Hudbay Announces Second Quarter 2023 Results

TORONTO, Aug. 08, 2023 (GLOBE NEWSWIRE) -- Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX, :HBM) today released its second quarter 2023 financial results. All amounts are in U.S. dollars, unless otherwise noted.

Positioned for Strong Production Growth and Free Cash Flow Generation in the Second Half of 2023

• Reaffirmed full year 2023 consolidated production, cash cost and sustaining cash cost guidance for Hudbay’s Peru and Manitoba operations.
• On June 20, 2023, Hudbay completed the acquisition of Copper Mountain Mining Corporation (“Copper Mountain”), creating a 150,000-tonnes-per-year copper producer with three long-life mines in tier-one jurisdictions and a world-class pipeline of organic copper growth projects.
  • Copper Mountain owns 75% of the Copper Mountain mine in British Columbia (the “Copper Mountain Mine Joint Venture”), with Mitsubishi Materials Corporation (“MMC”) holding the remaining non-controlling interest.
  • Hudbay expects to release an updated technical report for the Copper Mountain mine in the fourth quarter, which will include updated annual production and cost estimates for the mine.
• Achieved higher grades from Pampacancha in July with 1.6 million tonnes of ore mined at 0.63% copper and 0.31 grams per tonne gold, consistent with the mine plan and company expectations for higher production in Peru in the third and fourth quarters of 2023.

Second Quarter Operating and Financial Results

• Consolidated production in the second quarter was 21,715 tonnes of copper and 48,996 ounces of gold, which includes production from the Copper Mountain mine during the 10-day stub period following the June 20, 2023 acquisition date.
• Consolidated cash cost and sustaining cash cost per pound of copper produced, net of by-product creditsⁱ, in the second quarter, were $1.60 and $2.73, respectively, excluding Copper Mountain’s costs during the 10-day stub period.
• Peru operations successfully managed through a transitional quarter with elevated stripping activities at Pampacancha completed in June to enable mining high grade portions of the orebody in the second half of 2023. The Peru operations maintained steady performance, producing 17,682 tonnes of copper in the second quarter, which was in line with mine plan expectations. Peru cash cost per pound of copper produced, net of by-product creditsⁱ, in the second quarter was $2.14, in line with quarterly cadence expectations as Pampacancha is expected to deliver higher copper production and precious metal by-product credits in the second half of 2023.
• Manitoba operations produced 35,253 ounces of gold, which was impacted by lower throughput at the Stall mill due to downtime to complete the Stall mill Phase I recovery improvement project tie-ins which resulted in a buildup of surface ore stockpiles at the end of the second quarter. Lalor achieved an 11% increase in ore mined versus the first quarter as the company continues to implement improvements to reduce costs and target higher production levels. Manitoba cash cost per ounce of gold produced, net of by-product creditsⁱ, was $1,097 and is expected to decline to be within the annual guidance range due to higher throughput, gold recoveries and gold grades expected in the second half of 2023.
• Second quarter net loss and loss per share were $14.9 million and $0.05, respectively. After adjusting for $6.8 million of transaction costs incurred during the quarter associated with the acquisition of Copper Mountain and a non-cash gain of $4.7 million related to a quarterly revaluation of the company’s closed site environmental reclamation provision, among other items, second quarter adjusted lossⁱ per share was $0.07.
• Operating cash flow before change in non-cash working capital was $55.9 million and adjusted EBITDAⁱ was $81.2 million in the second quarter.
• Cash and cash equivalents declined during the second quarter to $179.7 million and were negatively impacted by lower base metal prices and lower production volumes as a result of scheduled mill maintenance programs, elevated stripping activity in Peru and a buildup of ore stockpiles in Manitoba. Cash and cash equivalents were also impacted by $25.8 million in total transaction costs related to the acquisition of Copper Mountain, $65.9 million of capital investments, primarily related to sustaining capital investments, and a $31.9 million bond interest payment.

Executing on Growth Initiatives and Prudent Financial Planning

• Copper Mountain integration activities are progressing in line with expectations with over 50% of the targeted annualized corporate and tax synergies already achieved to date. The company is focused on advancing its plans to stabilize the operation over the next 12 months, to be further detailed in a technical report, which will include an updated mine plan and mineral reserve and resource estimates, expected to be released in the fourth quarter.
• Copper World pre-feasibility study for Phase I is well-advanced and expected to be released in the third quarter.
• Snow Lake drilling intersected new high-grade copper-gold-silver zone 500 metres northwest of Lalor and indicates the hosting mineralization at Lalor continues down plunge for at least two kilometres.
• Completed the acquisition of the Cook Lake properties in Snow Lake, providing the potential for a new discovery on claims untested by modern geophysics and where historical drilling intersected base metal and gold mineralization at a fraction of Lalor’s current known depth.
• Announced the entry into a definitive agreement to acquire all the issued and outstanding common shares of Rockcliff Metals Corp. (“Rockcliff”), which is expected to increase Hudbay’s land position within trucking distance of its Snow Lake processing facilities by more than 250%. The transaction is expected to close in the third quarter.
• On July 6, 2023, established framework for a multi-year exploration partnership with Marubeni Corporation focused on the discovery of new deposits within trucking distance of Hudbay’s processing facilities in Flin Flon, Manitoba.
• First phase of the Stall recovery improvement project was completed during the second quarter with commissioning completed in May and ramp-up to higher metal recoveries expected in the second half of 2023.
• In connection with the Copper Mountain transaction, Hudbay amended its Revolving Credit Facilities ("RCFs") to (i) exclude the Copper Mountain group from the financial covenant calculations in the RCFs until the Copper Mountain Nordic bonds are repaid in full and (ii) increase the net debt to EBITDA covenant ratio to provide greater financial flexibility during the integration period.
• Subsequent to quarter end, Hudbay drew $90 million from its RCFs to finance the redemption of a portion of Copper Mountain’s Nordic bonds, thus improving the company’s ability to deleverage and repay debt sooner than the bond maturity.
• On track to deliver annual discretionary spending reduction targets for 2023 with lower growth capital and exploration expenditures compared to 2022. As a result of a continued focus on discretionary spending reductions, total capital expenditures for 2023 are expected to be approximately $15 million lower than guidance levels, representing 5% of total capital expenditure guidance.

“We remain on track to meet our 2023 guidance as we completed many transitional activities in the second quarter that position us for stronger production and improved costs during the second half of 2023,” said Peter Kukielski, President and Chief Executive Officer. “The higher grades we are currently mining at Pampacancha, the planned improved throughput and recoveries in Snow Lake and the recent completion of the Copper Mountain acquisition are expected to generate strong free cash flows starting in the third quarter of 2023. With Copper Mountain we have a larger and more resilient operating platform to deliver diversified cash flows to prudently advance our leading organic pipeline of brownfield expansion and greenfield exploration and development opportunities across our portfolio.”

Summary of Second Quarter Results

Consolidated copper production in the second quarter of 2023 was 21,715 tonnes, a decrease of 4% compared to the first quarter of 2023 as the company completed the higher volume stripping program at Pampacancha in June and a scheduled mill maintenance program at Constancia, partially offset by a 10-day stub period of production from the newly acquired Copper Mountain mine (the “Copper Mountain Stub Period”). Consolidated gold production in the quarter was 48,996 ounces, a 4% increase over the prior quarter, primarily due to slightly higher gold grades and higher gold recoveries in Peru. Consolidated silver production in the second quarter was 612,310 ounces, a decrease of 13% compared to the first quarter primarily due to lower silver grades in Peru. Consolidated zinc production in the second quarter was 8,758 tonnes, a decline of 11% compared to the first quarter due to lower throughput and zinc head grades at Stall.

Consolidated cash cost per pound of copper produced, net of by-product creditsⁱ, in the second quarter of 2023 was $1.60, compared to $0.85 in the first quarter of 2023. This increase was mainly the result of higher mining, milling and treatment and refining costs and lower copper production. Consolidated cash cost for the first six months of 2023 was above 2023 guidance ranges but remained in line with quarterly cadence expectations, and the company expects consolidated cash cost to decline in the second half of 2023 to be within the full year guidance range. Consolidated sustaining cash cost per pound of copper produced, net of by-product creditsⁱ, was $2.73 in the second quarter of 2023 compared to $1.83 in the first quarter. Consolidated all-in sustaining cash cost per pound of copper produced, net of by-product creditsⁱ, was $2.98 in the second quarter of 2023, higher than $2.07 in the first quarter, primarily due to the same reasons outlined above. Consolidated cash cost and sustaining cash cost for the second quarter and year-to-date exclude Copper Mountain's operations, as no revenues or corresponding cost of sales were recorded during the Copper Mountain Stub Period.

Cash generated from operating activities in the second quarter of 2023 decreased to $24.6 million compared to $71.3 million in the first quarter primarily due to higher operating costs in Peru associated with the scheduled mill maintenance program and higher planned stripping activities at Pampacancha. Operating cash flow before changes in non-cash working capital was $55.9 million during the second quarter of 2023, lower than the first quarter, due to the same reasons noted above.

Net loss and loss per share in the second quarter of 2023 were $14.9 million and $0.05, respectively, compared to net earnings and earnings per share of $5.5 million and $0.02, respectively, in the first quarter. The results were negatively impacted by $6.8 million of transaction costs associated with the acquisition of Copper Mountain and a $1.4 million foreign exchange loss. This was partially offset by a non-cash gain of $4.7 million related to the quarterly revaluation of the environmental reclamation provision at the company’s closed sites and a $1.1 million revaluation gain related to the gold prepayment liability.

Adjusted net lossⁱ and adjusted net loss per shareⁱ in the second quarter of 2023 were $18.3 million and $0.07 per share, respectively, after adjusting for $6.8 million of transaction costs associated with the acquisition of Copper Mountain and the non-cash revaluation gain of the environmental reclamation provision, among other items. Second quarter adjusted EBITDAⁱ was $81.2 million, compared to $101.9 million in the first quarter of 2023, as higher operating costs in Peru associated with the scheduled mill maintenance program more than offset higher revenue from an increase in sales volumes.

On June 20, 2023, Hudbay successfully completed its previously announced acquisition of Copper Mountain (the “Copper Mountain Transaction”). Copper Mountain’s first shipment of copper concentrate following the acquisition occurred on July 23, 2023 after a brief strike action at the Port of Vancouver earlier in July. As such, Hudbay’s second quarter results were not materially affected by Copper Mountain’s operations with no revenues or corresponding cost of sales recorded during the Copper Mountain Stub Period. Combined acquisition-related costs incurred were $25.8 million, of which $6.8 million related to Hudbay’s legal and advisory fees that were expensed during the second quarter, while the remaining costs were incurred by Copper Mountain prior to completion of the acquisition.

As at June 30, 2023, liquidity included $179.7 million in cash and cash equivalents as well as undrawn availability of $184.1 million under the company’s RCFs. Subsequent to quarter end, Hudbay drew $90 million from its RCFs to finance the redemption of $83.3 million of Copper Mountain’s bonds, thereby reducing the aggregate amount of Copper Mountain bonds outstanding to $59.7 million and improving the company’s ability to deleverage and repay debt sooner than the 2026 bond maturity. Based on expected free cash flow generation in the second half of 2023, Hudbay continues to expect to make progress on its deleveraging targets as outlined in its “3-P” plan for sanctioning Copper World. Current liquidity combined with cash flow from operations is expected to be sufficient to meet liquidity needs for the foreseeable future.

¹ Net debt is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Performance Measures” section of this news release.
² Working capital is determined as total current assets less total current liabilities as defined under IFRS and disclosed on the consolidated interim financial statements. Working capital reflects the full $145 million balance of Copper Mountain Nordic bonds as current, however, subsequent to quarter end, the company drew $90 million from its revolving credit facilities to finance the redemption of a portion of Copper Mountain’s Nordic bonds. As of the date hereof, the remaining Copper Mountain Nordic bonds will be presented as long-term as well as the $90 million revolver draw.
³ Following completion of the Copper Mountain acquisition on June 20, 2023, the company’s financial condition has been impacted by the inclusion of Copper Mountain as at June 30, 2023 and accordingly there is no comparable period information.

¹ Metal reported in concentrate is prior to deductions associated with smelter contract terms. Consolidated production includes production results from Copper Mountain for the Copper Mountain Stub Period.
² Includes total payable gold and silver in concentrate and in doré sold.
³ For the three months ended June 30, 2023 and the three months ended March 31, 2023 this metric includes payable zinc in concentrate sold. For the three months ended June 30, 2022, this metric also includes payable refined zinc metal sold.
⁴ Consolidated cash cost, sustaining cash cost and all-in sustaining cash cost per pound of copper produced, net of by-product credits, does not include Copper Mountain production or costs for the Copper Mountain Stub Period at the end of the second quarter of 2023, nor the comparative periods. Cash cost, sustaining cash cost and all-in sustaining cash cost per pound of copper produced, net of by-product credits, gold cash cost, sustaining cash cost per ounce of gold produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Performance Measures” section of this news release.

Peru Operations Review

¹ Reported tonnes and grade for ore mined are estimates based on mine plan assumptions and may not reconcile fully to ore milled.
² Strip ratio is calculated as waste mined divided by ore mined.
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 Excludes approximately $1.3 million, or $0.16 per tonne, COVID-related costs during the three months ended June 30, 2022.
⁵ Combined unit operating cost, cash cost and sustaining cash cost per pound of copper produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Performance Measures” section of this news release.

During the second quarter of 2023, the Constancia operations produced 17,682 tonnes of copper, 12,998 ounces of gold, 419,642 ounces of silver and 414 tonnes of molybdenum. With the period of higher planned stripping activities in the Pampacancha pit completed in June and ore mined from Pampacancha in July totaling 1.6 million tonnes at 0.63% copper and 0.31 grams per tonne gold, the company is well on track to achieve the higher expected production in the second half of the year, in line with the full year 2023 Peru production guidance.

Total ore mined in the second quarter of 2023 increased by 41% compared to the first quarter as mining activities returned to normal after the company reduced mining activities in the first quarter to conserve fuel during the period of logistical constraints caused by civil unrest earlier this year.

Ore milled during the second quarter of 2023 was 6% lower than the prior quarter primarily due to a schedule plant maintenance shutdown in the second quarter without a corresponding shutdown in the first quarter. Milled copper grades were slightly lower than the first quarter due to the continued processing of lower-grade ore from stockpiles as the company completed a period of higher planned stripping activities in the Pampacancha pit in June. Recoveries of copper during the second quarter of 2023 remained at low levels, as expected, due to higher levels of impurities in stockpiled ore. Recoveries for gold and silver were 8% and 7% higher, respectively, than the first quarter due to higher gold grades and lower zinc content impurities in ore processed.

Combined mine, mill and G&A unit operating costs in the second quarter of 2023 were 23% higher than the first quarter primarily due to higher costs related to the scheduled plant shutdown and lower milled ore throughput during the quarter.

Peru’s cash cost per pound of copper produced, net of by-product creditsⁱ, in the second quarter of 2023 was $2.14, higher than the first quarter primarily due to higher mining, milling and treatment and refining charges and lower copper production. This cost measure remains above the upper end of the 2023 guidance range. However, it is expected to decline meaningfully in the second half of 2023 and the full year cash cost is expected to remain within the 2023 guidance range with higher expected copper production and contributions from precious metal by-product credits from Pampacancha later this year.

Peru’s sustaining cash cost per pound of copper produced, net of by-product creditsⁱ, in the second quarter of 2023 was $3.06, higher than the first quarter due to the same factors affecting cash cost noted above.

Manitoba Operations Review