TSX, NYSE – HBM 2023 No. 24 Hudbay Announces Third Quarter 2023 Results
Toronto, Ontario, November 8, 2023 – Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX, NYSE:HBM) today released its third quarter 2023 financial results. All amounts are in U.S. dollars, unless otherwise noted.
Delivering Record Third Quarter Operating and Financial Results
- Achieved record quarterly revenue of $480.5 million with strong consolidated copper production of 41,964 tonnes and record quarterly consolidated gold production of 101,417 ounces as higher grades from the Pampacancha deposit in Peru and the Lalor mine in Manitoba were realized together with the first full quarter of Copper Mountain production for Hudbay.
- Reaffirmed full year 2023 production, cash cost and sustaining cash cost guidance for Hudbay’s Peru and Manitoba operations. Issued Copper Mountain production, cash cost and capital expenditure guidance for the period since completion of the acquisition on June 20, 2023. Hudbay consolidated production, cash cost and capital guidance updated to include Copper Mountain contributions in 2023.
- Delivered a significant increase in operating cash flow before change in non-cash working capital of $182.0 million in the third quarter, compared to $55.9 million in the second quarter.
- Consolidated cash cost and sustaining cash cost per pound of copper produced, net of by-product creditsi, in the third quarter, were $1.10 and $1.89, respectively, and both metrics improved by 31% compared to the second quarter.
- Peru operations benefitted from significantly higher grades at the Pampacancha pit during the third quarter of 2023, resulting in 29,081 tonnes of copper production and 40,596 ounces of gold production in the third quarter. Peru cash cost per pound of copper produced, net of by-product creditsi, in the third quarter declined to $0.83, in line with quarterly cadence expectations. Pampacancha began delivering on anticipated higher copper production and precious metal by-product credits in the third quarter. This strong performance is expected to continue in the fourth quarter, enabling the Peru operations to meet all metal production and cost guidance for 2023.
- Manitoba operations produced 56,213 ounces of gold in the third quarter as production focused on mining the higher gold and copper grade zones at Lalor. Mill recoveries also increased meaningfully compared to the prior period as a result of changes to optimize the circuits at the Stall and New Britannia mills. Manitoba cash cost per ounce of gold produced, net of by-product creditsi, was $670 during the third quarter and full year cash costs are expected to be within the annual guidance range.
- First full quarter of Copper Mountain operations produced 9,303 tonnes of copper at a cash cost per pound of copper produced, net of by-product creditsi, of $2.67. With integration activities well-advanced, continuous improvement methodologies applied at Hudbay’s Constancia operations have started to be implemented in the Copper Mountain mill as the company continues its operational stabilization plans.
- Third quarter net earnings and earnings per share were $45.5 million and $0.13, respectively. After adjusting for a non-cash gain of $32.4 million related to a quarterly revaluation of Hudbay’s closed site environmental reclamation provision, among other items, third quarter adjusted earningsi per share were $0.07.
- Cash and cash equivalents increased by $65.5 million to $245.2 million during the third quarter due to strong operating cash flows bolstered by higher copper and gold sales volumes from mining the high-grade zones of the Pampacancha deposit and higher gold and copper grade zones at Lalor.
- Revenue, earnings and operating cash flow would have further benefitted from the sale of approximately 20,000 ounces of consolidated gold production that remained unsold at the end of the third quarter.
Generating Free Cash Flow with Increased Production and Continued Financial Discipline
- Executed on planned higher production levels and achieved continued operating and capital cost efficiencies to generate significant free cash flow in the third quarter.
- Achieved adjusted EBITDAi of $190.7 million in the third quarter, the highest quarterly level over the last five years and a 135% increase from the second quarter.
- Increased cash and total liquidity by $175.8 million to $539.6 million, including increased availability under the company’s credit facilities due to higher EBITDA levels, lower net debt and renegotiated covenants.
- Net debt reduced to $1,132 million during the third quarter, which together with higher levels of adjusted EBITDA, has improved the company’s net debt to EBITDA ratioi compared to the second quarter.
- Deleveraging efforts continued subsequent to quarter-end into October 2023 with a $40 million repayment on the company’s credit facilities, a $5 million principal repayment on the Copper Mountain bonds and the recommencement of deliveries under the gold forward sale and prepay agreement to reduce the gold prepayment liability.
- 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 (excluding Copper Mountain) are expected to be approximately $30 million lower than previous guidance levels, a further decrease from the $15 million reduction announced in the second quarter, representing a 10% reduction in total capital expenditures.
Executing on Growth Initiatives and Prudent Financial Planning
- Post-acquisition plans to stabilize the Copper Mountain operations are underway with a focus on mining fleet ramp-up activities, accelerated stripping and increasing mill reliability. To date, approximately $9 million of the $10 million in targeted annualized corporate synergies have been achieved.
- As previously announced, a new technical report for the Copper Mountain mine is expected to be released in the fourth quarter. The new technical report will include an updated mine plan and updated annual production and cost estimates. The new technical report will also include updated mineral reserve and resource estimates and mill throughput assumptions.
- Successfully completed ramp up of the Stall recovery improvement program with significantly higher copper, gold and silver recoveries realized in the third quarter.
- Released results of the de-risked and enhanced Copper World pre-feasibility study for Phase I in September 2023, which demonstrated a simplified mine plan with an extended 20-year mine life requiring only state and local permits, an after-tax net present value (8%) of $1.1 billion and a 19% internal rate of return at a copper price of $3.75 per pound.
- Completed the acquisition of Rockcliff Metals Corp. (“Rockcliff”) on September 14, 2023, which has increased the company’s land position within trucking distance of the Snow Lake processing facilities by more than 250%.
- Commenced initial drill program at the company’s Mason project in Nevada to test high grade targets on satellite properties with 25% of the program completed and assay results pending.
“We delivered on our plan for significantly higher production, revenue and cash flow in the third quarter, marking an inflection point as we generate strong returns from our recent brownfield and growth investments across the business,” said Peter Kukielski, President and Chief Executive Officer. “We are reaffirming our 2023 full year guidance with strong copper and gold grades from Pampacancha in Peru and higher gold grades at Lalor in Manitoba, while remaining disciplined with capital spending. This, together with the contribution from our first full quarter of operating Copper Mountain, led to meaningful cash flow generation and demonstrates Hudbay’s resilient operating platform and continued focus on deleveraging.”
Summary of Third Quarter Results
Consolidated copper production in the third quarter of 2023 was 41,964 tonnes, a 93% increase from the second quarter of 2023. Consolidated gold production in the quarter was 101,417 ounces, a 107% increase over the second quarter. Consolidated silver production in the third quarter was 1,063,032 ounces, a 74% increase over the second quarter. The significant increase in production was driven by meaningfully higher recoveries in Peru and Manitoba, mining of the higher copper and gold grade zones at the Pampacancha deposit, higher gold and copper grade zones at Lalor and incremental production from the Copper Mountain mine. Consolidated zinc production in the third quarter increased by 18% compared to the prior quarter primarily due to higher mill throughput and higher zinc grades. Annual production guidance ranges for 2023 have been reaffirmed for both Peru and Manitoba, and consolidated production guidance has been updated to include contributions from Copper Mountain.
Consolidated cash cost per pound of copper produced, net of by-product creditsi, was $1.10 in the third quarter of 2023, compared to $1.60 in the second quarter. This improvement was driven by strong copper and gold production in Peru and Manitoba, which more than offset the higher mining, milling, G&A, freight and treatment and refining charges associated with now having three operations. Consolidated sustaining cash cost per pound of copper produced, net of by-product creditsi, was $1.89 in the third quarter of 2023, compared to $2.73 in the second quarter. This decrease was primarily due to the same factors affecting consolidated cash cost, partially offset by higher cash sustaining capital expenditures. Both cash cost measures are expected to continue to be strong in the fourth quarter with higher expected copper production and continued strong contributions from precious metal by-product credits. Full year cash cost guidance ranges for 2023 are reaffirmed for each of Peru and Manitoba and consolidated cash cost and sustaining cash cost guidance ranges have been updated to include Copper Mountain. Consolidated all-in sustaining cash cost per pound of copper produced, net of by-product creditsi, was $2.04 in the third quarter of 2023, lower than $2.98 in the second quarter, due to the same reasons outlined above as well as slightly higher corporate selling and administrative expenses.
Cash generated from operating activities in the third quarter of 2023 significantly increased to $151.9 million compared to $24.6 million in the second quarter. Operating cash flow before change in non-cash working capital was a record $182.0 million during the third quarter, reflecting an increase of $126.1 million over the prior quarter. The increase in operating cash flow was primarily the result of higher copper sales volumes from mining the high grade zones of the Pampacancha deposit, higher gold and copper grade zones at Lalor and an incremental contribution from the Copper Mountain mine.
Net earnings and earnings per share in the third quarter of 2023 were $45.5 million and $0.13, respectively, compared to net loss and loss per share of $14.9 million and $0.05, respectively, in the second quarter of 2023. The results were positively impacted by a non-cash gain of $32.4 million related to the quarterly revaluation of the environmental reclamation provision at the company’s closed sites, partially offset by a $2.3 million one-time charge related to restructuring costs arising from the Copper Mountain acquisition.
Adjusted net earningsi and adjusted net earnings per sharei in the third quarter of 2023 were $24.4 million and $0.07 per share, respectively, after adjusting for the non-cash gain related to the revaluation of the environmental provision, among other items. This compares to adjusted net loss and adjusted net loss per share of $18.3 million and $0.07 in the second quarter of 2023. Adjusted EBITDAi was $190.7 million, a 135% increase compared to $81.2 million in the second quarter. Revenue, earnings and cash would have further benefitted from the sale of approximately 20,000 ounces of consolidated gold production that was unsold at the end of the third quarter and is expected to be sold in the fourth quarter.
As at September 30, 2023, total liquidity increased to $539.6 million, including $245.2 million in cash and cash equivalents as well as undrawn availability of $294.4 million under the company’s revolving credit facilities. Net debt declined during the quarter to $1,132 million as at September 30, 2023. Subsequent to quarter end, Hudbay repaid $40 million on its revolving credit facilities and made a $5 million principal repayment on the Copper Mountain bonds. Based on continued expected free cash flow generation in the fourth quarter of 2023, the company continues to expect to make progress on its deleveraging targets as outlined in the “3-P” plan for sanctioning Copper World. Current liquidity combined with cash flow from operations is expected to be sufficient to meet the company’s liquidity needs for the foreseeable future.
| Consolidated Financial Condition ($000s) | Sep. 30, 2023 Jun. 30, 2023 | Dec. 31, 2022 |
|---|---|---|
| Cash | 245,217 179,734 | 225,665 |
| Total long-term debt | 1,370,682 | 1,184,162 |
1,377,443
| Net debt1 | 1,132,226 | 1,190,948 | 958,497 |
| Working capital2 | 128,463 | (61,357) | 76,534 |
| Total assets | 5,242,140 | 4,325,943 |
5,250,596
Equity3 2,044,684 2,001,970 1,571,809 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.
3 Equity attributable to owners of the company.
Consolidated Financial Performance2 Three Months Ended Sep. 30, 2023 Jun. 30, 2023 Sep. 30, 2022 480,456
Revenue $000s 312,166 346,171
| Cost of sales | $000s | 374,057 | 289,273 | 313,741 |
| Earnings (loss) before tax | $000s | 84,149 | (30,731) | (263) |
| Earnings (loss) | $000s | 45,490 | (14,932) | (8,135) |
| Basic and diluted earnings (loss) per share | $/share | 0.13 | (0.05) | (0.03) |
| Adjusted earnings (loss) per share1 | (0.07) | (0.05) |
$/share 0.07 Operating cash flow before change in non- $ millions 182.0 55.9 81.6 cash working capital Adjusted EBITDA1 $ millions 190.7 81.2 99.3 1 Adjusted (loss) earnings per share and adjusted EBITDA are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Performance Measures” section.
Consolidated Production and Cost Performance5 Three Months Ended Sep. 30, 2023 Jun. 30, 2023 Sep. 30, 2022 Contained metal in concentrate and doré produced1
| Copper | tonnes | 41,964 | 21,715 | 24,498 |
| Gold | ounces | 101,417 | 48,996 | 53,179 |
| Silver | ounces | 1,063,032 | 612,310 | 717,069 |
| Zinc | tonnes | 10,291 | 8,758 | 9,750 |
| Molybdenum | tonnes | 466 | 414 | 437 |
Payable metal sold
| Copper | tonnes | 39,371 | 23,078 | 24,799 |
| Gold2 | ounces | 74,799 | 47,533 | 66,932 |
| Silver2 | ounces | 748,955 | 805,448 | 816,416 |
| tonnes | 7,125 | 8,641 | 12,714 |
Zinc3 Molybdenum tonnes 426 314 511
Consolidated cash cost per pound of copper produced4
| Cash cost | $/lb | 1.10 | 1.60 | 0.58 |
| Sustaining cash cost | $/lb | 1.89 | 2.73 | 1.91 |
| All-in sustaining cash cost | $/lb | 2.04 | 2.98 | 2.16 |
1 Metal reported in concentrate is prior to deductions associated with smelter contract terms.
2 Includes total payable gold and silver in concentrate and in doré sold.
3 For the three months ended September 30, 2023 and the three months ended June 30, 2023 this metric includes payable zinc in concentrate sold. For the three months ended September 30, 2022, this metric also included payable refined zinc metal sold. 4 Cash cost, sustaining 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 Performance Measures” section of this news release.
5Includes production results from the Copper Mountain mine following the June 20, 2023 acquisition completion date.
Peru Operations Review
Peru Operations Three Months Ended
Constancia ore mined1 1,242,198
tonnes 3,647,399 6,300,252
| Copper | % | 0.30 | 0.31 | 0.36 |
| Gold | g/tonne | 0.04 | 0.04 | 0.05 |
| Silver | g/tonne | 2.91 | 2.49 | 3.38 |
| Molybdenum | % | 0.01 | 0.01 | 0.01 |
| Pampacancha ore mined | tonnes | 5,894,013 | 2,408,495 | 2,488,928 |
| Copper | % | 0.53 | 0.36 | 0.29 |
| Gold | g/tonne | 0.30 | 0.34 | 0.23 |
| Silver | g/tonne | 4.22 | 2.81 | 4.30 |
| Molybdenum | % | 0.02 | 0.02 | 0.01 |
| Total ore mined | tonnes | 7,136,211 | 6,055,894 | 8,789,180 |
| Strip ratio2 | 1.36 | 1.74 | 1.26 | |
| Ore milled | tonnes | 7,895,109 | 7,223,048 | 7,742,020 |
| Copper | % | 0.43 | 0.31 | 0.34 |
| Gold | g/tonne | 0.21 | 0.09 | 0.08 |
| Silver | g/tonne | 3.75 | 2.78 | 3.48 |
| Molybdenum | % | 0.02 | 0.01 | 0.01 |
| Copper recovery | % | 80.0 | 84.5 |
85.2
| Gold recovery | % | 74.8 | 61.1 | 61.9 |
| Silver recovery | % | 73.2 | 65.1 | 65.2 |
| Molybdenum recovery | % | 37.2 | 40.5 | 41.0 |
Contained metal in concentrate
| Copper | tonnes | 29,081 | 17,682 | 22,302 |
| Gold | ounces | 40,596 | 12,998 | 12,722 |
| Silver | ounces | 697,211 | 419,642 | 564,299 |
| Molybdenum | tonnes | 466 | 414 | 437 |
Payable metal sold
| Copper | tonnes | 27,490 | 21,207 | 20,718 |
| Gold | ounces | 32,757 | 14,524 | 11,970 |
| Silver | ounces | 460,001 | 671,532 | 513,470 |
| Molybdenum | tonnes | 314 | 511 |
| Combined unit operating cost3,4,5 | $/tonne | 12.20 | 14.07 | 13.06 |
| Cash cost5 | $/lb | 0.83 | 2.14 | 1.68 |
| Sustaining cash cost5 | $/lb | 1.51 | 3.06 | 2.46 |
1 Reported tonnes and grade for ore mined are estimates based on mine plan assumptions and may not reconcile fully to ore milled. 2 Reflects combined mine, mill and general and administrative ("G&A") costs per tonne of ore milled. Reflects the deduction of expected capitalized stripping costs.
3 Combined unit costs, 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.
4 Excludes approximately $0.9 million, or $0.12 per tonne, of COVID-related costs during the three months ended September 30, 2022.
5 Strip ratio is calculated as waste mined divided by ore mined.
During the third quarter of 2023, the Peru operations produced 29,081 tonnes of copper, 40,596 ounces of gold, 697,211 ounces of silver and 466 tonnes of molybdenum. The significant increases in copper and gold production compared to the second quarter were a result of higher copper, gold and silver grades from mining the high grade zones of the Pampacancha deposit, higher recoveries and higher throughput. Full year production in Peru is expected to continue to benefit from higher grades in the fourth quarter of 2023 and, as such, full year production of all metals in Peru remains on track to achieve the guidance ranges for 2023.
Total ore mined in the third quarter of 2023 increased by 18% compared to the second quarter, in line with the mine plan, despite a decline in ore mined from the Constancia pit associated with the commencement of phase five stripping activities. Ore mined from Pampacancha increased to 5.9 million tonnes during the third quarter at average grades of 0.53% copper and 0.30 grams per tonne gold.
Ore milled during the third quarter of 2023 was 9% higher than the second quarter primarily as a result of a scheduled plant maintenance shutdown in the second quarter. Milled copper and gold grades increased to 0.43% and 0.21 g/tonne, respectively, in the third quarter of 2023, representing a 39% and 133% increase, respectively, compared to the second quarter, due to a significant increase in the mining of higher grade copper-gold ore from Pampacancha.
Recoveries of copper, gold and silver during the third quarter of 2023 were 7%, 22% and 12% higher, respectively, than the second quarter and were in line with metallurgical models. Recoveries benefitted from the completion of the recovery uplift program in the second quarter as well as higher head grades and lower contaminants.
Combined mine, mill and G&A unit operating costsi in the third quarter of 2023 were 13% lower than the second quarter primarily as a result of lower milling costs and higher throughput as the second quarter was impacted by a scheduled plant maintenance shutdown.
Peru’s cash cost per pound of copper produced, net of by-product creditsi, in the third quarter of 2023 was $0.83 compared to $2.14 in the second quarter of 2023. This 61% improvement was primarily a result of higher by-product credits mainly from gold, higher pounds of copper produced and lower milling costs. This was partly offset by higher profit sharing expenses and higher treatment & refining and freight costs. This cost measure is declining meaningfully, as expected, in the second half of 2023 and the full year cash cost is expected to remain within the 2023 guidance range with continued higher copper production and contributions from precious metal by-product credits from Pampacancha expected in the fourth quarter of 2023.
Peru’s sustaining cash cost per pound of copper produced, net of by-product creditsi, in the third quarter of 2023 was $1.51, representing a 51% decline from the second quarter due to the same factors affecting cash cost noted above, partially offset by higher sustaining capital expenditures. However, total annual sustaining capital expenditures in Peru are expected to be $10 million lower than the original 2023 guidance levels primarily a result of lower capitalized stripping costs.
Manitoba Operations Review
Manitoba Operations Three Months Ended
Lalor
| Ore mined | tonnes | 367,491 | 413,255 | 347,345 |
| Gold | g/tonne | 5.08 | 4.07 | 4.57 |
| Copper | % | 1.02 | 0.81 | 0.71 |
| Zinc | % | 3.14 | 3.27 |
3.31
Silver g/tonne 27.80 23.27 21.27
New Britannia
Ore milled tonnes 146,927 141,905 132,362
6.93
Gold g/tonne 5.82 7.70
| Copper | % | 1.22 | 0.77 | 0.72 |
| Zinc | % | 0.90 | 0.85 | 0.73 |
| Silver | g/tonne | 23.88 | 25.79 | 20.11 |
| Gold recovery - concentrate | % | 64.7 | 55.0 | 60.6 |
| Copper recovery - concentrate | % | 91.2 |
97.4 92.3 Silver recovery - concentrate % 63.2 57.0 61.2
Stall Concentrator
Ore milled tonnes 255,516 238,633 229,746
3.70
Gold g/tonne 3.12 2.81
| Copper | % | 0.77 | 0.85 | 0.67 |
| Zinc | % | 4.88 | 4.47 | 4.82 |
| Silver | g/tonne | 28.82 | 22.15 | 20.98 |
| Gold recovery | % | 67.8 | 59.9 | 61.3 |
| Copper recovery | % | 88.5 | 85.8 |
93.9
Zinc recovery % 82.6 82.2 88.0 Silver recovery % 64.9 60.3 55.7
Total contained metal in concentrate and doré1 56,213
Gold ounces 35,253 40,457
| Copper | tonnes | 3,580 | 2,794 | 2,196 |
| Zinc | tonnes | 10,291 | 8,758 | 9,750 |
| Silver | ounces | 264,752 | 180,750 | 152,770 |
Total payable metal sold
| Gold2 | ounces | 36,713 | 33,009 | 54,962 |
| Copper | tonnes | 2,925 | 1,871 | 4,081 |
| Zinc3 | tonnes | 7,125 | 8,641 | 12,714 |
| Silver2 | ounces | 197,952 | 133,916 | 302,946 |
| Combined unit operating cost4,5 | C$/tonne | 217 | 220 | 235 |
| Gold cash cost5 | $/oz | 670 | 1,097 | 216 |
| Gold sustaining cash cost5 | $/oz | 939 | 1,521 | 1,045 |
1 Doré includes sludge, slag and carbon fines in three months ended September 30, 2023 and June 30, 2023.
2 Includes total payable precious metals in concentrate and doré sold.
3 Includes refined zinc metal and payable zinc in concentrate sold.
4 Reflects combined mine, mill and G&A costs per tonne of ore milled.
5 Combined unit operating cost, cash cost and 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.
During the third quarter of 2023, the Manitoba operations produced 56,213 ounces of gold, 3,580 tonnes of copper, 10,291 tonnes of zinc and 264,752 ounces of silver. Production of gold, copper, zinc and silver in the third quarter of 2023 was 59%, 28%, 18% and 46% higher, respectively, than the second quarter due to mining higher grade gold zones, generally higher recoveries at the New Britannia and Stall mills, and recovery of secondary gold products at New Britannia due to past processing inefficiencies. The improvements completed late in the quarter have resolved the past processing inefficiencies at New Britannia and gold is reporting to doré as designed. With the recent recovery improvements at the New Britannia and Stall mills and higher grades from Lalor in the third quarter, the company expects to achieve full year production guidance for all metals. Gold production is expected to trend toward the lower end of the guidance ranges while copper and zinc production are expected to trend to the upper end of the guidance ranges, as disclosed last quarter.
The company’s Manitoba team continues to advance several key initiatives to support higher production levels, reduce dilution during the mining cycle and improve metal recoveries at the Snow Lake operations. The team at Lalor has placed a strong emphasis on enhancing the quality of ore production and minimizing dilution through improved blast designs, loading procedures, and effective grade control practices. Additionally, Hudbay successfully completed changes to optimize the circuits at the Snow Lake mills, resulting in increased copper, gold, and silver recoveries. Concurrently, the company is making improvements to the tailings deposition process at the Anderson facility and exploring the potential of transitioning the facility from subaqueous to subaerial tailings storage, potentially providing a more efficient use of impoundment space, addressing seasonal operational challenges and deferring capital expenditure for dam raise construction to future years.
At Lalor, the company successfully completed hoist rope replacements, biannual inspections and mine ventilation systems maintenance ahead of the winter season. Maintenance was also performed at the underground muck circuit and mine power centers during the quarter. Lalor production averaged 4,000 tonnes per day during the third quarter, which was lower than the prior quarter due to the mine maintenance activities. Copper, gold, silver and zinc grades mined during the third quarter of 2023 were 26%, 25%, 19% and 5% higher, respectively, than the second quarter.
The Stall mill processed 7% more ore in the third quarter of 2023 than in the second quarter as it drew down base metal ore stockpiles that built up at the end of second quarter. After the commissioning of the first phase of the Stall mill recovery improvement project in the second quarter of 2023, the third quarter was focused on optimizing circuits to achieve targeted recoveries by reducing primary grind size, refining the flotation circuit balance and mass pull, and reagent selection. These adjustments proved highly effective, resulting in notably higher recoveries for copper, gold and silver during the third quarter of 2023. Specifically, the Stall mill achieved its targeted gold recovery levels of approximately 68% in the third quarter, compared to 60% in the second quarter.
During the third quarter, the New Britannia mill consistently achieved elevated production levels averaging approximately 1,600 tonnes per day despite processing significantly higher copper head grades that can impact throughput due to copper flotation limitations. The company continues to advance process debottleneck initiatives at New Britannia that require minimal capital outlays as it pursues higher throughput targets, aligned with increased gold ore production from Lalor.
Combined mine, mill and G&A unit operating costsi decreased slightly in the third quarter compared to the second quarter, reflecting higher throughput.
Manitoba’s cash cost per ounce of gold produced, net of by-product creditsi was $670 in the third quarter, 39% lower than the second quarter, primarily as a result of higher gold production driven by higher grades and improved recoveries. Sustaining cash cost per ounce of gold produced, net of by-product creditsi, for the third quarter was $939, a 38% decrease from the prior quarter primarily due to the same factors affecting cash cost. Total annual sustaining capital expenditures in Manitoba are expected to be $15 million lower than the original 2023 guidance levels primarily a result of lower capital development costs realized at Lalor as the team focuses on cost efficiencies.
Cash cost in the third quarter of 2023 was within the 2023 guidance range and is expected to continue to benefit from increasing gold production from higher grade stopes, continued throughput increases at Lalor and the full realization of higher recoveries from the Stall mill Phase I recovery improvement project in the fourth quarter. As a result, full year cash cost in Manitoba is expected to achieve the 2023 guidance range.
British Columbia Operations Review
British Columbia Operations Three Months Ended Sep. 30, 2023
Ore mined1 tonnes 3,792,568 Waste mined tonnes 11,233,917 Strip ratio2 2.96
| Ore milled | tonnes | 3,158,006 |
| Copper | % | 0.36 |
| Gold | g/tonne | 0.08 |
| Silver | g/tonne | 1.40 |
| Copper recovery | % | 80.9 |
| Gold recovery | % | 56.1 |
| Silver recovery | % | 71.3 |
Total contained metal in concentrate2
| Copper | tonnes | 9,303 |
| Gold | ounces | 4,608 |
| Silver | ounces | 101,069 |
Total payable metal sold
| Copper | tonnes | 8,956 |
| Gold | ounces | 5,329 |
| Silver | ounces | 91,002 |
| Combined unit operating cost3,4 | C$/tonne | 24.88 |
| Cash cost4 | $/lb | 2.67 |
| Sustaining cash cost4 | $/lb | 3.39 |
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 G&A costs per tonne of ore milled. Reflects the deduction of expected capitalized stripping costs. 4 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 third quarter of 2023, the British Columbia operations produced 9,303 tonnes of copper, 4,608 ounces of gold and 101,069 ounces of silver. The third quarter was the first full quarter of production from the Copper Mountain mine after the completion of the acquisition on June 20, 2023.
Total ore mined at Copper Mountain in the third quarter of 2023 was 3.8 million tonnes, in line with Hudbay expectations. Following the closing of the Copper Mountain transaction in late June, mine operations initiated a fleet production ramp up plan to capture the full value of existing idle capital equipment at the Copper Mountain site. This plan entails a fleet capacity/utilization ramp up from 14 trucks to 26 trucks over the third and fourth quarters, which is expected to result in a more than 30% increase in tonnes moved in 2023 compared to 2022. The company also commissioned a new Komatsu PC8000 electric shovel in September, which reduces carbon intensity by displacing existing diesel shovel production.
The mill processed a total of 3.2 million tonnes of ore during the third quarter, with mill availability averaging 83.5%. A scheduled mill shutdown occurred in September to facilitate liner replacement and a power transmission line upgrade. In coordination with BC Hydro, thermal upgrades to the site transmission line were completed to support 100MW of site supply for current and future site operations. Mill throughput for the quarter was impacted by excessive coarse material bypassing the comminution circuit and restricting flow through the tailings discharge line, causing high levels of unplanned downtime. This issue was rectified in August and the company has since seen continuous improvements in throughput. A key focus area for Hudbay is implementing improved maintenance management systems as part of Hudbay’s stabilization plans for increasing mill availability.
Milled copper grades during the third quarter of 2023 were 0.36%, in line with expectations. Copper recoveries were 80.9% in the third quarter, an increase compared to 79.1% that was previously reported by Copper Mountain for the full year 2022. As part of the near-term stabilization plans at Copper Mountain, Hudbay expects to apply mill efficiency initiatives from the Constancia mill to the Copper Mountain mill in an effort to continue to improve concentrate quality and copper recoveries.
Combined mine, mill and G&A unit operating costsi in the third quarter of 2023 were C$24.88 per tonne milled. Combined unit operating costs per tonne milled are expected to decrease over time as the company continues its stabilization and optimization initiatives at Copper Mountain.
British Columbia’s cash cost per pound of copper produced, net of by-product creditsi, was $2.67 and sustaining cash cost per pound of copper produced, net of by-product creditsi, was $3.39 in the third quarter. This indicates an improvement in cash costs when compared to the full year 2022 levels previously reported by Copper Mountain of $3.53 per pound and $4.20 per pound, respectively. The cash cost and sustaining cash cost measures are expected to remain within the post-acquisition guidance ranges for the balance of the year, as discussed below.
Copper Mountain Stabilization Plans Underway and Consolidated Guidance Updated to Reflect Copper Mountain
Since completing the acquisition of Copper Mountain on June 20, 2023, Hudbay has been focused on advancing its plans to stabilize the operation, including opening up the mine by adding additional mining faces and re-mobilizing idle haul trucks, optimizing the ore feed to the plant and implementing plant improvement initiatives. The company is also planning a campaign of accelerated stripping over the next two to three years to enable access to higher grade ore and to mitigate the substantially reduced stripping undertaken by Copper Mountain over the four years prior to completion of the acquisition.
Further details on the company’s stabilization plans will be provided in a new technical report for the Copper Mountain mine, which is expected to be released in the fourth quarter of 2023. The new technical report will include an updated mine plan and updated annual production and cost estimates for the Copper Mountain mine, which will reflect Hudbay’s stabilization and optimization initiatives, and the costs associated with the planned accelerated stripping. The new technical report will also include updated mineral reserve and resource estimates and mill throughput assumptions consistent with Hudbay’s pre-acquisition internal assessments and in line with the mineral reserve and resource estimates and throughput assumptions disclosed in Copper Mountain’s historical technical report dated February 25, 2019 (after accounting for mining depletion). Accordingly, Hudbay does not expect its mineral reserve and resource estimates and mill throughput expansion assumptions to be consistent with those disclosed in Copper Mountain’s most recent technical report dated September 30, 2022. For further information, see, “Qualified Person and NI 43-101”.
Hudbay is issuing inaugural Copper Mountain post-acquisition 2023 guidance for production and costs. The company has incorporated the Copper Mountain guidance into its consolidated production and cash cost guidance for the full year. Hudbay’s production and cash cost guidance for Peru and Manitoba has otherwise been reaffirmed and remains unchanged.
Manitoba British 2023 Production Peru Operations Consolidated Operations Columbia and Cost Guidance (unchanged) (updated) Operations2 (unchanged)
Copper production1 tonnes 91,000 - 116,000 9,000 - 12,000 18,500 - 20,500 118,500 - 148,500
Gold production1 ounces 83,000 - 108,000 175,000 - 205,000 8,000 - 10,000 266,000 - 323,000 Silver production1 ounces 2,210,000 - 2,650,000 750,000 - 1,000,000 190,000 - 210,000 3,150,000 - 3,860,000 Zinc production1 tonnes — 28,000 - 36,000 — 28,000 - 36,000 Molybdenum tonnes 1,300 - 1,600 — — 1,300 - 1,600 production1
Cash cost3 $1.05 - $1.30/lb $500 - $800/oz $2.40 - $2.85/lb $0.80 - $1.10/lb
Sustaining cash cost3 — — — $1.80 - $2.25/lb 1 Metal reported in concentrate and doré is prior to refining losses or deductions associated with smelter terms.
2 British Columbia operations represented on a 100% basis and for the period since the acquisition completion date of June 20, 2023.
3 Cash cost and sustaining cash cost per pound of copper produced, net of by-product credits, and gold cash cost per ounce of gold produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the “Non-IFRS Financial Performance Measures” section of this news release. Canadian dollar costs are converted into U.S. dollars using an exchange rate of 1.35 C$/US$.
Generating Free Cash Flow with Increased Production and Continued Financial Discipline
Hudbay delivered positive free cash flow during the third quarter of 2023 as the company executed its plan for higher copper and gold grades from Pampacancha and higher gold grades at Lalor. The company continues to expect to see significantly higher production levels in the second half of 2023, compared to the first half of 2023, as a result of these higher grades in Peru and Manitoba, along with the contribution of production from the newly acquired Copper Mountain mine.
During the third quarter, the company drew $90 million from its revolving credit facilities to finance the redemption of $87 million of principal and interest from Copper Mountain’s bonds, which improved the company’s ability to deleverage and repay debt sooner than waiting for bond maturity in 2026.
The company increased its cash and cash equivalents to $245.2 million and reduced its net debt to $1,132 million as at September 30, 2023, compared to $179.7 million and $1,190 million, respectively, as at June 30, 2023. The $58 million decline in net debt, together with higher levels of adjusted EBITDAi in the third quarter, have improved the company’s net debt to EBITDA ratio compared to the second quarter thereby improving its credit facility availability. Subsequent to quarter-end, Hudbay continued its deleveraging efforts with a $40 million repayment on its credit facilities and a $5 million principal repayment on the Copper Mountain bonds in October 2023. The company has also recommenced deliveries under the gold forward sale and prepay agreement in October 2023, further reducing the gold prepayment liability.
As an additional prudent measure to ensure free cash flow generation and continued financial discipline in 2023, during the third quarter, the Copper Mountain joint venture entered into forward sales contracts for a total of 2,000 tonnes of copper production over the five-month period from August through December 2023 at an average price of $3.86 per pound. During the second quarter of 2023, Hudbay entered into a zero-cost collar program for approximately 10% of copper production expected from Peru and Manitoba in the second half of 2023. The program entails hedging 15.9 million pounds of copper from July to December 2023 at an average floor price of $3.95 per pound and an average cap