TSX, NYSE – HBM 2020 No. 4 Hudbay Announces Fourth Quarter and Full Year 2019 Results and Provides Annual Guidance
- Achieved 2019 production and unit cost guidance in Peru and Manitoba; strong performance at the Lalor and 777 mines resulted in zinc production exceeding the top end of the guidance range
- Constancia achieved record mill throughput and copper recoveries in 2019
- Lalor and 777 increased mine output by 22% and 15%, respectively, year-over-year
- Cash generated from operating activities was $98.7 million in the fourth quarter of 2019, an increase from the third quarter of 2019
- Cash and cash equivalents of $396.1 million as at December 31, 2019 was relatively unchanged during the quarter and positions the company well for executing future growth initiatives
- 2020 production guidance of 107,500i tonnes of copper and 172,500i ounces of precious metals with copper and precious metals production expected to grow by 18%i and 67%i, respectively, by 2022
- Reached a community agreement to acquire Pampacancha surface rights
- The New Britannia gold mill refurbishment remains on track to be completed before the end of 2021, which is expected to increase Lalor’s annual gold production to approximately 140,000 ounces starting in 2022
- Hudbay’s Manitoba operations received the Towards Sustainable Mining Leadership Award in 2019
Toronto, Ontario, February 20, 2020 – Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX, NYSE:HBM) today released its fourth quarter and full year 2019 financial results and annual production and cost guidance. All amounts are in U.S. dollars, unless otherwise noted.
“We delivered solid operating results in the fourth quarter as a result of our focus on maintaining steady mine performance while continuing to implement various process improvement initiatives across the business,” said Peter Kukielski, President and Chief Executive Officer. “We are on-track to deliver our next phase of growth, including mining the high-grade Pampacancha satellite deposit in Peru in 2020 and completing the refurbishment of the New Britannia gold mill in Manitoba by 2022. Both projects are low capital intensity, high return brownfield projects with short paybacks on our invested capital. We are proud of our ESG and operating achievements in 2019, as well as our successful track record of achieving annual copper production guidance for the past five years. We look forward to delivering significant near-term copper and gold production growth as we execute on our strategic plan.”
Summary of Fourth Quarter Results
Consolidated copper production in the fourth quarter of 2019 was 32,422 tonnes, a decrease from the third quarter of 2019 primarily as a result of lower planned production in Peru due to the regularly scheduled mill maintenance shutdown and normal quarter-to-quarter variance in copper grades. Consolidated zinc production was higher in the fourth quarter compared to the third quarter of 2019 due to higher zinc grades in Manitoba. Copper sales volumes increased in the fourth quarter as copper concentrate inventory levels in Peru returned to normal levels, while zinc sales volumes were lower as a result of the one-week Canadian National Railway strike during the quarter.
In the fourth quarter of 2019, consolidated cash cost per pound of copper produced, net of by-product creditsii, was $1.23, an increase compared to $0.98 in the third quarter due to lower copper production and lower zinc by-product revenue, partially offset by higher precious metals by-product revenue. Incorporating cash 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 creditsii, in the fourth quarter of 2019 was $2.55, which increased from $1.98 in the third quarter, driven mainly by increased sustaining capital expenditures and the same factors noted above affecting consolidated cash costs.
Net loss and loss per share in the fourth quarter of 2019 were $1.5 million and $0.01, respectively. Net loss and loss per share in the fourth quarter of 2019 were affected by, among other things, the following items:
| Pre-tax gain | After-tax gain | Per share gain | |
|---|---|---|---|
| (loss) | (loss) | (loss) | |
| ($ millions) | ($ millions) | ($/share) | |
| Mark-to-market adjustments | (9.0) | (6.6) | (0.03) |
| Non-cash deferred tax adjustments | - | 30.4 | 0.12 |
Cash generated from operating activities increased to $98.7 million in the fourth quarter of 2019 from $43.5 million in the third quarter of 2019. Operating cash flow before change in non-cash working capital was $69.1 million during the fourth quarter of 2019, relatively unchanged from the third quarter. The increase in cash generated from operating activities is primarily the result of the reduction of excess inventories and other working capital changes during the quarter.
Consolidated Financial Performance Three Months Ended
| ($000s except per share amounts) | Dec. 31, 2019 | Sep. 30, 2019 | Dec. 31, 2018 |
| Revenue | 324,485 | 291,282 | 351,773 |
| Cost of sales | 298,852 | 260,327 | 276,547 |
| Earnings (loss) before tax | (42,352) | (348,367) | 17,650 |
| Earnings (loss) | (1,455) | (274,796) | (3,510) |
| Basic and diluted earnings (loss) per share | (0.01) | (1.05) | (0.01) |
| Operating cash flow before change in non-cash | 69,141 | 71,204 | 104,264 |
working capital
Consolidated Operational Performance Three Months Ended Dec. 31, 2019 Sep. 30, 2019 Dec. 31, 2018 Contained metal in concentrate produced1
| Copper | tonnes | 32,422 | 36,422 | 37,238 |
| Gold | ounces | 32,712 | 28,319 | 28,051 |
| Silver | ounces | 930,137 | 924,191 | 1,014,684 |
| Zinc | tonnes | 30,592 | 28,639 | 27,408 |
| Molybdenum | tonnes | 372 | 262 | 329 |
| Precious metals2 | ounces | 46,000 | 41,522 | 42,546 |
Payable metal in concentrate sold
| Copper | tonnes | 33,715 | 29,916 | 36,350 |
| Gold | ounces | 30,344 | 25,488 | 25,861 |
| Silver | ounces | 909,423 | 756,296 | 909,500 |
| Zinc3 | tonnes | 28,001 | 29,140 | 31,134 |
| Molybdenum | tonnes | 199 | 334 | 447 |
| Precious metals2 | ounces | 43,336 | 36,292 | 38,854 |
| Cash cost4 | $/lb | 1.23 | 0.98 | 0.94 |
| All-in sustaining cash cost4 | $/lb | 2.55 | 1.98 | 1.80 |
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. Silver is converted to gold at a ratio of 70:1.
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.
Summary of Full Year Results
On a consolidated basis, Hudbay’s copper and precious metals production met 2019 guidance and production of zinc and molybdenum exceeded 2019 guidance ranges. Production of copper benefited from increased throughput and recoveries at Constancia despite expected lower planned grades. Strong zinc production was a result of Lalor achieving its ramp up to 4,500 tonnes per day and the 777 mine implementing operational improvements. Combined unit costs in both Peru and Manitoba were within 2019 guidance ranges. Total capital expenditures were above 2019 guidance due primarily to increased sustaining capital expenditures related to mining equipment that is now accounted for as a capitalized lease under IFRS.
Consolidated cash cost per pound of copper produced, net of by-product credits, was $1.14 in 2019, an increase compared to $0.94 in 2018 primarily due to lower copper production from planned lower grades at Constancia and the closure of the Reed mine in Manitoba in August 2018. Incorporating cash 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 credits, in 2019 was $2.17, which increased from $1.60 in 2018, driven mainly by increased sustaining capital expenditures and the same factors noted above affecting consolidated cash costs.
Cash generated from operating activities decreased to $310.9 million in 2019 from $479.6 million in 2018. Operating cash flow before change in non-cash working capital decreased to $307.3 million from $501.4 million in 2018. The decrease is the result of lower copper sales volumes and lower margins mainly from lower realized base metal prices.
Cash and cash equivalents decreased by $119.4 million year-over-year to $396.1 million as at December 31, 2019. This decrease was mainly a result of $259.2 million of funding for capital investments, interest payments and financing activities of $137.8 million and the acquisition of the remaining interest in the Rosemont project for $45.0 million. This decrease was partially offset by cash flow from operating activities of $310.9 million.
Consolidated Financial Performance Year Ended
| ($000s except per share amounts) | Dec. 31, 2019 | Dec. 31, 2018 |
| Revenue | 1,237,439 | 1,472,366 |
| Cost of sales | 1,085,897 | 1,098,626 |
| Profit (loss) before tax | (452,763) | 170,837 |
| Profit (loss) | (343,810) | 85,416 |
| Basic and diluted earnings (loss) per share | (1.32) | 0.33 |
| Operating cash flow before change in non-cash working capital | 307,284 | 501,352 |
Consolidated Operational Performance Year Ended Dec. 31, 2019 Dec. 31, 2018 Contained metal in concentrate produced1
| Copper | tonnes | 137,179 | 154,550 |
| Gold | ounces | 114,692 | 119,882 |
| Silver | ounces | 3,585,330 | 3,954,469 |
| Zinc | tonnes | 119,106 | 115,588 |
| Molybdenum | tonnes | 1,272 | 904 |
| Precious metals2 | ounces | 165,911 | 176,374 |
Payable metal in concentrate sold
| Copper | tonnes | 128,519 | 147,923 |
| Gold | ounces | 108,999 | 113,097 |
| Silver | ounces | 3,452,926 | 3,372,353 |
| Zinc3 | tonnes | 104,319 | 115,723 |
| Molybdenum | tonnes | 1,186 | 819 |
| Precious metals2 | ounces | 158,327 | 161,273 |
| Cash cost4 | $/lb | 1.14 | 0.94 |
| All-in sustaining cash cost4 | $/lb | 2.17 | 1.60 |
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. Silver is converted to gold at a ratio of 70:1.
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 | Year Ended | ||||
|---|---|---|---|---|---|---|
| Dec. 31, | Sep. 30, | Dec. 31, | Dec. 31, | Dec. 31, | ||
| 2019 | 2019 | 2018 | 2019 | 2018 | ||
| Ore mined1 | tonnes | 8,049,063 | 8,413,367 | 7,329,423 | 33,308,369 | 34,372,156 |
| Copper | % | 0.41 | 0.44 | 0.47 | 0.43 | 0.49 |
| Gold | g/tonne | 0.04 | 0.05 | 0.05 | 0.04 | 0.05 |
| Silver | g/tonne | 3.87 | 3.93 | 4.16 | 3.76 | 4.15 |
| Ore milled | tonnes | 7,474,136 | 8,240,344 | 7,657,943 | 31,387,281 | 31,282,610 |
| Copper | % | 0.42 | 0.44 | 0.48 | 0.42 | 0.47 |
| Gold | g/tonne | 0.04 | 0.04 | 0.06 | 0.04 | 0.05 |
| Silver | g/tonne | 3.86 | 3.76 | 4.26 | 3.64 | 4.08 |
| Copper recovery | % | 85.6 | 86.0 | 84.8 | 85.7 | 82.6 |
| Gold recovery | % | 50.0 | 48.3 | 48.5 | 48.1 | 47.4 |
| Silver recovery | % | 68.2 | 68.9 | 71.6 | 68.2 | 66.5 |
Contained metal in concentrate
| Copper | tonnes | 26,659 | 31,091 | 30,834 | 113,825 | 122,178 |
| Gold | ounces | 5,007 | 5,565 | 7,522 | 19,723 | 24,189 |
| Silver | ounces | 631,774 | 686,258 | 750,747 | 2,504,769 | 2,729,859 |
| Molybdenum | tonnes | 372 | 262 | 329 | 1,272 | 904 |
| Precious metals2 | ounces | 14,033 | 15,369 | 18,247 | 55,506 | 63,187 |
Payable metal sold
| Copper | tonnes | 28,430 | 25,314 | 31,252 | 106,184 | 116,449 |
| Gold | ounces | 4,824 | 3,858 | 7,262 | 18,956 | 20,420 |
| Silver | ounces | 666,839 | 529,139 | 672,756 | 2,452,496 | 2,255,700 |
| Molybdenum | tonnes | 199 | 334 | 447 | 1,186 | 819 |
| Combined unit | $/tonne | 10.20 | 8.63 | 9.88 | 9.50 | 9.44 |
operating cost3,4 Cash cost4 $/lb 1.66 1.26 1.31 1.41 1.36 Sustaining cash cost4 $/lb 2.47 1.75 1.66 1.90 1.59 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. Silver converted to gold at a ratio of 70:1.
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.
Constancia achieved record mill throughput and record copper recoveries in 2019 as a result of several metallurgical initiatives, and full year copper recoveries exceeded the levels anticipated in the National Instrument (“NI”) 43-101 technical report issued in March 2018.
During the quarter, the Constancia mine produced 26,659 tonnes of copper, 14,033 ounces of precious metals and 372 tonnes of molybdenum. Production results were lower than the third quarter of 2019 primarily as a result of lower throughput as the mine reached full-year mill throughput limits imposed by its operating permits. Year-over-year copper production decreased as copper grades declined in line with the mine plan, partially offset by higher throughput and copper recoveries. Full year production of copper was within 2019 guidance ranges, while precious metals and molybdenum production exceeded the guidance ranges.
Mill throughput in the fourth quarter of 2019 was lower compared to the third quarter of 2019, which was a record throughput quarter. Mill throughput was lower in the fourth quarter primarily due to the scheduled semi-annual maintenance shutdown as well as a requirement to comply with full year permit limitations on throughput. Milled copper grades in the fourth quarter were slightly lower than the third quarter, in line with the mine plan.
Copper recoveries in the fourth quarter of 2019 were consistent with the third quarter levels as a result of the sustained metallurgical improvements implemented throughout the year. While recoveries vary from quarter to quarter depending on the complexity and grade of the ore feed, the company is seeing results from ongoing recovery optimization initiatives. These results are demonstrated through the year-over-year increase in copper recoveries to 85.7% in 2019 from 82.6% in 2018. Highlights of the initiatives include the continued integration of an automated, advanced process control system and the installation of enhanced classification and flotation equipment in the grinding and bulk flotation circuits.
Combined mine, mill and G&A unit operating costs in the fourth quarter were higher than the third quarter of 2019, reflecting correspondingly lower ore throughput and higher maintenance costs due to the planned plant shutdown. Full year 2019 combined unit costs for Constancia were similar to 2018 levels and were in line with 2019 guidance expectations.
Peru cash cost per pound of copper produced, net of by-product credits, in the fourth quarter of 2019 was $1.66, 32% higher than in the third quarter due to lower copper production, in line with the mine plan, higher operating costs and lower by-product credits. Peru sustaining cash cost per pound of copper produced, net of by-product creditsii, was $2.47 in the fourth quarter of 2019. This represents a 41% increase from the third quarter due to the same factors that affected cash costs as well as higher sustaining costs in heavy civil works and capitalized stripping costs, and timing of payments on long-term community agreements and leases.
Peru cash cost per pound of copper produced, net of by-product credits, for the full year 2019 was $1.41, 4% higher than the full year 2018 primarily due to lower copper production, in line with the mine plan, offset by higher by-product credits. Peru sustaining cash cost per pound of copper produced, net of by-product credits, was $1.90 for the full year 2019. This represents a 19% increase from 2018 due to the same factors that affected sustaining cash costs in the fourth quarter.
Manitoba Operations Review
| Manitoba Operations | Three Months Ended | Year Ended | ||||
|---|---|---|---|---|---|---|
| Dec. 31, | Sep. 30, | Dec. 31, | Dec. 31, | Dec. 31, | ||
| 2019 | 2019 | 2018 | 2019 | 2018 | ||
| 777 ore mined | tonnes | 269,342 | 273,319 | 244,613 | 1,109,782 | 966,567 |
| Copper | % | 1.17 | 1.33 | 1.76 | 1.37 | 1.47 |
| Zinc | % | 3.33 | 3.01 | 3.46 | 3.22 | 4.43 |
| Gold | g/tonne | 1.52 | 1.63 | 1.61 | 1.61 | 1.83 |
| Silver | g/tonne | 18.52 | 15.42 | 24.37 | 18.67 | 28.34 |
| Lalor ore mined | tonnes | 390,140 | 346,456 | 317,616 | 1,536,780 | 1,260,241 |
| Copper | % | 0.80 | 0.68 | 0.82 | 0.75 | 0.74 |
| Zinc | % | 6.20 | 6.16 | 6.80 | 6.36 | 6.25 |
| Gold | g/tonne | 2.63 | 2.21 | 2.09 | 2.16 | 2.19 |
| Silver | g/tonne | 28.38 | 25.56 | 24.66 | 25.51 | 25.39 |
Flin Flon Concentrator:
| Ore milled | tonnes | 374,529 | 331,216 | 259,569 | 1,362,006 | 1,423,744 |
| Copper | % | 1.11 | 1.22 | 1.73 | 1.27 | 1.90 |
| Zinc | % | 4.05 | 3.64 | 3.55 | 3.78 | 3.71 |
| Gold | g/tonne | 1.75 | 1.74 | 1.62 | 1.72 | 1.63 |
| Silver | g/tonne | 20.56 | 17.36 | 24.79 | 19.84 | 23.48 |
| Copper recovery | % | 86.9 | 89.1 | 90.4 | 88.0 | 92.3 |
| Zinc recovery | % | 85.8 | 86.7 | 83.7 | 85.5 | 84.2 |
| Gold recovery | % | 56.1 | 59.1 | 62.8 | 59.4 | 64.5 |
| Silver recovery | % | 49.2 | 48.7 | 54.8 | 50.8 | 60.2 |
Stall Concentrator:
| Ore milled | tonnes | 310,622 | 318,539 | 313,995 | 1,290,300 | 1,201,466 |
| Copper | % | 0.80 | 0.64 | 0.84 | 0.73 | 0.72 |
| Zinc | % | 6.24 | 6.22 | 6.83 | 6.39 | 6.38 |
| Gold | g/tonne | 2.60 | 2.12 | 2.09 | 2.13 | 2.15 |
| Silver | g/tonne | 28.12 | 25.16 | 24.58 | 25.48 | 25.27 |
| Copper recovery | % | 85.9 | 84.4 | 88.6 | 85.9 | 85.7 |
| Zinc recovery | % | 90.7 | 91.8 | 91.9 | 91.1 | 92.8 |
| Gold recovery | % | 61.1 | 54.3 | 57.1 | 56.8 | 57.6 |
| Silver recovery | % | 62.9 | 57.4 | 60.7 | 60.4 | 59.2 |
Total contained metal in concentrate
| Copper | tonnes | 5,763 | 5,331 | 6,404 | 23,354 | 32,372 |
| Zinc | tonnes | 30,592 | 28,639 | 27,408 | 119,106 | 115,588 |
| Gold | ounces | 27,705 | 22,754 | 20,529 | 94,969 | 95,693 |
| Silver | ounces | 298,363 | 237,933 | 263,937 | 1,080,561 | 1,224,610 |
| Precious metals1 | ounces | 31,967 | 26,153 | 24,300 | 110,406 | 113,188 |
Total payable metal sold
| Copper | tonnes | 5,285 | 4,602 | 5,098 | 22,335 | 31,474 |
| Zinc2 | tonnes | 28,001 | 29,140 | 31,134 | 104,346 | 115,723 |
| Gold | ounces | 25,520 | 21,630 | 18,599 | 90,043 | 92,677 |
| Silver | ounces | 242,584 | 227,157 | 236,744 | 1,000,430 | 1,116,653 |
| Combined unit | C$/tonne | 128 | 130 | 143 | 134 | 130 |
operating cost3,4 Cash cost4 $/lb (0.76) (0.68) (0.87) (0.18) (0.64) Sustaining cash cost4 $/lb 2.33 2.77 1.76 2.63 1.18 1 Precious metals production includes gold and silver production on a gold-equivalent basis. Silver converted to gold at a ratio of 70:1.
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. 2018 numbers include the cost of ore purchased from the joint venture partner at the Reed mine.
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.
The Manitoba operations benefitted from strong performance from both the 777 and Lalor mines in 2019. Lalor successfully achieved the ramp up to 4,500 tonnes per day in early 2019 and 777 successfully implemented efficiency initiatives focused on maximizing the output from the mine.
During the quarter, the Manitoba operations produced 30,592 tonnes of zinc, 5,763 tonnes of copper and 31,967 ounces of precious metals. Production results were higher than the third quarter of 2019 primarily due to higher tonnes and grades at Lalor. Year-over-year copper production decreased due to the closure of the Reed mine in August 2018, while zinc production increased due to the Lalor mine’s ramp up. Full year production of zinc exceeded 2019 guidance ranges, while copper and precious metals production were within 2019 guidance ranges.
Ore mined at the Manitoba operations during the fourth quarter of 2019 increased by 6% compared to the third quarter of 2019 due to higher production volumes at Lalor. Overall zinc, gold and silver grades were higher compared to the third quarter of 2019, while copper grades were lower, due to planned stope sequencing based on life of mine production schedules at 777 and Lalor. Higher gold grades at Lalor were due to mining of gold enriched base metal stopes in the fourth quarter of 2019.
Ore mined at the Manitoba operations for the full year 2019 increased by 4% over 2018 levels due to higher production volumes at both 777 and Lalor, partially offset by the closure of the Reed mine. The 15% year-over-year increase in ore mined at 777 is attributable to implementation of management systems designed to improve mobile equipment availability and key performance indicators for drilling, blasting and backfilling processes. The 22% yearover-year increase in ore mined at Lalor is attributable to a number of initiatives implemented as part of the production ramp up to 4,500 tonnes per day, including mine design changes, contract strategies, asset integrity and work management programs.
Ore processed in Flin Flon in the fourth quarter of 2019 was 13% higher than the third quarter of 2019 as a result of increased ore feed trucked from Lalor. Ore processed at the Stall concentrator was marginally lower than the third quarter of 2019. Ore processed in Flin Flon for the full year 2019 was 4% lower than in 2018 due to the Reed mine closure, partially offset by increased production from the 777 mine. Ore processed at the Stall concentrator was 7% higher in 2019 versus 2018 due to ongoing operational and maintenance improvements. Full year operating costs at the Flin Flon and Stall concentrators were 9% and 1% lower, respectively, in 2019 compared to 2018 primarily due to higher plant efficiencies.
Manitoba combined mine, mill and G&A unit operating costs in the fourth quarter of 2019 were 2% lower than in the third quarter of 2019 mainly due to unit costs trending lower following Lalor’s ramp up, with third and fourth quarter unit costs well below the levels reported in the first half of 2019. Manitoba combined unit costs for the full year 2019 were in line with the annual guidance range.
Manitoba cash cost per pound of copper produced, net of by-product credits, in the fourth quarter of 2019 was negative $0.76. These costs were lower compared to the third quarter of 2019, primarily as a result of higher copper production and higher by-product revenue. Manitoba sustaining cash cost per pound of copper produced, net of byproduct credits, in the fourth quarter of 2019 was $2.33, which was 14% lower than the third quarter due to lower capitalized exploration partially offset by increased capital development expenditures at Lalor, in addition to the same factors that affected cash costs.
Manitoba cash cost per pound of copper produced, net of by-product credits, for the full year 2019 was negative $0.18. These costs were higher compared to the full year 2018, primarily as a result of higher mining costs and lower copper production. Manitoba sustaining cash cost per pound of copper produced, net of by-product credits, for the full year 2019 was $2.63, which was higher compared to the full year 2018 due to higher sustaining capital expenditures, in addition to the same factors that affected cash costs.
Annual Guidance
Hudbay’s annual production and operating cost guidance, along with its annual capital and exploration expenditure forecasts and three-year production outlook are discussed in detail below.
Production Guidance
Contained Metal in Concentrate1 2020 Guidance Year Ended 2019 Guidance
Manitoba
| Copper | tonnes | 18,000 – 22,000 | 23,354 | 22,000 – 25,000 |
| Zinc | tonnes | 105,000 – 125,000 | 119,106 | 100,000 – 115,000 |
| Precious metals2 | oz | 110,000 – 135,000 | 110,406 | 105,000 – 125,000 |
Peru
| Copper | tonnes | 80,000 – 95,000 | 113,825 | 100,000 – 125,000 |
| Precious metals2 | oz | 45,000 – 55,000 | 55,506 | 45,000 – 55,000 |
| Molybdenum | tonnes | 1,300 – 1,600 | 1,272 | 1,100 – 1,200 |
Total
| Copper | tonnes | 98,000 – 117,000 | 137,179 | 122,000 – 150,000 |
| Zinc | tonnes | 105,000 – 125,000 | 119,106 | 100,000 – 115,000 |
| Precious metals2 | oz | 155,000 – 190,000 | 165,912 | 150,000 – 180,000 |
| Molybdenum | tonnes | 1,300 – 1,600 | 1,272 | 1,100 – 1,200 |
1 Metal reported in concentrate is prior to refining losses or deductions associated with smelter terms.
2 Precious metals production includes gold and silver production on a gold-equivalent basis. For 2019, silver was converted to gold at a ratio of 70:1. For 2020 guidance, silver is converted to gold at a ratio of 89:1.
In 2020, consolidated production of copper contained in concentrate is forecast to decrease by approximately 22%i compared to 2019 production, primarily due to planned lower copper grades at Constancia in line with the mine plan. However, with the addition of the higher-grade Pampacancha satellite deposit in Peru, total copper production is expected to increase by 18%i from 2020 to 2022.
Production of zinc contained in concentrate in 2020 is forecast to be strong with the 2020 guidance range slightly higher than the range in 2019. That trend is expected to continue into 2021 with Lalor maintaining steady production at 4,500 tonnes per day and the company continuing to maximize the output from the 777 mine as it nears the end of its mine life in the second quarter of 2022.
Consolidated production of precious metals contained in concentrate in 2020 is forecast to increase by approximately 4%i compared to 2019 production, primarily due to higher precious metals production at Lalor from the planned mining of approximately 90,000 tonnes from the gold zones in 2020 as part of stope sequencing in preparation for the restart of the New Britannia gold mill. By 2022, consolidated precious metals production is expected to increase by 67%i following the restart of the New Britannia gold mill in Manitoba and the addition of the Pampacancha high-grade satellite deposit in Peru.
3-Year Production Outlook 2020 Guidance 2021 Guidance 2022 Guidance Contained Metal in Concentrate1
Manitoba2
Copper tonnes 18,000 – 22,000 19,000 – 23,000 13,000 – 15,000 Zinc tonnes 105,000 – 125,000 115,000 – 140,000 75,000 – 90,000 Precious metals3 oz 110,000 – 135,000 110,000 – 135,000 150,000 – 190,000
Peru
Copper tonnes 80,000 – 95,000 80,000 – 100,000 100,000 – 125,000 Precious metals3 oz 45,000 – 55,000 85,000 – 100,000 105,000 – 130,000 Molybdenum tonnes 1,300 – 1,600 1,000 – 1,200 1,500 – 1,800
Total
Copper tonnes 98,000 – 117,000 99,000 – 123,000 113,000 – 140,000 Zinc tonnes 105,000 – 125,000 115,000 – 140,000 75,000 – 90,000 Precious metals3 oz 155,000 – 190,000 195,000 – 235,000 255,000 – 320,000 Molybdenum tonnes 1,300 – 1,600 1,000 – 1,200 1,500 – 1,800
1 Metal reported in concentrate is prior to refining losses or deductions associated with smelter terms.
2 Manitoba production guidance assumes the 777 mine is depleted in the second quarter of 2022, resulting in lower copper and zinc production after its closure.
3 Precious metals production includes gold and silver production on a gold-equivalent basis. Silver is converted to gold at a ratio of 89:1.
Capital Expenditure Guidance
Capital Expenditures1 2020 Guidance Year Ended 2019 Guidance (in $ millions) Dec. 31, 2019
Sustaining capital
| Manitoba2 | 100.0 | 126.3 | 100.0 |
| Peru3 | 100.0 | 84.9 | 95.0 |
| Total sustaining capital | 200.0 | 211.2 | 195.0 |
Growth capital
| Manitoba | 80.0 | 14.1 | 10.0 |
| Peru4 | 70.0 | 2.1 | 45.0 |
| Arizona5 | 20.0 | 36.4 | 40.0 |
| Total growth capital | 170.0 | 52.6 | 95.0 |
| Capitalized exploration | 15.0 | 15.7 | 15.0 |
| Total capital expenditures | 385.0 | 279.5 | 305.0 |
1 Excludes capitalized costs not considered to be sustaining or growth capital expenditures.
2 Manitoba sustaining capital expenditures for the year ended December 31, 2019 include a new capitalized lease related to sustaining capital expenditures of $14.3 million not included in 2019 annual guidance. Excluded from sustaining capital is the anticipated $20 million expected to be spent on improvements to the legacy Flin Flon tailings facilities, as described below.
3 Includes capitalized stripping costs.
4 Peru growth capital expenditures of $45.0 million in 2019 related to expected expenditures for developing the Pampacancha deposit and acquiring surface rights, which has been deferred to 2020. 2020 expected growth capital expenditures include costs associated with project development and acquiring the surface rights. Some additional capital costs remain outstanding in recognition of current uses of land and the company intends to enter into agreements to address these matters prior to commencing mining activities. 5 Arizona spending includes capitalized costs associated with the Rosemont and Mason projects. Rosemont’s 2019 guidance was revised to include $20 million of project costs and $20 million of non-project costs as announced on November 11, 2019.
Total planned sustaining capital expenditures in 2020 are expected to slightly decrease from 2019 levels due to lower spending in Manitoba offset by higher planned spending in Peru primarily related to higher capitalized stripping costs. In Manitoba, Hudbay continues to implement improvements on the legacy Flin Flon tailings impoundment area, in line with higher industry-wide standards for tailings dam safety following the failure of other tailings dams in recent years.
This spending is expected to be approximately $20 million per year from 2020 to 2022, but these expenditures will not impact sustaining capital expenditures since they are associated with the updated decommissioning and restoration liability, and therefore, will be accounted for as a drawdown of the liability.
Manitoba growth capital spending of $80 million relates to a significant portion of the New Britannia mill refurbishment costs as construction activities are on track to commence in the second quarter of 2020. The New Britannia mill refurbishment costs are expected to total approximately $115 million over 2020 and 2021, higher than the original estimate of approximately $95 million primarily due to the introduction of new instruments expected to further improve mill efficiency, as well as labour cost inflation and some cost escalation on equipment. The capital investment in the New Britannia mill offers high returns and a short payback period, based on current reserves at Lalor. Once the New Britannia gold mill is in operation by 2022, gold is expected to account for over 60% of revenues at Lalor with annual gold production expected to grow to approximately 140,000 ounces at a sustaining cash cost of approximately $450 per ounce over the first five years.
Peru growth capital of $70 million includes initial expenditures for developing the Pampacancha deposit and acquiring surface rights from the local community, but excludes the costs associated with recognizing the current uses of the land by certain community members, which are subject to pending agreements with those individuals. Hudbay’s patient approach to community negotiations has proven successful, demonstrating Hudbay’s strong relationships with the neighbouring communities and positioning the company well to unlock future value on its other regional growth targets in Peru. Arizona spending of $20 million is intended to support ongoing matters on the Rosemont project and advance preliminary economic studies at the Mason project in Nevada.
Exploration Guidance
Exploration Expenditures 2020 Guidance Year Ended 2019 Guidance (in $ millions) Dec. 31, 2019
| Peru | 15.0 | 17.1 | 20.0 |
| Manitoba | 10.0 | 22.9 | 10.0 |
| Generative and other | 0.0 | 6.5 | 10.0 |
| Total exploration expenditures | 25.0 | 46.5 | 40.0 |
| Capitalized spending | (15.0) | (15.7) | (15.0) |
| Total exploration expense | 10.0 | 30.8 | 25.0 |
Hudbay’s exploration portfolio of owned or optioned mineral properties consists of approximately 850,000 hectares across Canada, Peru, the United States and Chile. Hudbay’s 2020 exploration budget of $25 million, which includes option payments, will be focused on exploration near existing processing infrastructure in Peru and Manitoba.
In Peru, Hudbay continues permitting, community relations and technical activities required to access and conduct drilling activities on properties near Constancia. In 2020, drilling activities will be focused on the Llaguen greenfield project located 56 kilometres northeast of the city of Trujillo, in northern Peru, and on the Quehuincha North skarn target located approximately 11 kilometres from the Constancia mill, where Hudbay has recently obtained a drilling permit and has an exploration agreement in place with the local community. At Lalor, the company expects to conduct additional underground drilling, continuing efforts to convert existing mineral resources to reserves and to identify additional gold resources at underground targets. In addition, surface drilling planned for 2020 in Manitoba will aim to confirm an initial mineral resource estimate for the gold and copper-gold mineralization intersected in 2019 at the 1901 Deposit.
Unit Operating Cost Guidance
Combined Mine/Mill Unit Operating 2020 Guidance Year Ended 2019 Guidance Cost1,2 Dec. 31, 2019
Manitoba C$/tonne 130 – 140 134 115 – 135
Peru $/tonne 8.30 – 10.25 9.50 7.90 – 9.70 1 Reflects combined mine, mill and G&A costs per tonne of milled ore. Peru costs reflect the deduction of expected capitalized stripping costs.
2 Combined unit costs are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Reporting Measures” section of this news release.
Combined unit costs for Manitoba in 2020 are forecast to be similar to 2019 levels as Lalor’s costs have normalized after the ramp up to 4,500 tonnes per day. Combined unit costs for Peru in 2020 are also expected to be similar to 2019 levels as the plant continues to operate at full capacity.
Flin Flon Zinc Plant Guidance 2020 Guidance Year Ended 2019 Guidance
Zinc metal produced tonnes 100,000 – 112,000 103,340 95,000 - 105,000
Unit operating costs1 C$/lb 0.45 – 0.52 0.49 0.47 - 0.55 1 Unit costs 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.
Metal production in any particular quarter may vary from the implied annual guidance rate based on variations in grades and recoveries due to the areas mined in that quarter, the timing of planned maintenance, and other factors. Mining and processing costs in any particular quarter can also vary from the annual guidance rate above based on a variety of factors, including the scheduling of maintenance events and seasonal heating requirements, particularly in Manitoba. In Peru, the semi-annual mill maintenance shutdowns at Constancia typically occur during the second and fourth quarters each year. In Manitoba, the company 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.
Leadership Announcements
After assisting with the Chair transition and the CEO search, Alan Hibben is stepping down as a Director. Mr. Hibben joined the Board in 2009 and served as Chair from 2017 to 2019. The Board thanks Mr. Hibben for his dedicated service as a Director and former Chair of the company.
On January 22, 2020, Peter Kukielski was appointed as Hudbay's President and CEO. Mr. Kukielski had been serving as Interim President and CEO since July 2019. Mr. Kukielski has more than 30 years of extensive global experience in the base metals, precious metals and bulk materials sectors.
The company also announces that David Bryson, Hudbay’s Senior Vice President and Chief Financial Officer, is retiring from the company, effective March 31, 2020, to pursue family and personal commitments. A search for a new CFO is underway, and Eugene Lei, currently Hudbay’s Senior Vice President, Corporate Development and Strategy, will act as Interim CFO until the search process is concluded, after which he is expected to return to focusing on his current responsibilities. As a member of the executive committee, Mr. Lei has been working closely with Mr. Bryson on financial matters over the last several years, and they will continue to work closely together with Mr. Kukielski through this period to provide continuity and support a seamless transition. The Board and management team are grateful for Mr. Bryson’s 11 years of service as Hudbay’s CFO and wish him well on his future personal endeavors.
Execution of Pampacancha Surface Rights Agreement