Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX,
NYSE:HBM) today released its first quarter 2020 financial
results. All amounts are in U.S. dollars, unless otherwise noted.
First Quarter Operating and Financial
Results
- Delivered a solid operating quarter
in Manitoba, which included record mine production at Lalor and
record throughput at the Stall concentrator.
- Lalor ore mined and Stall
concentrator throughput increased by 8% and 19%, respectively, in
the first quarter of 2020 compared to the fourth quarter of
2019.
- Constancia achieved target mill
throughput and operating unit costs during the quarter prior to its
temporary shutdown.
- Net loss of $76.1 million or $0.29
per share for the first quarter of 2020 reflects lower realized
base metal prices, lower Constancia grades in line with the mine
plan and higher cost of sales in Peru as a result of the temporary
suspension of Constancia and certain inventory valuation
adjustments versus the previous quarter.
- Cash generated from operating
activities decreased to $9.1 million in the first quarter of 2020
from $98.7 million in the fourth quarter of 2019, while operating
cash flow before change in non-cash working capital decreased to
$42.0 million in the first quarter from $69.1 million in the
previous quarter due to lower realized base metal prices and lower
Constancia grades.
- Cash and cash equivalents of $306.0
million as at March 31, 2020 continued to provide the company with
financial flexibility during the temporary production disruption at
Constancia and the current low base metal price environment and
have since been bolstered by the gold prepay proceeds described
below.
COVID-19 and Annual
Guidance
- The COVID-19 global pandemic has
had a significant impact on Hudbay and the prices of the products
it produces. The company experienced operational and supply chain
disruptions, including a temporary suspension of operations at
Constancia for a period of approximately eight weeks as a result of
a government declared state of emergency in March. Operations
continued in Manitoba without any impact to production or the
ability to ship concentrate and zinc metal.
- Hudbay is affirming 2020 Manitoba
production, operating cost and capital expenditure guidance. Peru
guidance has been suspended due to the ongoing uncertainty
surrounding COVID-19 and the recent temporary Constancia mine
shutdown.
- On May 14, Constancia received
recognition and approval from Peru's Ministry of Energy and Mines
for its restart protocols and is planning to ramp up operations
over the next week. Hudbay expects to provide an update to its Peru
guidance with second quarter results.
- Hudbay has been prudently managing
the business and the impact of the pandemic. This has resulted in
approximately $150 million in incremental liquidity this year,
including $115 million in cash proceeds received from a gold
forward sale and prepay transaction, an approximate $25 million
deferral in Peru’s 2020 sustaining capital and company-wide
discretionary and input cost reductions of approximately $10
million. In addition, Hudbay’s 2020 forecasted cash flows are
expected to benefit from the Canadian dollar cost structure of the
Manitoba operations and the anticipated increase in cash flows from
Lalor due to higher precious metals production expected this year
and the prevailing commodity prices and foreign exchange
rates.
Recent Developments
- Received $115 million from a gold
forward sale and prepay transaction completed in early May 2020,
which prefunds the entire capital budget for the low-risk,
high-return New Britannia gold mill refurbishment at attractive
terms and low cost of capital.
- In February, prior to the COVID-19
pandemic, Hudbay re-negotiated the covenants of its revolving
credit facilities which resulted in an increase of $443 million in
liquidity available as at March 31, 2020, providing additional
financial flexibility to execute its growth initiatives.
- Executed amendment with Wheaton
Precious Metals extending the target date for mining four million
tonnes of ore from Pampacancha by six months to June 30, 2021.
- March 2020 update to reserves and
resources increased Lalor's life-of-mine gold production by 41%
from the previous mine plan and expected annual gold production to
over 150,000 ounces by 2022, while total Snow Lake gold reserves
increased by 35% to 2.2 million ounces, which supports an expanded
18-year mine life for the Snow Lake operations.
- The New Britannia gold mill
refurbishment is on track to be completed before the end of 2021
with orders placed for long-lead items and early works construction
underway.
“The COVID-19 pandemic has been an unprecedented
challenge for our business, but with the help of extensive scenario
planning, we have proactively implemented measures to mitigate the
impact to our operations, our employees and our communities. Our
focus on prudently managing the business has resulted in a
significant improvement in our liquidity, and we remain
well-positioned to fund our future growth initiatives while
remaining vigilant in this ever-changing environment,” said Peter
Kukielski, President and Chief Executive Officer. “While we have
suspended our Peru guidance due to the temporary shutdown of
Constancia during the pandemic, we are affirming our Manitoba
guidance after a strong operating quarter. Lalor and the Stall mill
achieved record production levels and the New Britannia gold mill
refurbishment, which will enable an increase in Lalor’s annual gold
production to over 150,000 ounces, is on track for completion by
the end of 2021.”
“We are very pleased with the work we’ve done
this year to protect our balance sheet and improve our liquidity
position,” said Eugene Lei, Hudbay’s Senior Vice President,
Corporate Development & Strategy and Interim Chief Financial
Officer. “We started the year by proactively amending our covenants
under the revolving credit facilities to provide us with more
flexibility in this volatile market. The recent gold prepay
transaction provides a non-dilutive, low cost of capital financing,
enabling us to fund our Snow Lake gold growth initiatives in a
prudent manner by utilizing a fraction of New Britannia’s first two
years of gold production, while protecting our balance sheet,
preserving our existing cash and improving our total available
liquidity. Incorporating the expected sustaining capital deferrals
in Peru and the company-wide cost savings this year, we have
secured an incremental $150 million in liquidity.”
Summary of First Quarter
Results
Consolidated copper production in the first
quarter of 2020 was 24,635 tonnes, a 24% decrease from the fourth
quarter of 2019 primarily as a result of planned lower copper
grades at Constancia, in line with the mine plan, and lower ore
production from Constancia due to the temporary suspension of
operations in March 2020 following a government declared state of
emergency in Peru due to COVID-19. Consolidated zinc production in
the first quarter of 2020 was in line with the fourth quarter of
2019 due to record production from the Lalor mine and the Stall
mill, offset by lower production from the Flin Flon mill.
In the first quarter of 2020, consolidated cash
cost per pound of copper produced, net of by-product creditsi, was
$1.21, a slight improvement over the fourth quarter of 2019 as
lower copper production was more than offset by lower Peru costs.
Incorporating sustaining capital, capitalized exploration,
royalties, selling, administrative and regional costs, consolidated
all-in sustaining cash cost per pound of copper produced, net of
by-product creditsi, in the first quarter of 2020 was $2.40, which
decreased from $2.55 in the fourth quarter of 2019, driven mainly
by lower sustaining capital expenditures and capitalized
exploration, and the same factors noted above affecting
consolidated cash costs.
Cash generated from operating activities in the
first quarter of 2020 decreased substantially to $9.1 million
compared to $98.7 million in the fourth quarter of 2019. Operating
cash flow before change in non-cash working capital was $42.0
million during the first quarter of 2020, reflecting a decrease of
$27.1 million compared to the fourth quarter of 2019. The decrease
in operating cash flow is primarily the result of the significant
negative impact of COVID-19 on realized base metal prices as well
as lower sales volumes compared to the previous quarter.
Net loss and loss per share in the first quarter
of 2020 were $76.1 million and $0.29, respectively, compared to a
net loss and loss per share of $1.5 million and $0.01,
respectively, in the fourth quarter of 2019. The decrease in
earnings was caused by declining base metal prices, lower
Constancia grades in line with the mine plan, and lower sales
volumes due to the temporary suspension of Constancia in March. In
addition, the temporary suspension of mining operations at
Constancia required a portion of overhead costs to be directly
charged to cost of sales and lower metal prices led to the
write-down of certain inventories in Peru, as further described
below.
Net loss and loss per share in the first quarter
of 2020 were affected by, among other things, the following
items:
|
|
Pre-tax loss |
|
After-tax loss |
|
Per share loss |
|
|
|
($ millions) |
|
($ millions) |
|
|
($/share) |
|
|
Mark-to-market
adjustments |
(2.7 |
) |
|
(3.0 |
) |
|
(0.01 |
) |
|
|
Peru inventory write-down |
(10.4 |
) |
|
(6.7 |
) |
|
(0.03 |
) |
|
|
Peru cost of sales direct charges from temporary suspension of
operations |
(6.3 |
) |
|
(4.1 |
) |
|
(0.02 |
) |
|
|
Deferred revenue adjustments from increased reserves and
resources |
(3.8 |
) |
|
(2.8 |
) |
|
(0.01 |
) |
|
|
Non-cash deferred tax
adjustments |
— |
|
|
(22.5 |
) |
|
(0.09 |
) |
|
|
|
|
|
|
|
|
|
Hudbay’s first quarter results were
significantly impacted by the COVID-19 global pandemic, which
caused the temporary suspension of mining and processing activities
at Constancia after the Peruvian government declared a state of
emergency on March 15, 2020. The temporary suspension of operations
at Constancia starting March 19, 2020 resulted in fixed overhead
production costs of $6.3 million that would normally be capitalized
to inventories and property, plant and equipment, to be immediately
expensed as part of the cost of sales. As Constancia operations
remained suspended into the second quarter of 2020, the company
expects that there will be a similar charge for fixed overhead
costs incurred during the suspension period in the second quarter.
In addition, an inventory write-down of $10.4 million was recorded
in the first quarter to reflect lower realizable inventory values
in Peru resulting from low copper prices.
During the first quarter of 2020, Hudbay also
recorded a non-cash true up adjustment on streaming revenues due
mainly to an increase in reserves and resources for the 777 and
Constancia mines as announced in the annual reserves and resources
news release on March 30, 2020. The reduced deferred revenue
drawdown rate, which is recalculated back to the inception of the
streams, resulted in a pre-tax non-cash earnings impact of
approximately $3.8 million.
As at March 31, 2020, the company’s liquidity
includes $306.0 million in cash and cash equivalents as well as
$445.9 million in undrawn availability under its revolving credit
facilities. Although undrawn availability under our revolving
credit facilities is expected to be negatively affected by lower
metal prices and the suspension of operations at Constancia, Hudbay
continues to take prudent steps to manage its balance sheet and
maintain a strong liquidity position. This includes amendments made
to its revolving credit facility covenants during the first quarter
of 2020 that included replacing total debt to EBITDA with net debt
to EBITDA, which increased March 31, 2020 available liquidity by
$443.0 million. Subsequently, in the second quarter of 2020, the
company announced a gold forward sale and prepay transaction that
generated $115 million of cash proceeds to further improve its
liquidity position and prefund the growth expenditures in Manitoba.
The company expects that its current liquidity together with cash
flows from operations will be sufficient to meet its liquidity
needs for 2020.
Consolidated Financial Performance |
Three Months Ended |
($000s except per share amounts) |
Mar. 31,
2019 |
Dec. 31, 2019 |
Mar. 31, 2019 |
Revenue |
245,105 |
|
324,485 |
|
292,258 |
|
Cost of
sales |
267,096 |
|
298,852 |
|
240,446 |
|
Earnings
(loss) before tax |
(81,452 |
) |
(42,352 |
) |
(18,108 |
) |
Earnings
(loss) |
(76,134 |
) |
(1,455 |
) |
(13,412 |
) |
Basic and
diluted earnings (loss) per share |
(0.29 |
) |
(0.01 |
) |
(0.05 |
) |
Operating cash flow before change in non-cash working capital |
41,951 |
|
69,141 |
|
85,684 |
|
Consolidated Operational Performance |
|
Three Months Ended |
|
|
Mar. 31, 2020 |
Dec. 31, 2019 |
Mar. 31, 2019 |
Contained metal in concentrate produced1 |
|
|
|
|
Copper |
tonnes |
24,635 |
32,422 |
37,972 |
Gold |
ounces |
30,495 |
32,712 |
25,562 |
Silver |
ounces |
767,692 |
930,137 |
919,195 |
Zinc |
tonnes |
30,355 |
30,592 |
28,037 |
Molybdenum |
tonnes |
354 |
372 |
304 |
Precious metals2 |
ounces |
39,121 |
46,000 |
38,693 |
Payable metal in concentrate sold |
|
|
|
|
Copper |
tonnes |
24,072 |
33,715 |
31,717 |
Gold |
ounces |
26,792 |
30,344 |
22,629 |
Silver |
ounces |
575,922 |
909,423 |
982,906 |
Zinc3 |
tonnes |
26,574 |
28,001 |
22,954 |
Molybdenum |
tonnes |
431 |
199 |
234 |
Precious metals2 |
ounces |
33,263 |
43,336 |
36,671 |
Cash cost4 |
$/lb |
1.21 |
1.23 |
1.11 |
All-in sustaining cash cost4 |
$/lb |
2.40 |
2.55 |
1.88 |
|
|
|
|
|
1 Metal reported in concentrate is prior to
deductions associated with smelter contract terms.2 Precious metals
production includes gold and silver production on a gold-equivalent
basis. For 2019, silver is converted to gold at a ratio of 70:1.
For 2020, silver is converted to gold at a ratio of 89:1.3 Includes
refined zinc metal sold and payable zinc in concentrate sold.4 Cash
cost and all-in sustaining cash cost per pound of copper produced,
net of by-product credits, are non-IFRS financial performance
measures with no standardized definition under IFRS. For further
information, please see the “Non-IFRS Financial Reporting Measures”
section of this news release.
Peru Operations Review
Peru Operations |
Three Months Ended |
|
|
Mar. 31, 2020 |
Dec. 31, 2019 |
Mar. 31, 2019 |
Ore mined1 |
tonnes |
6,985,212 |
8,049,063 |
8,634,773 |
Copper |
% |
0.34 |
0.41 |
0.47 |
Gold |
g/tonne |
0.03 |
0.04 |
0.04 |
Silver |
g/tonne |
3.10 |
3.87 |
3.55 |
Molybdenum |
% |
0.02 |
0.02 |
0.01 |
Ore milled |
tonnes |
6,719,466 |
7,474,136 |
7,993,062 |
Copper |
% |
0.34 |
0.42 |
0.46 |
Gold |
g/tonne |
0.03 |
0.04 |
0.04 |
Silver |
g/tonne |
3.13 |
3.86 |
3.53 |
Molybdenum |
% |
0.02 |
0.02 |
0.01 |
Copper recovery |
% |
84.3 |
85.6 |
86.2 |
Gold recovery |
% |
50.2 |
50.0 |
52.2 |
Silver recovery |
% |
68.2 |
68.2 |
69.9 |
Molybdenum recovery |
% |
35.0 |
30.8 |
26.8 |
Contained metal in concentrate |
|
|
|
Copper |
tonnes |
19,290 |
26,659 |
31,843 |
Gold |
ounces |
3,062 |
5,007 |
5,357 |
Silver |
ounces |
461,302 |
631,774 |
634,930 |
Molybdenum |
tonnes |
354 |
372 |
304 |
Precious metals2 |
ounces |
8,254 |
14,033 |
14,427 |
Payable
metal sold |
|
|
|
Copper |
tonnes |
19,247 |
28,430 |
26,662 |
Gold |
ounces |
2,618 |
4,824 |
6,218 |
Silver |
ounces |
361,591 |
666,839 |
752,259 |
Molybdenum |
tonnes |
431 |
199 |
234 |
Combined unit operating cost3,4 |
$/tonne |
9.31 |
10.20 |
8.87 |
Cash cost4 |
$/lb |
1.63 |
1.66 |
1.18 |
Sustaining cash cost4 |
$/lb |
2.12 |
2.47 |
1.41 |
|
|
|
|
|
1 Reported tonnes and grade for ore mined are
estimates based on mine plan assumptions and may not reconcile
fully to ore milled.2 Precious metals production includes gold and
silver production on a gold-equivalent basis. For 2019, silver is
converted to gold at a ratio of 70:1. For 2020, silver is converted
to gold at a ratio of 89:1.3 Reflects combined mine, mill and
general and administrative (“G&A”) costs per tonne of ore
milled. Reflects the deduction of expected capitalized stripping
costs.4 Combined unit cost, cash cost and sustaining cash cost are
non-IFRS financial performance measures with no standardized
definition under IFRS. For further information, please see the
“Non-IFRS Financial Reporting Measures” section of this news
release.
During the quarter, the Constancia mine produced
19,290 tonnes of copper, 8,254 ounces of precious metals and 354
tonnes of molybdenum. Production results were lower than the fourth
quarter of 2019 as a result of planned lower copper grades, in line
with the mine plan, and lower ore production due to the temporary
suspension of operations in March following a government declared
state of emergency in Peru.
Ore milled at the Constancia mine during the
first quarter of 2020 was 10% lower compared to the fourth quarter
of 2019 primarily due to the temporary suspension of operations on
March 19 as a result of the COVID-19 pandemic and the state of
emergency initiated by the Peruvian government. However, the mill
achieved targeted throughput levels during the quarter prior to the
temporary shutdown. Milled copper grades in the first quarter were
approximately 19% lower than the fourth quarter of 2019 as lower
grade phases continue to be mined, in line with the mine plan.
Copper recoveries in the first quarter of 2020
decreased by 2% compared to the fourth quarter of 2019, mainly due
to lower grade ore feed as more ore from Phase 4 is being mined.
Gold and silver recoveries this quarter were consistent with the
fourth quarter of 2019. While recoveries of individual metals vary
from quarter to quarter depending on the complexity and grade of
the ore feed, the company has been seeing consistent results from
ongoing recovery optimization initiatives since the beginning of
2019. Molybdenum recovery in the first quarter of 2020 increased by
14% compared to the fourth quarter of 2019 mainly due to higher
head grades.
Combined mine, mill and G&A unit operating
costsi in the first quarter of 2020 were 9% lower than the previous
quarter, primarily due to lower milling and G&A costs, and were
in line with targeted levels prior to the temporary shutdown.
Peru’s cash cost per pound of copper produced,
net of by-product credits, for the three months ended March 31,
2020 was $1.63. This represents a slight decrease from the fourth
quarter of 2019 as lower costs and higher by-product credits were
partially offset by lower production. Peru’s sustaining cash costs
per pound of copper produced, net of by-product creditsi, for the
three months ended March 31, 2020 was $2.12. This represents a
decrease of 14% from the fourth quarter of 2019 primarily due to
lower sustaining capital expenditures and capitalized
exploration.
Peru’s 2020 production and cost guidance has
been suspended due to the ongoing uncertainty surrounding COVID-19
and the recent temporary Constancia mine suspension. Constancia has
received recognition and approval from Peru's Ministry of
Energy and Mines for its restart protocols and is planning to
ramp up operations over the next week. Hudbay expects to provide an
update to its Peru guidance with second quarter results.
Manitoba Operations Review
Manitoba Operations |
Three Months Ended |
|
|
Mar. 31, 2020 |
Dec. 31, 2019 |
Mar. 31, 2019 |
777 ore mined |
tonnes |
279,925 |
|
269,342 |
|
278,522 |
Copper |
% |
1.18 |
|
1.17 |
|
1.65 |
Zinc |
% |
4.11 |
|
3.33 |
|
3.18 |
Gold |
g/tonne |
1.82 |
|
1.52 |
|
1.70 |
Silver |
g/tonne |
23.86 |
|
18.52 |
|
21.75 |
Lalor ore mined |
tonnes |
421,518 |
|
390,140 |
|
388,483 |
Copper |
% |
0.70 |
|
0.80 |
|
0.76 |
Zinc |
% |
5.43 |
|
6.20 |
|
6.70 |
Gold |
g/tonne |
2.27 |
|
2.63 |
|
1.68 |
Silver |
g/tonne |
26.18 |
|
28.38 |
|
25.96 |
Flin Flon
Concentrator: |
|
|
|
Ore milled |
tonnes |
332,589 |
|
374,529 |
|
289,244 |
Copper |
% |
1.11 |
|
1.11 |
|
1.55 |
Zinc |
% |
4.36 |
|
4.05 |
|
3.49 |
Gold |
g/tonne |
1.88 |
|
1.75 |
|
1.66 |
Silver |
g/tonne |
24.33 |
|
20.56 |
|
21.78 |
Copper recovery |
% |
84.1 |
|
86.9 |
|
88.1 |
Zinc recovery |
% |
85.0 |
|
85.8 |
|
82.9 |
Gold recovery |
% |
53.5 |
|
56.1 |
|
61.8 |
Silver recovery |
% |
44.3 |
|
49.2 |
|
52.3 |
Stall Concentrator: |
|
|
|
Ore milled |
tonnes |
369,787 |
|
310,622 |
|
321,523 |
Copper |
% |
0.70 |
|
0.80 |
|
0.78 |
Zinc |
% |
5.38 |
|
6.24 |
|
6.75 |
Gold |
g/tonne |
2.28 |
|
2.60 |
|
1.75 |
Silver |
g/tonne |
26.28 |
|
28.12 |
|
26.89 |
Copper recovery |
% |
86.5 |
|
85.9 |
|
87.2 |
Zinc recovery |
% |
91.4 |
|
90.7 |
|
90.7 |
Gold recovery |
% |
60.9 |
|
61.1 |
|
59.1 |
Silver recovery |
% |
61.1 |
|
62.9 |
|
64.2 |
Total contained metal in concentrate |
|
|
|
|
|
Copper |
tonnes |
5,345 |
|
5,763 |
|
6,129 |
Zinc |
tonnes |
30,495 |
|
30,592 |
|
28,037 |
Gold |
ounces |
27,293 |
|
27,705 |
|
20,205 |
Silver |
ounces |
306,390 |
|
298,363 |
|
284,265 |
Precious metals1 |
ounces |
30,736 |
|
31,967 |
|
24,266 |
Total
payable metal sold |
|
|
|
Copper |
tonnes |
4,852 |
|
5,285 |
|
5,055 |
Zinc2 |
tonnes |
26,792 |
|
28,001 |
|
22,954 |
Gold |
ounces |
23,956 |
|
25,520 |
|
16,411 |
Silver |
ounces |
214,331 |
|
242,584 |
|
230,647 |
Combined unit operating cost3,4 |
C$/tonne |
127 |
|
128 |
|
146 |
Cash cost4 |
$/lb |
(0.30 |
) |
(0.76 |
) |
0.77 |
Sustaining cash cost4 |
$/lb |
2.85 |
|
2.33 |
|
3.16 |
|
|
|
|
|
|
|
1 Precious metals production includes gold and
silver production on a gold-equivalent basis. For 2019, silver is
converted to gold at a ratio of 70:1. For 2020, silver is converted
to gold at a ratio of 89:1.2 Includes refined zinc metal sold and
payable zinc in concentrate sold.3 Reflects combined mine, mill and
G&A costs per tonne of ore milled. 4 Combined unit cost, cash
cost and sustaining cash cost are non-IFRS financial performance
measures with no standardized definition under IFRS. For further
information, please see the “Non-IFRS Financial Reporting Measures”
section of this news release.
Production from the Lalor mine and the Stall
mill achieved record quarterly levels in the first quarter of 2020.
The Manitoba operations produced 30,495 tonnes of zinc, 5,345
tonnes of copper and 30,736 ounces of precious metals during the
quarter. Production results were slightly lower than the fourth
quarter of 2019 primarily due to lower grades, offset by higher
tonnes milled.
Ore mined at the Manitoba operations during the
first quarter of 2020 increased by 6% compared to the previous
quarter with production volumes at 777 and Lalor increasing by 4%
and 8%, respectively. The higher production results are mainly due
to record production at Lalor from the successful implementation of
several 2019 initiatives as part of the production ramp up to 4,500
tonnes per day. Ore grades mined during the quarter are in line
with the planned stope sequencing based on life of mine production
schedules at 777 and Lalor.
Ore processed in Manitoba in the first quarter
of 2020 was higher than the fourth quarter of 2019 due to a 19%
increase in ore processed at the Stall mill, offset by lower ore
processed at the Flin Flon mill. Recoveries at the Flin Flon mill
were lower than in the fourth quarter of 2019, while recoveries at
the Stall mill were relatively in line with the previous
quarter.
Manitoba combined mine, mill and G&A unit
operating costs continue to decline quarter-over-quarter as a
result of the company’s focus on operating efficiencies and costs
normalizing after the successful production ramp up at the Lalor
mine.
Manitoba’s cash cost per pound of copper
produced, net of by-product credits, for the first quarter of 2020
was negative $0.30. These costs were higher compared to the fourth
quarter of 2019 primarily as a result of lower copper production
despite the decrease in mining and milling costs. Manitoba’s
sustaining cash cost per pound of copper produced, net of
by-product credits, in the first quarter of 2020 was $2.85, higher
compared to the previous quarter due to the same factors that
affected cash costs.
Full year production of all metals and combined
unit operating costs are expected to be within the annual guidance
ranges for Manitoba.
COVID-19 Business Update
Following the onset of the COVID-19 pandemic,
the company’s business response planning commenced in January and
company-wide crisis plans were activated in early-March as part of
its crisis management protocols. Throughout the rapidly changing
environment, Hudbay has remained focused on the health and safety
of its workforce and local communities and is actively engaging
with local stakeholders and public health authorities to ensure
effective implementation of the company’s business response plans.
The company continues to closely monitor the evolving situation and
is taking steps to protect the safety of its workforce and their
families and the communities it operates in, while implementing
measures to minimize the overall impact on operations. Hudbay’s
business response plans include planning for the possible need to
reduce or suspend operations and for the restart of suspended
operations, as well as appropriately managing the company’s
liquidity. The overall impact on each of the sites will depend on
the progression of the pandemic, measures in place for preventing
transmission and on market conditions.
In Peru, the government declared a state of
emergency on March 15, 2020, requiring non-essential businesses to
be shut down, initially for 15 days. On March 19, Hudbay commenced
the temporary and orderly suspension of operations at Constancia.
During the suspension period, a smaller workforce was maintained at
the site to oversee critical aspects of the operation in order to
facilitate a quick and efficient restart and ramp up of the mine.
As part of its restart preparation activities, the company has
performed mine plan optimization activities, continuous supply
chain management to ensure sufficient levels of critical supplies,
and logistics and workforce planning initiatives including
successfully completing workforce shift changes during the
suspension. The Peruvian government has since extended the state of
emergency to May 24 but issued a decree on May 3 indicating larger
mines would be allowed to reopen, including Constancia, subject to
approval of certain protocols. On May 14, Hudbay
received Peru's Ministry of Energy and Mines recognition
and approval for its Constancia restart protocols and is
planning to ramp up operations over the next week.
In Manitoba, Hudbay’s mines continue to operate
and ship concentrate and zinc metal. The company’s focus is on
maintaining business continuity and a safe environment for its
workers and the communities in which it operates.
Each of the business units has worked to develop
site-specific measures to limit and identify COVID-19 exposure and
transmission and maintain a safe environment for its workers and
its communities. Site-specific measures include, pre-screening
protocols, quarantine periods for incoming workers, workplace
physical distancing protocols, adjustment of work rotation
schedules, deferral of certain project activity and working from
home for office staff where possible. These measures will continue
to evolve as the status of the state of emergency changes in each
of the company’s operating regions and the company’s measures are
adapted to the latest regional health authorities’ restrictions and
guidelines
In addition to the onsite response measures, the
company has been providing COVID-19 relief funding and services to
its neighbouring communities. Each region has different emergency
needs at this critical time. In Peru, Hudbay has donated medical
equipment and supplies to the regional hospitals and has delivered
food to nearby communities in need. In Manitoba, the company has
donated to charities that provide various forms of support to
families in need. Hudbay is also pleased to have its valued
partners join the company in these coordinated relief efforts,
including the generous donations from Wheaton Precious Metals Corp.
(“Wheaton”) to various community initiatives in Peru and Manitoba
and from Altius Minerals Corporation to a community service
provider in Flin Flon, Manitoba.
Annual Guidance Update
The company is affirming its 2020 Manitoba
production, operating cost and capital expenditure guidance.
However, due to the temporary suspension of operations at
Constancia and the ongoing uncertainty surrounding COVID-19, the
company has suspended its previously issued 2020 annual guidance
for the Peru business unit. Hudbay has continued to sell zinc metal
and copper concentrate from the Manitoba operations, and
concentrate sales in Peru continued as planned prior to the
temporary suspension of operations on March 19, 2020.
In Peru, sustaining capital expenditures are
currently tracking approximately $25 million lower than previously
issued guidance due to the mine suspension and resequencing of
capital activities such as tailings and capitalized stripping. The
site team has taken the opportunity to complete additional mill
maintenance work during the temporary shutdown that was previously
planned for later in the year. Growth capital expenditures in Peru
related to the Pampacancha community surface rights payment and
project development capital have been impacted by the state of
emergency. Constancia recently received approval for its restart
protocols and mine restart activities are underway due to proactive
ramp up planning. The mill is expected to reach normal levels over
the next week. The company expects to provide an update to its Peru
guidance with second quarter results.
In Manitoba, 2020 precious metals production is
expected to benefit from the planned mining of approximately 90,000
tonnes from the gold zones as part of stope sequencing in
preparation for the restart of the New Britannia gold mill.
Production and costs can vary in any particular quarter based on a
variety of factors, including the scheduling of maintenance events.
Hudbay expects to perform maintenance on the Stall concentrator
during the second quarter of 2020 and on the Lalor mine hoist
facilities in the third quarter of 2020.
Liquidity Update
Hudbay is prudently managing its business and
the impact of the pandemic. This has resulted in approximately $150
million in incremental liquidity this year, including $115 million
in cash proceeds received from a gold forward sale and prepay
transaction, an approximate $25 million deferral in Peru’s 2020
sustaining capital and company-wide discretionary and input cost
reductions of approximately $10 million. In addition, the company’s
forecasted cash flows are also expected to benefit from the
Canadian dollar cost structure of its Manitoba operations and the
anticipated increase in cash flows from Lalor due to higher
precious metals production expected this year based on the
prevailing commodity prices and foreign exchange rates.
On February 12, 2020, Hudbay amended its credit
facilities to provide the company with additional flexibility
during the development of the New Britannia and Pampacancha
projects. As a result of the re-negotiated terms, the company’s
availability under the credit facilities was $443 million higher as
of March 31, 2020.
On April 20, 2020, Hudbay executed an amendment
to its Constancia precious metals streaming agreement with Wheaton
whereby both parties have agreed to extend the target date for
mining four million tonnes of ore from the Pampacancha deposit, and
the associated trigger for the delivery of additional gold ounces,
by six months to June 30, 2021. This Pampacancha target date
extension was agreed to by Wheaton in light of the current state of
emergency in Peru and the potential for development timelines to be
delayed.
On May 7, 2020, Hudbay announced a gold forward
sale and prepay transaction which generated $115 million in cash
proceeds to further improve its liquidity position and prefund the
entire capital budget for the low-risk, high-return New Britannia
gold mill refurbishment at attractive terms and low cost of
capital. Under the prepay, Hudbay has agreed to deliver a total of
79,954 gold ounces in 2022 and 2023, which was valued at gold
forward curve prices averaging approximately $1,682 per ounce at
the time of the transaction. The transaction offered an attractive
cost of capital of approximately 5.95% per annum using the average
forward price per ounce, or an implied cost of capital of
approximately 2.7% using current consensus gold prices for 2022 and
2023. The delivery ounces represent approximately 25% of Lalor’s
forecasted annual gold production in each of 2022 and 2023 and
approximately 3.6% of total Snow Lake gold reserves. Under the
revolving credit facilities and note indenture, the gold prepay
arrangement will be treated as deferred revenue and will not be
considered as debt. As a result, the gold prepay adds to Hudbay’s
cash balance and will be accretive to the company’s credit facility
availability under the recently renegotiated net debt to EBITDA
covenants.
As of May 13, 2020, Hudbay’s liquidity includes
approximately $370 million in cash and cash equivalents and
approximately $446 million in undrawn availability under its
revolving credit facilities.
New Britannia Refurbishment Activities
Underway
The New Britannia gold mill refurbishment
activities are underway with detailed engineering approximately 60%
complete and timelines on track with the original project schedule.
Orders have been placed for long-lead items and early works
construction has commenced, including the construction of the
pipeline between the New Britannia and Stall mills. The civil
contractor for the flotation building has been mobilized and
construction is expected to commence next week.
Construction and refurbishment activities are expected to continue
until August 2021, with plant commissioning and ramp up occurring
during the second half of 2021. Hudbay intends to use local
construction contractors from the Manitoba and Saskatchewan regions
as much as possible in order to mitigate any potential risks due to
COVID-19 considerations.
Increased Snow Lake Gold Reserves and
Revised Mine Plan
On March 30, 2020, Hudbay announced its annual
reserve and resource update, which included a 35% increase in Snow
Lake gold reserves to 2.2 million ounces and extended the mine life
to 18 years. The company also released an updated mine plan for its
Lalor mine that increased life-of-mine gold production by 41%
compared to the previous mine plan, and more than doubled the
expected average annual gold production to more than 150,000 ounces
over the first eight years after the New Britannia mill is
refurbished. Lalor’s gold and copper-gold zones are expected to be
processed at the nearby New Britannia gold mill in Snow Lake, which
capitalizes on existing infrastructure, and the $115 million
refurbishment cost is a short-payback, high-return investment
opportunity. The New Britannia gold mill is expected to achieve
gold recoveries of approximately 93% compared to current gold
recoveries of approximately 53% at the Stall mill, which enables
increased reserves and increases the potential for future
conversion of resources to reserves due to the significantly higher
gold recoveries and increased value per tonne of ore. Based on the
updated reserve, Lalor will remain a low-cost gold mine with
expected cash costs and sustaining cash costs, net of by-product
credits, of approximately $480 and $655 per ounce, respectively,
over the first eight years once New Britannia is in production,
positioning Lalor in the lowest quartile on the global cost
curvesii.
The updated resource model at Lalor includes 4.4
million tonnes of inferred mineral resources, which have the
potential to extend the Lalor mine life. A new copper-gold rich
lens, Lens 17, was included in the updated inferred mineral
resource estimate for Lalor. Lens 17 and other lenses at Lalor,
including the copper-gold rich Lens 27, remain open down plunge and
offer opportunities to further expand Lalor’s resource base once
suitable underground drilling platforms have been established over
the next two years.
The 1901 deposit is located approximately
half-way between the former Chisel North mine and the Lalor mine at
a depth between 500 metres and 700 metres, within 1,000 metres of
the existing haulage ramp to Lalor. The 1901 deposit could provide
additional feed for the processing facilities in Snow Lake. Since
publishing the initial inferred resource estimate in August 2019,
the company has considered various options to develop the 1901
deposit and has completed a drill program aimed at converting a
significant portion of the inferred mineral resources to an
indicated category and to define an initial inferred mineral
resource for the gold mineralization previously intersected between
two lenses of zinc-rich mineralization. Hudbay intends to provide
an update on the mineral resource estimates and development options
for the 1901 deposit with its annual reserve and resource update in
March 2021.
In 2020 and 2021, additional technical studies
and exploration activities will be conducted to consider if and how
the Lalor in-mine exploration targets and the regional gold and
base metal satellite deposits could be incorporated in the
consolidated business plan of the Snow Lake operations.
Non-IFRS Financial Performance
Measures
Cash cost, sustaining and all-in sustaining cash
cost per pound of copper produced are shown because the company
believes they help investors and management assess the performance
of its operations, including the margin generated by the operations
and the company. Combined unit operating costs are shown because
the measures are used by the company as a key performance indicator
to assess the performance of its mining and milling operations.
These measures do not have a meaning prescribed by IFRS and are
therefore unlikely to be comparable to similar measures presented
by other issuers. These measures should not be considered in
isolation or as a substitute for measures prepared in accordance
with IFRS and are not necessarily indicative of operating profit or
cash flow from operations as determined under IFRS. Other companies
may calculate these measures differently. For further details on
these measures, including reconciliations to the most comparable
IFRS measures, please refer to page 32 of Hudbay’s
management’s discussion and analysis for the three months ended
March 31, 2020 available on SEDAR at www.sedar.com.
Website Links
Hudbay:
www.hudbay.com
Management’s Discussion and Analysis:
http://www.hudbayminerals.com/files/doc_financials/2020/Q1/MDA201.pdf
Financial Statements:
http://www.hudbayminerals.com/files/doc_financials/2020/Q1/FS201.pdf
Conference Call and Webcast
Date: |
Friday, May 15, 2020 |
Time: |
9:00 a.m. ET |
Webcast: |
http://services.choruscall.ca/links/hudbay20200515.html |
Dial in: |
1-416-915-3239 or
1-800-319-4610 |
|
|
Qualified Person
The technical and scientific information in this
news release related to the Constancia mine and Rosemont project
has been approved by Cashel Meagher, P. Geo, Hudbay’s Senior Vice
President and Chief Operating Officer. The technical and scientific
information related to the company’s other material mineral
projects contained in this news release has been approved by
Olivier Tavchandjian, P. Geo, Hudbay’s Vice-President Exploration
and Geology. Messrs. Meagher and Tavchandjian are qualified persons
pursuant to NI 43-101. For a description of the key assumptions,
parameters and methods used to estimate mineral reserves and
resources at Hudbay’s material properties, as well as data
verification procedures and a general discussion of the extent to
which the estimates of scientific and technical information may be
affected by any known environmental, permitting, legal title,
taxation, sociopolitical, marketing or other relevant factors,
please see the technical reports for the company’s material
properties as filed by Hudbay on SEDAR at www.sedar.com.
Forward-Looking Information
This news release contains forward-looking
information within the meaning of applicable Canadian and United
States securities legislation. All information contained in this
news release, other than statements of current and historical fact,
is forward-looking information. Often, but not always,
forward-looking information can be identified by the use of words
such as “plans”, “expects”, “budget”, “guidance”, “scheduled”,
“estimates”, “forecasts”, “strategy”, “target”, “intends”,
“objective”, “goal”, “understands”, “anticipates” and “believes”
(and variations of these or similar words) and statements that
certain actions, events or results “may”, “could”, “would”,
“should”, “might” “occur” or “be achieved” or “will be taken” (and
variations of these or similar expressions). All of the
forward-looking information in this news release is qualified by
this cautionary note.
Forward-looking information includes, but is not
limited to, production, cost and capital and exploration
expenditure guidance and potential revisions to such guidance,
anticipated production at Hudbay’s mines and processing facilities,
expectations regarding the impact of the COVID-19 pandemic on the
company’s operations, financial condition and prospects,
expectations regarding the company’s credit facility availability
and liquidity, expectations regarding the restart of operations at
Constancia, expectations regarding the timing of mining activities
at the Pampacancha deposit, the anticipated timing, cost and
benefits of developing the Rosemont project and the outcome of
litigation challenging Rosemont's permits, expectations regarding
the Lalor gold strategy, including the refurbishment of the New
Britannia mill, the possibility of converting inferred mineral
resource estimates to higher confidence categories, the potential
and anticipated plans for advancing the mining properties
surrounding Constancia and the Mason project, anticipated mine
plans, anticipated metals prices and the anticipated sensitivity of
the company’s financial performance to metals prices, events that
may affect its operations and development projects, anticipated
cash flows from operations and related liquidity requirements, the
anticipated effect of external factors on revenue, such as
commodity prices, estimation of mineral reserves and resources,
mine life projections, reclamation costs, economic outlook,
government regulation of mining operations, and business and
acquisition strategies. Forward-looking information is not, and
cannot be, a guarantee of future results or events. Forward-looking
information is based on, among other things, opinions, assumptions,
estimates and analyses that, while considered reasonable by the
company at the date the forward-looking information is provided,
inherently are subject to significant risks, uncertainties,
contingencies and other factors that may cause actual results and
events to be materially different from those expressed or implied
by the forward-looking information.
The material factors or assumptions that Hudbay
identified and were applied by the company in drawing conclusions
or making forecasts or projections set out in the forward-looking
information include, but are not limited to:
- the duration of the state of
emergency in Peru and the ability to resume operations at
Constancia;
- no significant interruptions to the
company’s operations in Manitoba or significant delays to its
development projects in Manitoba and Peru due to the COVID-19
pandemic;
- the availability of spending
reductions and liquidity options;
- the timing of development and
production activities on the Pampacancha deposit;
- the timing of the Consulta Previa
and permitting process for mining the Pampacancha deposit;
- the timing for reaching additional
agreements with individual community members and no significant
unanticipated delays to the development of Pampacancha;
- the successful completion of the
New Britannia project on budget and on schedule;
- the successful outcome of the
Rosemont litigation;
- the success of mining, processing,
exploration and development activities;
- the scheduled maintenance and
availability of the processing facilities;
- the accuracy of geological, mining
and metallurgical estimates;
- anticipated metals prices and the
costs of production;
- the supply and demand for metals
the company produces;
- the supply and availability of all
forms of energy and fuels at reasonable prices;
- no significant unanticipated
operational or technical difficulties;
- the execution of the company’s
business and growth strategies, including the success of its
strategic investments and initiatives;
- the availability of the revolving
credit facilities and additional financing, if needed;
- the ability to complete project
targets on time and on budget and other events that may affect the
company’s ability to develop its projects;
- the timing and receipt of various
regulatory and governmental approvals;
- the availability of personnel for
the exploration, development and operational projects and ongoing
employee relations;
- maintaining good relations with the
labour unions that represent certain of the company’s employees in
Manitoba and Peru;
- maintaining good relations with the
communities in which the company operates, including the
neighbouring Indigenous communities;
- no significant unanticipated
challenges with stakeholders at Hudbay’s various projects;
- no significant unanticipated events
or changes relating to regulatory, environmental, health and safety
matters;
- no contests over title to the
company’s properties, including as a result of rights or claimed
rights of Indigenous peoples or challenges to the validity of the
company’s unpatented mining claims;
- the timing and possible outcome of
pending litigation and no significant unanticipated
litigation;
- certain tax matters, including, but
not limited to current tax laws and regulations and the refund of
certain value added taxes from the Canadian and Peruvian
governments; and
- no significant and continuing
adverse changes in general economic conditions or conditions in the
financial markets (including commodity prices and foreign exchange
rates).
The risks, uncertainties, contingencies and
other factors that may cause actual results to differ materially
from those expressed or implied by the forward-looking information
may include, but are not limited to, risks associated with the
COVID-19 pandemic and its effect on Hudbay’s operations, financial
condition, projects and prospects, the possibility of a global
recession arising from the COVID-19 pandemic and attempts to
control it, the state of emergency and political situation in Peru
and risks associated with the resumption of operations at
Constancia, risks associated with the company’s access to capital,
including the negative impact of low metal prices on credit
facility availability, risks generally associated with the mining
industry, such as economic factors (including future commodity
prices, currency fluctuations, energy prices and general cost
escalation), uncertainties related to the development and operation
of the company’s projects (including risks associated with the
litigation affecting the Rosemont project), risks related to the
U.S. district court's recent decisions to set aside the U.S. Forest
Service's FROD and the Biological Opinion for Rosemont and related
appeals and other legal challenges, risks related to the new Lalor
mine plan, including the schedule for the refurbishment of the New
Britannia mill and the ability to convert inferred mineral resource
estimates to higher confidence categories, risks related to the
schedule for mining the Pampacancha deposit (including risks
associated with COVID-19, the Consulta Previa process, risks
associated with reaching additional agreements with individual
community members and risks associated with the rainy season in
Peru and the impact of any schedule delays), dependence on key
personnel and employee and union relations, risks related to
political or social unrest or change, risks in respect of
Indigenous and community relations, rights and title claims,
operational risks and hazards, including the cost of maintaining
and upgrading the company's tailings management facilities and any
unanticipated environmental, industrial and geological events and
developments and the inability to insure against all risks, failure
of plant, equipment, processes, transportation and other
infrastructure to operate as anticipated, compliance with
government and environmental regulations, including permitting
requirements and anti-bribery legislation, depletion of reserves,
volatile financial markets that may affect the ability to obtain
additional financing on acceptable terms, the failure to obtain
required approvals or clearances from government authorities on a
timely basis, uncertainties related to the geology, continuity,
grade and estimates of mineral reserves and resources, and the
potential for variations in grade and recovery rates, uncertain
costs of reclamation activities, the company’s ability to comply
with its pension and other post-retirement obligations, the
company’s ability to abide by the covenants in its debt instruments
and other material contracts, tax refunds, hedging transactions, as
well as the risks discussed under the heading “Risk Factors” in the
company’s most recent Annual Information Form.
Should one or more risk, uncertainty,
contingency or other factor materialize or should any factor or
assumption prove incorrect, actual results could vary materially
from those expressed or implied in the forward-looking information.
Accordingly, you should not place undue reliance on forward-looking
information. Hudbay does not assume any obligation to update or
revise any forward-looking information after the date of this news
release or to explain any material difference between subsequent
actual events and any forward-looking information, except as
required by applicable law.
Note to United States
Investors
This news release has been prepared in
accordance with the requirements of the securities laws in effect
in Canada, which may differ materially from the requirements of
United States securities laws applicable to U.S. issuers.
About Hudbay
Hudbay (TSX, NYSE: HBM) is a diversified mining
company primarily producing copper concentrate (containing copper,
gold and silver) and zinc metal. Directly and through its
subsidiaries, Hudbay owns three polymetallic mines, four ore
concentrators and a zinc production facility in northern Manitoba
and Saskatchewan (Canada) and Cusco (Peru), and copper projects in
Arizona and Nevada (United States). The company’s growth strategy
is focused on the exploration, development, operation and
optimization of properties it already controls, as well as other
mineral assets it may acquire that fit its strategic criteria.
Hudbay’s vision is to be a responsible, top-tier operator of
long-life, low-cost mines in the Americas. Hudbay’s mission is to
create sustainable value through the acquisition, development and
operation of high-quality, long-life deposits with exploration
potential in jurisdictions that support responsible mining, and to
see the regions and communities in which the company operates
benefit from its presence. The company is governed by the Canada
Business Corporations Act and its shares are listed under the
symbol "HBM" on the Toronto Stock Exchange, New York Stock Exchange
and Bolsa de Valores de Lima. Further information about Hudbay can
be found on www.hudbay.com.
For further information, please contact:
Candace BrûléDirector, Investor Relations(416)
814-4387candace.brule@hudbay.com
_______________i Unit operating costs, cash
cost, sustaining and all-in sustaining cash cost per pound of
copper produced, net of by-product credits, are non-IFRS financial
performance measures with no standardized definition under IFRS.
For further information, please see the “Non-IFRS Financial
Reporting Measures” section of this news release.ii Based on
S&P Global's 2020 all-in sustaining cost curve.
HudBay Minerals (NYSE:HBM)
Historical Stock Chart
From Apr 2024 to May 2024
HudBay Minerals (NYSE:HBM)
Historical Stock Chart
From May 2023 to May 2024