Hudbay Announces Second Quarter 2024 Results; Production Guidance Reaffirmed and Cash Cost Guidance Improved

Press Release

TORONTO, Aug. 13, 2024– Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX, NYSE: HBM) today released its second quarter 2024 financial results. All amounts are in U.S. dollars, unless otherwise noted. All production and cost amounts reflect the Copper Mountain mine on a 100% basis, with Hudbay owning a 75% interest in the mine.

“The continued execution of our operational plans in the second quarter has positioned us well to achieve our 2024 production guidance, and our exposure to gold by-products and strong cost control have allowed us to improve our 2024 cash cost guidance,” said Peter Kukielski, President and Chief Executive Officer. “Our strong and diversified operating base continues to generate free cash flow driven in part by efficient milling performance in Peru and Manitoba. We are also continuing to execute our British Columbia stabilization plans and planned stripping programs in Peru and British Columbia to unlock higher copper and gold grades in the near-term. This has led to robust EBITDA generation over the past 12 months, which together with our recent successful equity offering, has allowed us to significantly accelerate our deleveraging efforts and transform our balance sheet. We are now even better positioned to continue to advance our many growth initiatives to unlock significant upside potential in our pipeline and further enhance our copper and gold exposure.”

Delivered In-line Second Quarter Operating and Financial Results; Production Guidance Reaffirmed and Cash Cost Guidance Improved

• Achieved consolidated copper production of 28,578 tonnes and gold production of 58,614 ounces in the second quarter of 2024, in line with quarterly production cadence expectations for 2024.
• Enhanced operating platform delivered a 32% increase in copper production and a 20% increase in gold production over the second quarter of 2023ⁱⁱ, reflecting the benefits of a larger diversified operating platform with the addition of Copper Mountain and the continued execution of operational efficiencies across the business.
• Strong cost control with consolidated cash costⁱ and sustaining cash costⁱ per pound of copper produced, net of by-product creditsⁱ, in the second quarter of 2024 of $1.14 and $2.65, respectively, in alignment with the cadence of costs expected in 2024.
• Reaffirmed full year 2024 consolidated production guidance for all metals including 137,000 to 176,000 tonnes of copper and 263,000 to 319,000 ounces of gold as the company expects stronger production in the second half of 2024 in accordance with the mine production profile.
• Improved 2024 annual operating cost guidance with decreased consolidated cash costⁱ guidance range of $0.90 to $1.10 per pound, a result of meaningful exposure to gold by-product credits and continued strong cost control.
• Peru operations continued to benefit from strong mill throughput, averaging approximately 85,000 tonnes per day in the second quarter despite a planned semi-annual mill maintenance shutdown. The Pampacancha stripping program to advance to higher grades later this year is well underway. The reduced mining from Pampacancha resulted in 19,217 tonnes of copper and 10,672 ounces of gold produced in the second quarter of 2024, in line with quarterly cadence expectations. Peru cash cost per pound of copper produced, net of by-product creditsⁱ, in the second quarter was $1.78, an expected increase from the first quarter given lower planned production levels, and a 17% decrease compared to the second quarter of 2023.
• Manitoba operations produced 43,488 ounces of gold in the second quarter of 2024 as New Britannia continues to operate well above nameplate capacity and budgeted throughput levels. Manitoba cash cost per ounce of gold produced, net of by-product creditsⁱ, was $771 during the second quarter of 2024, similar to the first quarter, and a decrease of 30% compared to the same quarter last year.
• British Columbia operations produced 6,719 tonnes of copper at a cash cost per pound of copper produced, net of by-product creditsⁱ, of $2.67 in the second quarter. Cash cost improved by 23% over the first quarter, reflecting ongoing operational stabilization efforts as mine stripping activities are accelerated and mill improvement initiatives are underway at Copper Mountain.
• Achieved revenue of $425.5 million and operating cash flow before change in non-cash working capital of $122.0 million in the second quarter of 2024.
• Second quarter net loss attributable to owners and loss per share attributable to owners were $16.6 million and $0.05, respectively. After adjusting for items on a pre-tax basis such as a non-cash gain of $2.7 million related to a quarterly revaluation of the company’s closed site environmental reclamation provision, a $10.7 million revaluation loss related to the gold prepayment liability, unrealized strategic gold and copper hedges and investments and a $2.1 million write-down of PP&E, among other items, second quarter adjusted earningsⁱ per share attributable to owners was nil.
• Net loss attributable to owners of $16.6 million in the second quarter was meaningfully impacted by tax expense of $20.8 million despite having earnings before tax of only $0.4 million. The elevated tax expense was due to mining taxes that are calculated based on taxable mining profits in each operating jurisdiction, the limited deductibility of certain expenses and foreign exchange fluctuations on deferred tax balances.
• Adjusted EBITDAⁱ was $145.0 million during the second quarter of 2024.
• Cash and cash equivalents and short-term investments increased by $274.0 million to $523.8 million during the first half of 2024 due to a successful equity offering and strong operating cash flows bolstered by higher copper and gold prices, enabling a $405.9 million reduction in net debtⁱ during the first half of 2024.

Accelerated Deleveraging and Transformed Balance Sheet

• Hudbay’s unique copper and gold diversification in Peru and North America provides exposure to higher copper and gold prices and attractive free cash flow generation.
• Achieved trailing 12 month adjusted EBITDAⁱ of $824.3 million, a substantial increase from $407.1 million for the 12 months ending June 30, 2023.
• Completed successful equity offering on May 24, 2024 for gross proceeds of $402.5 million and net proceeds of $386.2 million, net of transaction costs, to accelerate growth and deleveraging.
• Significantly accelerated deleveraging efforts. Repaid all $90.0 million of advances outstanding on the senior secured credit facilities during the second quarter of 2024 and made open market purchases of approximately $34.1 million of the company’s senior unsecured notes in June 2024, at a discount. Long-term debt reduced to $1,155.6 million at June 30, 2024 from $1,278.6 million at March 31, 2024.
• Reduced net debtⁱ to $631.8 million in the second quarter of 2024, reflecting a reduction of $405.9 million over the first half of 2024.
• The increase in cash and reduction in long-term debt significantly reduced net debt to adjusted EBITDAⁱ to 0.8x at June 30, 2024 compared to 1.6x at the end of 2023. Achieved the targeted 1.2x net debt to adjusted EBITDAⁱ ratio outlined in the three prerequisites plan (the “3-P plan”) for advancing Copper World well ahead of schedule.
• Deleveraging efforts continued into the third quarter of 2024 with an additional $48.5 million of open market purchases of the company’s senior unsecured notes in July and August.
• Scheduled to complete the final payment under the gold prepay liability in August 2024, which was the financing instrument used to fund the refurbishment of the New Britannia gold mill. The elimination of the gold prepay will further increase the company’s exposure to higher gold production in Snow Lake.
• Total liquidity substantially increased by 65% to $948.5 million at June 30, 2024 from $573.7 million at the end of 2023.

Continued Execution of Growth Initiatives to Further Enhance Copper and Gold Exposure

• Successfully ratified multi-year agreements with the unions representing members of Hudbay’s workforce in Peru and Manitoba, with no disruption to operations, demonstrating the company’s focus on working closely with its employees and community stakeholders to ensure aligned economic and social benefits.
• Stripping program for the next mining phase at Pampacancha is underway and is expected to lead to significantly higher copper and gold grades in the fourth quarter of 2024, which together with maintaining strong operating performance at Constancia is expected to continue to generate meaningful free cash flow in Peru.
• The New Britannia mill continued to exceed expectations, driving higher gold production in Manitoba. The mill achieved record throughput levels of nearly 2,100 tonnes per day in June and averaged 1,850 tonnes per day in the second quarter, exceeding its original design capacity of 1,500 tonnes per day and its 2024 budgeted capacity of 1,800 tonnes per day due to the successful implementation of process improvement initiatives and effective preventative maintenance measures.
• Post-acquisition plans to stabilize the Copper Mountain operations remain in progress with a focus on mining fleet ramp-up activities, accelerated stripping and increasing mill reliability. Higher mill availability of 94% and better-than-planned copper recoveries of 82% were achieved in the second quarter of 2024.
• The development of an access drift to the 1901 deposit in Snow Lake remains on track to reach mineralization in early 2025 and is intended to enable confirmation of the optimal mining method for the deposit and underground drilling to further evaluate the orebody and upgrade inferred gold resources to reserves.
• Continued to progress the 3-P plan for sanctioning Copper World, with transformed balance sheet nearing targeted levels and remaining key state permits progressing on track and expected in 2024.
• Drill permitting for highly prospective Maria Reyna and Caballito properties near Constancia continues to advance through the multi-step regulatory process with the environmental impact assessment application approved for Maria Reyna in June and the Caballito application progressing through the review stage.
• Results from the winter 2024 exploration program in Snow Lake confirm two mineralized zones located 400 metres northwest of Lalor with an intersection of 9 metres grading 2.88% copper and 6.27 grams per tonne gold. Also identified follow-up targets for a summer 2024 drill program to test new geophysical anomalies, complete follow-up drilling at Lalor Northwest and complete regional drilling at the Snow Lake satellite properties.
• Continuing to advance Flin Flon tailings reprocessing opportunities through metallurgical test work and early economic evaluation to assess the possibility of producing critical minerals and precious metals while reducing the environmental footprint.
• Published 2023 annual sustainability report in June 2024, demonstrating meaningful progress towards achieving Hudbay’s long-term sustainability goals and commitments with many 2023 activities focused on “our people, our communities and our planet”.

Summary of Second Quarter Results

Consolidated copper production of 28,578 tonnes in the second quarter of 2024 declined from the first quarter of 2024 but was in line with mine plan expectations. Consolidated gold production of 58,614 ounces in the second quarter declined from the strong levels achieved in the first quarter but was in line with mine plan expectations. Production was impacted by lower planned grades in Peru and Manitoba, a planned semi-annual mill maintenance shutdown in Peru and the execution of planned stripping programs at Pampacancha and Copper Mountain to access higher grades.

In the second quarter of 2024, consolidated cash cost per pound of copper produced, net of by-product creditsⁱ, was $1.14, compared to $0.16 in the first quarter of 2024. This change was mainly the result of lower gold by-product credits from lower gold sales volumes as well as lower copper production. Consolidated sustaining cash cost per pound of copper produced, net of by-product creditsⁱ, was $2.65 in the second quarter of 2024 compared to $1.32 in the prior quarter, due to the same reasons outlined above as well as higher sustaining capital expenditures in line with company guidance expectations.

During the second quarter of 2024, cash generated from operating activities of $138.5 million was relatively unchanged from the first quarter of 2024. Operating cash flow before change in non-cash working capital of $122.0 million in the second quarter of 2024 was lower than the first quarter. Operating cash flow before change in non-cash working capital was impacted by lower planned production levels, partially offset by higher realized metal prices and continued strong operational cost performance across the business. It was also impacted by lower copper sales volumes in Peru and lower zinc sales volumes in Manitoba due to timing of shipments. These cash flows benefited from effective working capital management as the company reduced stockpile while collecting on its receivables. Adjusted EBITDAⁱ was $145.0 million in the second quarter compared to $214.2 million in the first quarter of 2024 and was impacted by the same factors affecting operating cash flow as noted above.

Net loss attributable to owners and loss per share attributable to owners in the second quarter of 2024 were $16.6 million and $0.05, respectively, compared to net earnings attributable to owners and earnings per share attributable to owners of $59.4 million and $0.17, respectively, in the first quarter 2024. Net loss attributable to owners of $16.6 million was meaningfully impacted by tax expense of $20.8 million despite having earnings before tax of only $0.4 million in the quarter. The elevated tax expense was due to mining taxes that are calculated based on taxable mining profits in each operating jurisdiction, the limited deductibility of certain expenses and foreign exchange fluctuations on deferred tax balances. Adjusted net earnings attributable to ownersⁱ and adjusted net earnings per share attributable to ownersⁱ in the second quarter of 2024 were $0.1 million and nil per share, respectively, after adjusting for a $10.7 million revaluation loss related to the gold prepayment liability and revaluation of the company’s strategic gold and copper hedges and investments, an $8.8 million revaluation of share-based compensation due to a higher share price and a $2.1 million write-down of PP&E, among other items.

As at June 30, 2024, total liquidity was $948.5 million, including $483.8 million in cash and cash equivalents, $40.0 million in short-term investments as well as undrawn availability of $424.7 million under the company’s revolving credit facilities. Net debtⁱ declined substantially by $362.4 million during the second quarter of 2024 to $631.8 million as part of the company’s efforts to deleverage the balance sheet. This was driven by the free cash flow generation from the operations and the equity offering which contributed cash of $386.2 million, net of transaction and issuance costs. Some of these funds were utilized to repay all $90.0 million of debt outstanding on the senior secured credit facilities as at March 31, 2024 and to repurchase and retire approximately $34.1 million of the company’s senior unsecured notes. As a result, Hudbay has made significant progress towards achieving the deleveraging targets outlined in the 3-P plan for sanctioning Copper World.

Read More:

IBF4