Hudbay Releases First Quarter 2015 Results and Declares Commercial Production at Constancia Mine
Press Releases
TORONTO, ONTARIO — 05/07/15 — HudBay Minerals Inc. (“Hudbay” or the “company”) (TSX:HBM)(NYSE:HBM) today released its first quarter 2015 financial results and announced that its 100%-owned Constancia mine in Peru achieved commercial production on April 30, 2015. Ocean shipments of copper concentrate from Constancia began in April 2015, and the mine and concentrator are currently operating at or above design capacity.
“Reaching commercial production on schedule at the Constancia mine is a major milestone for Hudbay,” said David Garofalo , president and chief executive officer. “This achievement strengthens our position as a low cost, high quality copper and zinc producer. Constancia has allowed us to broaden our skills as a mine developer, and given its ongoing ramp up, we continue to expect to meet our corporate production and cost guidance for 2015.”
In the first quarter of 2015, operating cash flow before stream deposit and change in non-cash working capital increased to $24.1 million from negative $4.6 million in the first quarter of 2014.
The net loss and loss per share in the first quarter of 2015 were $23.7 million and $0.10, respectively, compared to a net loss and loss per share of $27.2 million and $0.15, respectively, in the first quarter of 2014. Net loss and loss per share in the first quarter of 2015 were affected by, among other things, the following items:
| Pre-tax gain (loss) ($ millions) |
After-tax gain (loss) ($ millions) |
Per Share ($/share) | ||
| Loss as a result of provisional pricing adjustments | (5.0) | (3.3) | (0.01) | |
| Foreign currency translation losses | (10.0) | (11.2) | (0.05) | |
| Non-cash deferred tax adjustments | – | (9.1) | (0.04) |
Financial and Operating Results
Cash flow from operations and net earnings were positively impacted by increased revenue as a result of significant increases in production of all metals as the Reed and Lalor mines achieved commercial production in 2014. While substantially improved when compared to the prior year, cash flow from operations, net earnings and cash cost per pound of copper were all negatively impacted by unsold copper and gold during the quarter. More specifically, Hudbay continues to have approximately 6,000 tonnes of unsold copper in concentrate as a result of logistical and other issues, as well as approximately 9,000 ounces of unstreamed gold produced in the first quarter of 2015 that was not sold.
Net earnings were also negatively affected by higher depreciation expense resulting from commercial production at Reed and Lalor, as well as higher depreciation expense due to revised mine planning assumptions at 777.
| Financial Performance ($000s except per share and cash cost amounts) |
Three Months Ended March 31 |
||||||
| 2015 | 2014 | ||||||
| Revenue | 160,652 | 106,779 | |||||
| Loss before tax | (13,076 | ) | (24,139 | ) | |||
| Basic and diluted loss per share1 | (0.10 | ) | (0.15 | ) | |||
| Loss for the period | (23,708 | ) | (27,219 | ) | |||
| Operating cash flow2,3 | 24,055 | (4,634 | ) | ||||
| Operating cash flow per share3 | 0.10 | (0.02 | ) | ||||
| Cash cost, after by-product credits (per pound sold) – US$3 | 1.39 | 2.30 | |||||
| Production | |||||||
| Contained metal in concentrate4 | |||||||
| Copper | (tonnes) | 15,008 | 7,954 | ||||
| Gold | (troy oz.) | 23,676 | 18,648 | ||||
| Silver | (troy oz.) | 310,867 | 187,001 | ||||
| Zinc | (tonnes) | 22,906 | 19,294 | ||||
| Metal Sold | |||||||
| Payable metal in concentrate | |||||||
| Copper | (tonnes) | 10,995 | 5,539 | ||||
| Gold | (troy oz.) | 12,350 | 10,766 | ||||
| Silver | (troy oz.) | 100,317 | 102,809 | ||||
| Refined zinc | (tonnes) | 23,779 | 21,104 | ||||
| 1Attributable to owners of the company. 2Before stream deposit and change in non-cash working capital. 3Refer to “Non-IFRS Financial Performance Measures” on page 6 of this news release. 4Includes pre-commercial production volumes. |
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Cash and cash equivalents decreased by $84.7 million from December 31, 2014 to $122.5 million as at March 31, 2015. This decrease was mainly a result of $164.7 million of investments primarily at the Constancia project, interest payments of $55.6 million, and deposits of restricted cash in Peru of $27.7 million.
At March 31, 2015, Hudbay had total available and committed liquidity of approximately $464 million, including $122.5 million in cash and cash equivalents and availability under Hudbay’s credit facilities. In the second quarter, Hudbay expects to commence realizing substantial cash flow from the sale of copper concentrates from Constancia, and to receive value added tax refunds from the Peruvian government of approximately US$38 million. Hudbay expects that its current liquidity and these expected cash flows will be sufficient to meet its liquidity needs for 2015.
Peru Operations Review
The Constancia mine commenced production of copper concentrate in December 2014, and achieved commercial production on April 30, 2015. Ocean shipments began in April 2015, and the mine and concentrator are currently operating at or above design capacity. A summary of the tonnage and grade of ore processed over the first four months of 2015 follows:
| Tonnes of Ore Processed | |||||
| Monthly | Daily (Average) | Copper Grade (%) | |||
| January | 418,681 | 13,506 | 0.36 | ||
| February | 493,756 | 17,634 | 0.40 | ||
| March | 1,521,045 | 49,066 | 0.47 | ||
| April | 2,359,046 | 78,635 | 0.61 | ||
The ramp up has met management’s expectations with regards to throughput, recovery and product quality. The plant is performing as designed and throughput has occasionally exceeded design capacity due to favourable ore characteristics, with peaks of over 90,000 tonnes per day. Copper recovery in April averaged just over 65% which is in line with ramp up design and expectations. Concentrate grade has averaged 27% copper year-to-date with average concentrations of deleterious elements below penalty levels. As at April 30, 2015, 42,575 tonnes of copper concentrate had been produced, of which approximately 20,500 tonnes had been shipped.
The focus in the initial stages of ramp up was on ore throughput with an aim to meet saleable concentrate specifications. The focus is currently on increasing copper recovery while maintaining throughput and concentrate quality. A key component of improving copper recovery is expected to be the recently started concentrate regrind circuit. Hudbay continues to expect the operation to achieve steady state design and feasibility level recoveries of copper in the fourth quarter of 2015. In addition, assuming that the copper ramp up continues as planned, the company intends, in the second quarter of 2015, to begin to ramp up the molybdenum concentrate separation circuit, which has achieved mechanical completion.
Mining fleet performance is approaching design expectations; a mine dispatch system has been installed and is providing the necessary data to further optimize the fleet. To date, mine reconciliations have indicated that the long term model is supported by field measurements. Although it is too early to evaluate mine reconciliation metrics, management is confident that grade and geology characteristics are well represented in the long term plan.
Sustaining capital expenditures are ongoing as planned; the tailings management facility, and the water harvesting and management are in scope and on schedule.
Hudbay has received approval of a second modification to the Environmental and Social Impact Assessment (“ESIA”) for Constancia. The ESIA modification recognizes the current infrastructure and incorporates the mining of the Pampacancha deposit. Hudbay expects to begin negotiations for the purchase of surface rights to the Pampacancha deposit later this year.
Manitoba Operations Review
For the first quarter of 2015, ore processed at Hudbay’s Manitoba business unit was 14% higher compared to the same period in 2014 primarily as a result of increased production at Reed and Lalor. Compared to the first quarter of 2014, copper grades were 18% higher as a result of increased production at Reed, which had higher copper head grades, as well as normal mine sequencing at the company’s other mines. Processed zinc and gold head grades in the first quarter of 2015 were relatively consistent with the same period in 2014. Recoveries of copper, zinc and gold in the first quarter of 2015 were marginally higher compared to the same period of 2014 as a result of achieving steady operations at the company’s two new mines. Combined Manitoba mine/mill unit operating costs were essentially unchanged from last year.
On May 4, 2015, Hudbay closed a transaction to acquire a 100% interest in the New Britannia mine and mill, located in Snow Lake, Manitoba, for approximately US$11 million in net cash consideration, plus a contingent payment of US$5 million. The New Britannia mill (the “NBM mill”) is currently on care and maintenance. If refurbished, it has the potential to process approximately 2,000 tonnes per day of gold zone ore from the Lalor mine, and includes an existing Carbon-in-Pulp circuit that has historically produced gold doré on site. It is expected that a paste backfill plant for Lalor will be required in addition to the refurbishment of the NBM mill. Ore from Lalor will continue to be processed at the Snow Lake concentrator, while engineering work is carried out on a potential restart of the NBM mill. It is anticipated that the results of a technical study on the NBM mill, including the estimated costs and timing of a potential restart, will be available in 2016. As a result of the acquisition of the NBM mill, Hudbay no longer expects to construct a new concentrator at Lalor.
The collective agreements with each of the seven labour unions representing employees at the Manitoba business unit expired on December 31, 2014. The membership of the International Association of Machinists and Aerospace Workers, Local No. 1848 (the “IAM”) rejected a formal offer and commenced a strike action on May 2, 2015. Hudbay anticipates that operations will continue under a comprehensive contingency plan during the IAM’s strike. Negotiations with the other six unions are ongoing.
Lalor Copper-Gold Zone Exploration Results
At Hudbay’s Lalor mine, the company has drilled 14 holes, totalling 4,537.6 metres, to better define the copper-gold zone from the underground 1,025 metre level exploration drift. Preliminary results to date, as shown in the tables below1, indicate that the high-grade copper-gold mineralization as drilled from underground is of similar quantity and quality as indicated by surface drilling. Based on these preliminary results, Hudbay will proceed with a 400 metre Phase 2 exploration ramp extension to the north.
Drill platforms from the Phase 2 exploration ramp will allow testing of the copper-gold zones down plunge, and step out drilling to the east and west. Further exploration drilling is expected to proceed on completion of the exploration ramp extension in the second half of 2015. Phase 2 development will maintain a drift size capable of accommodating future mine equipment and related infrastructure for mining the copper-gold zones.
IBF3
