and to assess the overall effectiveness and efficiency of mining, processing and refining operations. HudBay believes that the inclusion of these measures in the news release helps an investor to assess performance through the eyes of management and that certain investors use these measures to assess the companys performance.
These measures do not have a meaning presented by IFRS and should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently.
7
Operating cash flow before changes in non-cash working capital and operating cash flow per share
The following table presents calculations of cash flows for the three and nine months ended September 30, 2011 and September 30, 2010.
Three Months Ended | Nine Months Ended | |||||||||||||||
($000s except share and per share amounts) |
Sep. 30 2011 |
Sep. 30 2010 |
Sep. 30 2011 |
Sep. 30 2010 |
||||||||||||
Cash generated by operating activities, per financial statements |
78,460 | 18,888 | 153,116 | 154,627 | ||||||||||||
Adjustments: |
||||||||||||||||
Changes in non-cash working capital |
(23,076 | ) | 12,061 | (20,701 | ) | (5,252 | ) | |||||||||
Changes in non-cash tax receivable |
3,930 | 64 | 11,498 | (15,249 | ) | |||||||||||
Changes in non-cash tax payable |
(998 | ) | (5,416 | ) | 24,206 | 2,261 | ||||||||||
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Operating cash flow before changes in non-cash working capital |
58,316 | 25,597 | 168,119 | 136,387 | ||||||||||||
Weighted average shares outstanding |
171,905,912 | 148,949,050 | 166,490,423 | 151,114,563 | ||||||||||||
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Operating cash flow per share |
$ | 0.34 | $ | 0.17 | $ | 1.01 | $ | 0.90 | ||||||||
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|
This measure is intended to provide an indication of HudBays operating cash flow generation prior to the impact of fluctuations in working capital accounts, including taxes payable and receivable (but excluding the effect of OCI items and other adjustments).
Under CGAAP, Changes in non-cash working capital in the statement of cash flows included changes in taxes payable and receivable (but excluding the effect of OCI items and other adjustments), whereas IFRS presentation requires that taxes paid be presented separately in the statement of cash flows.
This non-IFRS measure generates results that are comparable to HudBays previous non-GAAP presentation of Operating cash flow before changes in non-cash working capital.
8
Cash cost per pound of zinc sold
HudBays cash cost per pound of zinc sold, net of by-product credits, for the third quarter of 2011 was negative US$0.66 per pound, representing costs associated with HBMS operations, as calculated in the following table:
Three Months Ended | Nine Months Ended | |||||||||||||||
($000s except as noted) |
September 30 2011 |
September 30 2010 |
September 30 2011 |
September 30 2010 |
||||||||||||
Other cost of sales |
120,790 | 88,156 | 341,725 | 341,921 | ||||||||||||
Impairment loss |
5,878 | | 5,878 | | ||||||||||||
Selling and other operating expense |
1,278 | 2,708 | 4,318 | 4,845 | ||||||||||||
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127,946 | 90,864 | 351,921 | 346,766 | |||||||||||||
Less by-product credits1 |
(161,488 | ) | (106,930 | ) | (468,338 | ) | (415,635 | ) | ||||||||
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Cash cost net of by-products |
(33,542 | ) | (16,066 | ) | (116,417 | ) | (68,869 | ) | ||||||||
Exchange rate (US $1 to C$)2 |
0.980 | 1.039 | 0.978 | 1.036 | ||||||||||||
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Cash cost net of by-products |
US (34,227 | ) | US (15,463 | ) | US (119,036 | ) | US (66,476 | ) | ||||||||
Zinc sales (000s lbs.) |
52,000 | 56,654 | 163,023 | 171,389 | ||||||||||||
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Cash cost per pound of zinc sold, net of by-product credits in US $/lb. |
US (0.66 | ) | US (0.27 | ) | US (0.73 | ) | US (0.39 | ) | ||||||||
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1 | By-product credits include revenues from sale of copper, gold, silver, the value added by converting zinc to zinc oxide, and by-product sales. |
2 | Weighted average exchange rate for sales during the period. |
HudBays calculation of cash cost per pound of zinc sold is significantly influenced by by-product metal prices, which may fluctuate going forward.
Co-product cash costs per unit sold
In the third quarter of 2010, HudBay introduced co-product cash costs as a new non-IFRS measure. The company believes these costs serve as meaningful indicators for investors to evaluate HudBays operations.
Whereas cash costs net of by-product credits present the cash costs of a single metal, assuming that all other metals are by-products of the given metal, co-product cash costs present a cost of producing each of our primary metals, copper, zinc and gold, based on an allocation of costs among the metals. Costs that can be readily associated with a specific metal are allocated to that metal. Mining and milling costs for HudBays Trout Lake and 777 mines are allocated proportionately based on the value of the contained metals at prevailing metals prices. Operating overhead expenses and site administrative expenses (in both cases, excluding costs not related to HudBays HBMS operations) are generally
9
allocated equally between zinc and copper with some further cost allocation to gold. Impairment charges on zinc inventory in a period are deducted from cost of sales in order to better match costs as they are incurred with sales; the deducted charges will be added back to cost of sales in future periods when the inventory in question is sold.
In order to present a cost per finished unit sold, the company also adds to these costs third party treatment and refining costs, which are deducted from revenue in HudBays financial statements.
HudBay treats zinc oxide production as a by-product of zinc production, so the costs of the Zochem operation are allocated to zinc operating expenses, and zinc oxide revenues are deducted from total zinc cash costs. Similarly, HudBay treats silver production as a by-product of gold production. Copper by-products include the one-time sale of copper bearing material from the closure of the WPCR. Other miscellaneous revenues are allocated among zinc, copper and gold in the same manner as general and administrative costs unless specific to either the zinc or copper processing.
While HudBay expects the impact of fluctuating metals prices to be less significant on co-product cash costs than it is on by-product cash costs, changes in relative metals prices may cause reported cash costs to vary substantially over time, irrespective of our operational results. Significant management judgement is also required in determining how costs should be allocated among metals. Caution should also be exercised in using co-product cash costs to evaluate the profitability of a particular metal, as the profitability of the companys polymetallic mines is dependent on the production of all of its principal metals.
Three Months Ended September 30, 2011
($000s except as noted) |
Copper | Zinc | Gold | Total | ||||||||||||
Other cost of sales |
48,645 | 57,496 | 14,649 | 120,790 | ||||||||||||
Impairment loss on zinc inventory |
| (5,351 | ) | | (5,351 | ) | ||||||||||
Treatment and refining costs1 |
7,398 | | 2,190 | 9,588 | ||||||||||||
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56,043 | 52,145 | 16,839 | 125,027 | |||||||||||||
Zinc oxide and by-product revenues |
(1,457 | ) | (3,367 | ) | (6,000 | ) | (10,824 | ) | ||||||||
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Co-product costs |
54,586 | 48,778 | 10,839 | 114,203 | ||||||||||||
Sales volume2 |
33,556 | 52,002 | 21,663 | |||||||||||||
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Co-product cash costs per unit2 sold |
$ | 1.63 | $ | 0.94 | $ | 500 | ||||||||||
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1 | Treatment and refining costs are deducted from revenue. |
2 | Copper and zinc sales volumes denoted in 000s pounds, and gold sales volumes denoted in troy oz. |
10
Nine Months Ended September 30, 2011
($000s except as noted) |
Copper | Zinc | Gold | Total | ||||||||||||
Other cost of sales |
120,651 | 186,284 | 34,790 | 341,725 | ||||||||||||
Impairment loss on zinc inventory |
(5,351 | ) | (5,351 | ) | ||||||||||||
Treatment and refining costs1 |
19,426 | | 5,817 | 25,243 | ||||||||||||
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140,077 | 180,933 | 40,607 | 361,617 | |||||||||||||
Zinc oxide and by-product revenues |
(19,531 | ) | (20,928 | ) | (19,076 | ) | (59,535 | ) | ||||||||
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Co-product costs |
120,546 | 160,005 | 21,531 | 302,082 | ||||||||||||
Sales volume2 |
86,036 | 163,024 | 62,245 | |||||||||||||
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Co-product cash costs per unit2 sold |
$ | 1.40 | $ | 0.98 | $ | 346 | ||||||||||
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1 | Treatment and refining costs are deducted from revenue. |
2 | Copper and zinc sales volumes denoted in 000s pounds, and gold sales volumes denoted in troy oz. |
Three Months Ended September 30, 2010
($000s except as noted) |
Copper | Zinc | Gold | Total | ||||||||||||
Other cost of sales |
23,810 | 56,389 | 7,957 | 88,156 | ||||||||||||
Treatment and refining costs1 |
3,681 | | 920 | 4,601 | ||||||||||||
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27,491 | 56,389 | 8,877 | 92,757 | |||||||||||||
Zinc oxide and by-product revenues |
(641 | ) | (9,302 | ) | (3,362 | ) | (13,305 | ) | ||||||||
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Co-product costs |
26,850 | 47,087 | 5,515 | 79,452 | ||||||||||||
Sales volume2 |
20,104 | 56,655 | 17,085 | |||||||||||||
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Co-product cash costs per unit2 sold |
$ | 1.34 | $ | 0.83 | $ | 323 | ||||||||||
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1 | Treatment and refining costs are deducted from revenue. |
2 | Copper and zinc sales volumes denoted in 000s pounds, and gold sales volumes denoted in troy oz. |
Nine Months Ended September 30, 2010
($000s except as noted) |
Copper | Zinc | Gold | Total | ||||||||||||
Other cost of sales |
119,966 | 180,467 | 41,488 | 341,921 | ||||||||||||
Treatment and refining costs1 |
6,305 | | 920 | 7,225 | ||||||||||||
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126,271 | 180,467 | 42,408 | 349,146 | |||||||||||||
Zinc oxide and by-product revenues |
(2,647 | ) | (28,627 | ) | (17,334 | ) | (48,608 | ) | ||||||||
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Co-product costs |
123,624 | 151,840 | 25,074 | 300,538 | ||||||||||||
Sales volume2 |
85,119 | 171,391 | 65,702 | |||||||||||||
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Co-product cash costs per unit2 sold |
$ | 1.45 | $ | 0.89 | $ | 382 | ||||||||||
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|
1 | Treatment and refining costs are deducted from revenue. |
2 | Copper and zinc sales volumes denoted in 000s pounds, and gold sales volumes denoted in troy oz. |
Please also see HudBays consolidated financial statements and related notes together with Managements Discussion and Analysis of Operations and Financial Condition for the three and nine months ended September 30, 2011, which are available under HudBays SEDAR profile at www.sedar.com and HudBays website at www.hudbayminerals.com. All amounts are in thousands of Canadian dollars unless otherwise noted.
11
Website Links
HudBay Minerals Inc.:
www.hudbayminerals.com
Managements Discussion and Analysis:
http://media3.marketwire.com/docs/2011MDAQ3HBM.pdf
Financial Statements:
http://media3.marketwire.com/docs/2011FSQ3HBM.pdf
Third Quarter 2011 Supplemental Disclosure
http://media3.marketwire.com/docs/2011Q3SUPPHBM.pdf
Conference Call and Webcast
Date: |
Thursday, November 3, 2011 | |
Time: |
10 a.m. ET | |
Webcast: |
www.hudbayminerals.com | |
Dial in: |
416-644-3414 or 800-814-4859 | |
Replay: |
416-640-1917 or 877-289-8525 | |
Replay Passcode: |
4478548# |
The conference call replay will be available until midnight (Eastern Time) on November 17, 2011. An archived audio webcast of the call also will be available on HudBays website.
HudBay Minerals Inc.
HudBay Minerals Inc. (TSX, NYSE: HBM) is a Canadian integrated mining company with assets in North and South America principally focused on the discovery, production and marketing of base and precious metals. The companys objective is to maximize shareholder value through efficient operations, organic growth and accretive acquisitions, while maintaining its financial strength. A member of the S&P/TSX Composite Index and the S&P/TSX Global Mining Index, HudBay is committed to high standards of corporate governance and sustainability.
Qualified Person
The technical and scientific information in this news release has been prepared by or under the supervision of Cashel Meagher, P.Geo. Mr. Meagher is a qualified person for the purposes of National Instrument 43-101 Standards of Disclosure for Mineral Projects.
12
Forward-Looking Information
This news release contains forward-looking information within the meaning of applicable Canadian and United States securities legislation. Forward-looking information includes, but is not limited to, information with respect to the Companys intentions respecting Norsemont and its Constancia project, the Companys ability to develop its key projects, the ability of management to execute on key strategic and operational objectives and meet production forecasts, exploration expenditures and activities and the possible success of such exploration activities, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of the development of new deposits, mineral pricing, mine life projections, and business and acquisition strategies. Often, but not always, forward-looking information can be identified by the use of forward-looking words like plans, expects, or does not expect, is expected, budget, scheduled, estimates, forecasts, intends, understands, anticipates, or does not anticipate, or believes or variations of such words and phrases or statements that certain actions, events or results may, could, would, might, or will be taken, occur, or be achieved.
Forward-looking information is based on the opinions and estimates of management as of the date such information is provided and is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of HudBay to be materially different from those expressed or implied by such forward-looking information, including the ability to develop and operate its key projects on an economic basis and in accordance with applicable timelines, geological and technical conditions, the ability to meet required solvency tests to support a dividend payment, risks associated with the mining industry such as economic factors (including future commodity prices, currency fluctuations and energy prices), failure of plant, equipment, processes and transportation services to operate as anticipated, dependence on key personnel and employee relations, environmental risks, government regulation, actual results of current exploration activities, possible variations in ore grade or recovery rates, permitting timelines, capital expenditures, reclamation activities, land titles, and social and political developments and other risks of the mining industry as well as those risk factors discussed or referred to in HudBays Annual Information Form under the heading Risk Factors. Although HudBay has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. In addition, certain forward-looking information in this MD&A relate to prospective results of operations, financial position or cash flows based on assumptions about future economic conditions or courses of action.
Such information is provided in attempt to assist the reader in identifying trends and anticipated events that may affect HudBays business, results of operations and financial position and may not be appropriate for other purposes. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. HudBay does not undertake to update any forward-looking information, except as required by applicable securities laws, or to comment on analyses, expectations or statements made by third parties in respect of HudBay, its financial or operating results or its securities.
13
Note to United States Investors
Information concerning our mineral properties has been prepared in accordance with the requirements of Canadian securities laws, which differ in material respects from the requirements of SEC Industry Guide 7. Under Securities and Exchange Commission (the SEC) Industry Guide 7, mineralization may not be classified as a reserve unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time of the reserve determination, and the SEC does not recognize the reporting of mineral deposits which do not meet the United States Industry Guide 7 definition of Reserve.
In accordance with National Instrument 43-101 - Standards of Disclosure for Mineral Projects (NI 43-101) of the Canadian Securities Administrators, the terms mineral reserve, proven mineral reserve, probable mineral reserve, mineral resource, measured mineral resource, indicated mineral resource and inferred mineral resource are defined in the Canadian Institute of Mining, Metallurgy and Petroleum (the CIM) Definition Standards for Mineral Resources and Mineral Reserves adopted by the CIM Council on December 11, 2005. While the terms mineral resource, measured mineral resource, indicated mineral resource and inferred mineral resource are recognized and required by NI 43-101, the SEC does not recognize them. You are cautioned that, except for that portion of mineral resources classified as mineral reserves, mineral resources do not have demonstrated economic value. Inferred mineral resources have a high degree of uncertainty as to their existence and as to whether they can be economically or legally mined.
Under Canadian securities laws, estimates of inferred mineral resources may not form the basis of an economic analysis. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Therefore, you are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be economically or legally mined, or that it will ever be upgraded to a higher category. Likewise, you are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be upgraded into mineral reserves. You are urged to consider closely the disclosure on the technical terms in Schedule A Glossary of Mining Terms of HudBays annual information form for the fiscal year ended December 31, 2010, available on SEDAR at www.sedar.com and incorporated by reference as Exhibit 99.1 in HudBays Form 40-F filed on March 31, 2011 (File No. 001-34244).
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(HBM-F)
For further information, please contact:
HudBay Minerals Inc.
John Vincic
Vice President, Investor Relations and Corporate Communications
(416) 362 0615
Email: john.vincic@hudbayminerals.com
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