Hudbay Minerals Inc. (NYSE:HBM) Q4 2023 Earnings Call Transcript

Hudbay Minerals Inc. (NYSE:HBM) Q4 2023 Earnings Call Transcript February 23, 2024

Hudbay Minerals Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Hudbay Minerals’ Fourth Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being broadcast live on the webcast and is being recorded. I will now turn the conference over to Candace Brule, Vice President, Investor Relations. Please go ahead.

Candace Brule: Thank you, operator. Good morning and welcome to Hudbay’s 2023 fourth quarter results conference call. Hudbay’s financial results were issued today and are available on our website at www.hudbay.com. A corresponding PowerPoint presentation is available in the Investor Events section of our website and we encourage you to refer to it during this call. Our presenter today is Peter Kukielski, Hudbay’s President and Chief Executive Officer. Accompanying Peter for the Q&A portion of the call will be Eugene Lei, our Chief Financial Officer, and Andre Lauzon, our Chief Operating Officer. Please note that comments made on today’s call may contain forward-looking information and this information by its nature is subject to risks and uncertainties and as such actual results may differ materially from the views expressed today.

For further information on these risks and uncertainties, please consult the company’s relevant filings on SEDAR Plus and EDGAR. These documents are also available on our website. As a reminder, all amounts discussed on today’s call are in US dollars unless otherwise noted. And now I’ll pass the call over to Peter Kukielski.

Peter Kukielski: Thanks very much, Candace. Good morning, everyone, and thanks for joining us. I’m going to start a little bit informally by saying that we knocked it out of the park in 2023. It was a year of execution and delivery as we realized the higher grades in Peru, achieved record gold production in Manitoba and enhanced our operating base with the addition of the Copper Mountain mine. The fourth quarter saw increased copper production, record gold production, and record financial performance, resulting in the successful achievement of our annual guidance metrics. These strong results were because of many successful capital allocation initiatives at Hudbay. 2023 was the first year we saw the significant benefits from our recent brownfield capital investments in Peru and Manitoba.

Through recovery improvement programs that were both on time and on budget, we increased recoveries at both the Constancia and Stall Mills. With continuous improvement initiatives, we increased throughput levels at the new Britannia Mill, well beyond its nameplate capacity. We continued to demonstrate financial discipline in 2023 through reduced discretionary spending, free cash flow generation, and debt reduction. We successfully acquired and integrated the Copper Mountain mine to further enhance our strong diversified operating platform and production profile, and throughout the year we looked for other opportunities to drive long-term growth, including the consolidation of a significant land package in Snow Lake with the acquisition of the Rockcliff and Cook Lake properties near Lalor.

As a company, we know our success is driven by the examples we set and the culture that drives our decision-making. In 2023, we launched our purpose statement that describes the positive impact we have on our people, our communities, and our planet. As part of our climate change commitments, we took action in 2023 to progress towards our 2030 targets, including a renewable energy contract in Peru. The contract provides access to 100% renewable energy supply for Constancia starting in January 2026, which will reduce our company-wide greenhouse gas emissions by 40% during the life of the contract, positioning us well to achieve our 50% reduction target by 2030. We’ve also entered into renewable diesel supply contracts and implemented electric equipment at our operations.

We continue to examine ways to further reduce our emissions intensity at all of our operations through electrification and fuel efficiency initiatives. Our 2023 achievements are a testament to the outstanding team we have at Hudbay, which continues to deliver the plan while always operating safely and efficiently. Our commitment to continued financial discipline, together with our increasingly resilient operating platform, will allow us to prudently advance and unlock value from our leading organic pipeline of brownfield expansion and greenfield exploration and development opportunities. In the fourth quarter, we delivered on our plan for significantly higher production revenue and cash flow as we generated strong returns from our recent brownfield and growth investments across the business.

We successfully doubled our production in the second half of the year compared to the first half, as shown on Slide 4. Total copper equivalent production increase by 9% in the fourth quarter when compared to the already strong third quarter. Consolidated copper increased 8% quarter-over-quarter to a total of 45,000 tonnes and consolidated gold production increased 11% quarter-over-quarter to 113,000 ounces. The increases in production were from the continued high mill recoveries in Peru and Manitoba, mining of the high copper and gold grade zones at the Pampacancha deposit, mining of the gold and copper zones at Lalor, record throughput at the new Britannia Gold Mill, and incremental production from the Copper Mountain mine. This strong performance allowed us to achieve consolidated production guidance for all metals in 2023 and better than expected cash costs and sustaining cash costs for the year.

Full year consolidated copper production increased by 26% year-over-year, while gold production increased by 41% and silver production increased by 13%. Slide 5 summarizes the strong financial performance driven by record production levels in the quarter. Consolidated cash costs were a remarkable $0.16 per pound of copper, an 85% improvement over the third quarter. Full year 2023, consolidated cash costs were $0.80 per pound at the very low end of the annual guidance range. Consolidated sustaining cash costs decreased to $1.09 per pound in a quarter and $1.72 per pound for the full year 2023. The significant decrease in both cash cost measures was the result of higher copper production and higher by-product credits, partially offset by higher operating costs from incorporating Copper Mountain.

The full year sustaining cash costs were favorably impacted by lower sustaining capital expenditures than planned, resulted in annual sustaining cash costs performing better than guidance and coming in below the low end of cost guidance range. Adjusted net earnings was $0.20 per share in the fourth quarter. This compares $0.07 per share in the prior quarter. Fourth quarter adjusted EBITDA was $274 million, increasing by 44% from the recent high in the third quarter. Full year adjusted EBITDA was $648 million, a 36% increase from 2022 levels. Operating cash flow before change in non-cash working capital increased to $247 million in the fourth quarter. After deducting sustaining capital expenditures and cash lease and community payments, we generated over $160 million in free cash flow this quarter.

The improvements were a result of the greater sales volumes in line with higher production levels. The strong free cash flow generation in the fourth quarter has resulted in approximately $320 million in annual free cash flow for 2023. This strong cash flow generation enabled us to make significant progress against our deleveraging targets by completing the full redemption of $60 million in outstanding Copper Mountain bonds and reducing the net balance on our revolving credit facilities by $30 million. Our available liquidity increased to $574 million in the fourth quarter as our cash position increased to $250 million and we had undrawn availability of $324 million on our revolving credit facilities. We exited the year with a net debt to adjusted EBITDA ratio of 1.6 times, a significant reduction from 2 times at the end of 2022.

Turning to Slide 6, our Peru operations had a tremendous quarter with a 14% increase in copper production, a 22% increase in gold production, and a 20% increase in silver production quarter-over-quarter. During the fourth quarter, the higher grades at Pampacancha resulted in 33,000 tonnes of copper production and 49,000 ounces of gold production. The strong quarter led to full year copper production that achieved the annual guidance range. Silver and molybdenum production were near the upper end of the guidance range and gold production exceeded the top end of the guidance range by 6%. The Constancia Mill performed well during the quarter with total ore milled consistent with the prior quarter. The mill achieved record copper recoveries of 87.4% as a result of the successful completion of the recovery improvement program in the second quarter of 2023, ahead of the start of the significantly higher grades at Pampacancha in the second half of 2023.

The recoveries in the second half of the year have been better than expected for the ore characteristics and we look forward to seeing how the mill performs in its first full year since the recovery improvement initiatives were implemented. Combined unit operating costs for the quarter were $12.24, slightly higher than the third quarter due to the scheduled mill maintenance shutdown in the quarter. Peru’s cash costs were at a record low of $0.54 compared to $0.83 per pound in the third quarter. This 35% improvement was a result of higher gold by-product credits, higher capitalized stripping, lower waste mining, and higher copper production. Cash costs in 2023 were $1.07 per pound, achieving the lower end of cost guidance range. Sustaining cash costs in Peru also decreased by 20% in the fourth quarter and by 23% for the year ended 2023.

Total annual sustaining capital expenditures in Peru were $28 million lower than the original guidance, primarily as a result of lower capitalized stripping costs. Our Manitoba operations summarized in Slide 7, achieved production of approximately 60,000 ounces of gold, 3.7 thousand tonnes of copper, 5.7 thousand tonnes of zinc, and 256,000 ounces of silver. Gold production increased by 6% compared to the already high third quarter. This was primarily a result of the continued focus on mining higher-grade gold zones, continued strong recoveries at the New Britannia install mills, and above nameplate throughput at New Britannia, benefiting from the optimization initiatives and brownfield investments made earlier in 2023. The operations continue to place significant focus on improvement initiatives aimed at supporting higher production levels at Lalor, minimizing mining dilution, and enhancing metal recoveries.

This is made possible by efforts to improve the quality of ore production at Lalor through implementing techniques such as stope redesigns, grade control practices prior to blasting, assaying blasthole cuttings, and mine design adjustments. By being proactive in our measures, the team has successfully reduced the inclusion of waste rock in the mining cycle and in turn increased gold, copper, and silver grades during the fourth quarter. At Lalor, optimization of development drift size has led to a 15% reduction in waste volume and an 18% decrease in unit development costs compared to 2022. Higher shaft availability has led to efficient ore hoisting and has eliminated the need for trucking ore to surface. This has also lowered Lalor’s greenhouse gas intensity by 13% in 2023 compared to 2022.

The team is actively pursuing initiatives to continue to bolster efficiency and further enhance mucking productivity. Comprehensive review of the long-range mine plan for Zone 40 has led to significantly reduced future capital development needs by transitioning to a more selective mining method, thereby enhancing the reserve grade for this mining front. Additionally, we were able to advance optimization initiatives at New Britannia mill, to achieve higher throughput rates by prioritizing process improvements and seamlessly integrating additional gold ore feed from the Lalor mine. The Stall Mill recovery improvement program and subsequent optimization activities have proven to be highly effective, resulting in notably higher recoveries for copper above 90% and gold above 65% in the second half of 2023.

We achieved targeted gold recovery levels of 67.5% in both the third and fourth quarters, compared to 60% in the second quarter. The New Britannia mill process improvement initiatives have elevated throughput levels to a new record of 1,800 tonnes per day in the fourth quarter, significantly exceeding its original design capacity of 1,500 tonnes per day. With the meaningful recovery improvement and optimization initiatives in 2023, the Snow Lake operations successfully achieved annual guidance ranges for all metals with gold production of 187,000 ounces, a 28% year-over-year increase. In addition, copper production exceeded the top end of the guidance range at 12.2 thousand tonnes, and zinc and silver both came in within the 2023 guidance ranges.

Combined unit operating costs of CAD216 per ton is consistent with the prior quarter, reflecting lower overall costs, partially offset by lower total ore milled. Manitoba’s gold cash costs were $434 per ounce, 35% lower than the third quarter due to higher by-product credits and higher gold production in accordance with the mine plan. Full year 2023 cash costs of $727 were within the annual guidance range. Gold sustaining cash costs were $788 per ounce, a decrease of 16% from the third quarter based on the same reasons affecting cash costs combined with lower sustaining capital expenditures. Moving on to our British Columbia Business Unit on Slide 8. In the fourth quarter, we produced 8.5 thousand tons of copper, 3.5 thousand ounces of gold, and 105,000 ounces of silver.

As a result, our BC operations achieved the post-acquisition 2023 production guidance for both copper and gold and exceeded silver production guidance for the year. The mine operations team executed a fleet production ramp-up plan to capture the full value of all idle capital equipment on site. This plan entailed remobilization of the mining fleet from 14 trucks to 28 trucks by the end of the year, which allowed for increased waste removal during the fourth quarter. We continue to focus on hiring additional haul truck drivers and a fully trained complement of truck drivers are expected to be in place in the first half of 2024. Benefiting from stabilization initiatives within the comminution circuit, the mill processed 3.3 million tons of ore during the quarter, with an average mill availability of 86.7%, a 3% increase versus the third quarter.

The initiatives included changes in screen sizes, reduction in grinding media loading rates, and a change in the SAG mill operational strategy. Maintenance practices to improve mill availability continue to be a key pillar of our stabilization initiatives. Copper recoveries were 78.8% in the fourth quarter. We are implementing changes to the flotation operational strategy that mirror the company’s successful processes at Constancia, including reagent selection and dose modification, reactivation and reprogramming of the expert control system, and circuit configuration changes. The benefits of these operational strategy improvements are expected to start to be realized in the second half of 2024. BC cash costs were $2.67 per pound and were in line with the annual guidance range.

Sustaining cash costs were $3.93 per pound in the fourth quarter, reflecting the beginning of a period of accelerated stripping, which I’ll touch on in a moment. Now, turning to Slide 9, I’ll discuss our stabilization and optimization plans for Copper Mountain in more detail. In early December, we released our initial technical report for Copper Mountain, outlining a mine plan with average annual production of 46.5 thousand tons of copper in the next five years and 37 thousand tons of annual copper production over the 21-year mine life. Average cash costs and sustaining cash costs over the mine life are expected to be $1.84 and $2.53 per pound of copper, respectively. The team is focused on improving reliability and driving sustainable long-term value.

This will be done through increased mining activities, accelerated stripping to access higher grades, improved mill throughput and recoveries, unlocking operating efficiencies and corporate synergies, and ensuring stabilized near-term cash flows. Additionally, there are several opportunities to further increase production, improve costs, and extend mine life as upside potential beyond the technical report. We believe the stabilization initiatives will lead to consistent production levels and reduced cash costs over the mine life, representing an approximate 90% increase in average annual copper production and an approximate 50% decrease in cash costs over the first 10 years compared to 2022. As mentioned earlier, we have commenced the fleet ramp-up plan to remobilize idle haul trucks to increase mining activities and improve flexibility in the mine with additional mining phases.

To open up the mine, we have begun a campaign of accelerated stripping over the next three years to enable access to higher-grade ore and to mitigate the reduced stripping undertaken by Copper Mountain over the four years prior to our acquisition. The accelerated stripping program is expected to improve operating efficiencies and lower unit operating costs. To ensure reliability of production, the implementation of improved maintenance management processes is planned throughout 2024. We also intend to implement improved practices around material handling and transportation in the comminution circuit. Workers began to analyze the trade-off among the various alternatives to further enhance mill performance. The new mine plan assumes a mill ramp-up to its nominal capacity of 45,000 tonnes per day in 2025 and an expansion to the permitted capacity of 50,000 tonnes per day in 2027.

To accomplish this, the mine plan assumes $23 million in growth capital spending over 2025 and 2026. Hudbay intends to improve mill recoveries with a more consistent ore feed grade, changes to the flotation reagents, and replacement of key pumps. In January 2024, we achieved the targeted $10 million in annual corporate synergies and we are on track to generate more than $20 million in annual operating efficiencies over the next three years through our stabilization efforts. To ensure stability in cash flows while we invest in stabilizing the operations, we entered into copper hedging contracts for about 25% of 2024 production as a prudent measure. In January 2024, John Ritter joined Hudbay as Vice President of the British Columbia Business Unit.

His focus on operational excellence and value-creating improvements will be instrumental as he leads the stabilization and optimization plans at Copper Mountain. The addition of the Copper Mountain mine to the portfolio has a meaningful impact on our diversified production profile. The contribution of this operation ensures that Hudbay maintains copper production levels above 150,000 tonnes annually through to the end of this decade. Copper Mountain provides stability in our consolidated cash flows and strongly positions us to prudently advance and unlock value from our development pipeline, including Copper World. We delivered on our plan for strong production and EBITDA growth in the quarter as seen on Slide 10. Delivering our second successful quarter of growing cash flows enabled us to continue to reduce debt and significantly improve our leverage ratio at the end of 2023.

We achieved adjusted EBITDA of $274 million in the quarter, the highest quarterly level over the last five years and a 44% increase from previous high in the third quarter. As mentioned earlier, we generated over $160 million of free cash flow in the fourth quarter, an increase $50 million from the prior quarter. During the quarter, we reduced net debt by $95 million through $90 million in debt repayments. This included a $30 million net repayment under the revolving credit facility as well as the redemption of the remaining $60 million of Copper Mountain bonds. Deleveraging efforts have continued into the first quarter of 2024 with an additional $10 million repayment on the credit facilities in January. And as I already mentioned, our net debt to adjusted EBITDA ratio improved to 1.6 times compared to 2 times at the end of 2022.

Additionally, we continued with our efforts for capital cost efficiencies, reducing annual capital expenditures by $57 million in 2023 compared to original guidance levels, and I’ll touch on this in a few slides. As shown on Slide 11, we successfully met all production guidance ranges for all metals in 2023 with a few regional outperformers. Peru exceeded the top end of the gold production guidance range, Manitoba exceeded the top end of the copper production guidance range, while Copper Mountain exceeded the top end of the silver production guidance range for the portion of 2023 since acquisition. In 2024, we anticipate consolidated copper production to increase by 19% to 157,000 tonnes. This growth will result from continued higher-grade ore from Pampacancha in Peru and continued higher recoveries in both Peru and Manitoba, as well as the contribution from a full year of production at the Copper Mountain mine.

Consolidated gold production in 2024 is expected to be 291,000 ounces, a slight year-over-year decline due to smoothing of the Pampacancha high-grade gold zones over the 2023 to 2025 period. Specifically for Peru, 2024 copper production is expected to increase by 8% year-over-year to 109,000 tonnes. As the mill ore feed will revert back to the typical split of one-third Pampacancha and two-thirds Constancia in 2024, we can expect to see more consistent grades and production levels throughout the year. Gold production is expected to be 84, 500 ounces, lower than 2023 levels due to the smoothing of Pampacancha high-grade gold zones. Additional high-grade areas were mined in 2023 ahead of schedule, resulting in gold production exceeding 2023 guidance levels.

Total gold production in Peru over the 2023 to 2025 period is expected to be higher than the previous guidance levels. The Pampacancha deposit is now expected to be depleted in the third quarter of 2025 as opposed to mid-2025 previously. In Manitoba, 2024 gold production is anticipated to be 185,000 ounces consistent with 2023 production levels as high gold grades and recoveries are expected to continue into 2024. We expect Lalor to operate at 4,500 tonnes per day and the New Britannia mill is expected to see higher throughput levels of 1,800 tonnes per day in 2024. Zinc production is expected to decline 10% year-over-year as certain high-grade zinc areas were shifted to 2023 and the mine continues to prioritize higher gold and copper grade zones in 2024.

In British Columbia, 2024 copper production is expected to be 37,000 tonnes, in line with the technical report for Copper Mountain issued in December 2023. In March, we will release updated three-year production guidance with our annual mineral reserve and resource update. Looking at cash cost guidance on Slide 12, in 2023, consolidated cash costs of $0.80 per pound achieved the low end of our annual cost guidance range as mentioned earlier. 2024 consolidated cash costs are expected to be approximately $1.15 per pound and consolidated sustaining cash costs are expected to be approximately $2.25 per pound. These are higher than 2023 due to lower by-product credits and a full year of contributions from British Columbia. In Peru, 2024 cash costs are expected to increase to approximately $1.43 per pound, primarily due to lower by-product credits and higher mining costs associated with lower capitalized stripping, partially offset by higher copper production.

In Manitoba, 2024 gold cash costs are expected to increase to approximately $800 per ounce as a result of lower zinc and copper by-product credits and higher mining costs associated with less capitalized development costs. In BC, copper cash costs are expected to decrease by 10% in 2024 compared to 2023 and will be significantly lower than the $2.69 per pound cash cost contemplated in the technical report, due to a reclassification of a portion of mining costs from operating expenses to capitalized costs. This is because we have continued to optimize the mine plan design since publishing the technical report and have made some enhancements. We moved from contractor mining to owner-operated mining as a more cost-effective approach for the additional required stripping.

Additionally, we eliminated the mining of low-grade ore to stockpile in 2024, which increases the strip ratio and allocates a higher percentage of mining costs to capitalize stripping versus operating expenses. 2024 costs also reflect reduced discretionary tonnes moved with total material moved now expected to be 97 million tonnes compared to 104 million tonnes in the technical report. Our capital expenditures guidance is shown in Slide 13. With our continued efforts to reduce discretionary spending, we were able to deliver on our spending reduction targets for 2023. Total capital expenditures for 2023, excluding Copper Mountain, was $243 million, a 19% reduction in total capital expenditures as compared to the initial guidance for 2023. British Columbia capital expenditures were in line with Hudbay’s 2023 guidance levels.

In 2024, we anticipate total capital expenditures to be $335 million, reflecting year-over-year capital reductions in Peru and Manitoba, while increased spending in British Columbia will be focused on stabilization initiatives and accelerated stripping activities. Discretionary growth spending and capitalized exploration are expected to remain at low levels in 2024 and reflect a 20% decrease from 2023. Peru’s 2024 sustaining capital expenditures are expected to decrease to $130 million as a result of lower capitalized stripping. Manitoba’s sustaining capital expenditures are expected to be consistent with a lower 2023 spending of $55 million. We are also excited to be advancing a development and exploration drift at the 1901 deposit located near the existing underground ramp to Lalor.

The 1901 growth expenditures will be partially funded by $3 million of flow-through financing proceeds received in December. In British Columbia, 2024 sustaining capital expenditures are expected to be $35 million and we expect to spend about $70 million on capitalized stripping as the team executes the accelerated stripping campaign. As mentioned earlier, with the lower BC cash costs, the 2024 sustaining capital includes a reclassification of mining costs from operating expenses to capitalized costs, when compared to the December technical report. Total aggregate operating and capital costs for 2024 in BC are expected to be in line with the December 2023 technical report. Arizona growth capital spending of $20 million includes annual carrying and permitting costs for the Copper World and Mason projects in 2024.

In terms of exploration expenditures, on Slide 14, we expect to spend $43 million in 2024, roughly 35% higher than 2023, primarily as a result of an extensive exploration program underway in Manitoba. Our 2024 exploration activities are focused on areas with high potential for new discovery and mineral reserve and resource expansion. In Peru, 2024 exploration activities will continue to focus on permitting and drill reparation for the Maria Reyna and Caballito properties near Constancia. A drill permit application for the Maria Reyna property was submitted in November 2023 and a similar application for the Caballito property is planned for the first half of 2024. We also continue to execute a limited drill program and technical evaluations at the Constancia deposit to confirm the economic viability of adding an additional binding phase to the current mine plan.

These results will be incorporated in the annual mineral reserve and resource update in March. In Manitoba, the team is excited to have initiated the largest exploration program in the company’s history in Snow Lake. The 2024 program we will focus on testing the deep extensions of the gold and copper-gold zones at Lalor, the Lalor Northwest target, and the newly acquired Cook Lake and Rockcliff claims. This property consists of drilling and modern deep geophysics, which I’ll touch on shortly. We raised $11 million in critical minerals premium flow-through financing in December to help fund this large program in 2024. Slide 15 summarizes some of the exciting follow-up drilling we have planned at Lalor in 2024. Recall in 2023, for the first time since Lalor’s initial discovery, Hudbay initiated a step-out drill program focused on down-plunge extensions and other targets via Lalor.

This included step-out drilling approximately 500 meters northwest of Lalor, which intersected a series of base metal and copper-gold zones, including a high-grade copper, gold, silver zone of comparable grade to Lalor’s current mineral reserves and we are calling this new zone Lalor Northwest. Additionally, the down plunge drilling indicated that the alteration zone at Lalor continues for at least two kilometers to the North. As part of our 2024 Winter Exploration program, we have seven drill rigs turning at Lalor, completing surface drilling currently. Six drills are at Lalor Deep following up on the successful down plunge drilling from last year and one drill rig is completing follow-up drilling at Lalor Northwest. It is anticipated that these rigs will be relocated later in the season to explore other areas of our expanded land package after target generation from geophysics.

The development and exploration drift at the 1901 deposit is shown on Slide 16. This drift is being advanced from the existing underground access ramp to Lalor. We expect this program will take place over 2024 and 2025 and will include drill platforms and diamond drilling to further confirm the optimal mining method to extract the base metal and gold lenses and to convert the inferred mineral resources in the gold lenses to mineral reserves. Our expanded Snow Lake land package is shown on Slide 17. The Cook Lake properties near Lalor provide additional potential for a new discovery and have promising historical drilling, intersecting base metal and gold mineralization, but we’re limited to an average depth of only 275 meters, a fraction of Lalor’s current known depth.

The acquisition of Rockcliff, one of the largest landholders in the Snow Lake area, provides significant additional land within trucking distance of our Snow Lake processing facilities. The 2024 exploration program will include a large geophysics program consisting of surface electromagnetic surveys using cutting-edge techniques that will enable us to detect targets at depths of up to 1,000 meters below surface. We will use the results from the geophysics program to generate drill targets to be tested later this year. We are very excited to be exploring these new land claims with the goal of finding a new anchor deposit to maximize and extend the life of the Snow Lake operations well beyond the current 2038. Hudbay is set up for another highly successful year in 2024.

Our key objectives are shown on Slide 18 and I know that we will again deliver on our plan in 2024 to continue to drive value for all of our stakeholders. We’ve touched on many of these objectives throughout the presentation and at the core of our organization, we are always focused on operating safely and sustainably, aligned with our purpose to ensure that the company’s activities have a positive impact on our people, communities, and the planet. We intend to generate strong cash flow by delivering copper production growth and maintaining strong gold production. This will enhance our ability to develop — to deliver our leading copper growth pipeline. Now to conclude on Slide 19. We believe that copper has the best long-term supply-demand fundamentals in the sector, as global copper mine supply will be unable to meet demands from global decarbonization initiatives.

Hudbay is uniquely positioned to benefit from the strong outlook for copper with attractive copper production growth and significant long term optionality for investors through our leading organic growth pipeline. Our strong operating platform with multiple assets in Tier 1 mining jurisdictions delivers a robust copper platform with more than 150,000 tonnes of annual copper production through to the end of this decade. Our leading copper exposure with complementary gold revenue offers portfolio resilience and diversification, while we offer unique copper optionality with our world-class organic growth pipeline of development assets, including Copper World in Arizona and the highly prospective exploration satellite properties near Constancia.

And equally important, we remain committed to the highest sustainability standards with social and environmental goals that will continue to deliver many benefits to all of our stakeholders. And with that, we’re pleased to take your questions.

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Q&A Session

Operator: [Operator Instructions] There will be a brief pause while we compile the Q&A roster. Your first question is from Orest Wowkodaw from Scotiabank. Please ask your question.

Orest Wowkodaw: Hi, good morning. Nice to see the deleveraging continue here. I assume that’s the focus for the next two years or so, but I did notice in your slide deck, you didn’t include the previous three pre-requisites for Copper World, and I’m just — can you just remind us if those criteria still exist in terms of where you want to see the balance sheet before you consider moving ahead with Copper World?

Peter Kukielski: Good morning, Orest. Thank you very much for your comments. Absolutely, the 3-P program that Eugene outlined back in October of 2022 absolutely remains in place. One was permits in hand, which we expect to obtain this year. The other was, obviously, was a prudent financing plan, and the other one was, Eugene, remind me, a partner, so that’s part of the prudent financing plan. So all of those initiatives remain in place. But Eugene, any further comments from you?

Eugene Lei: Yeah. Thanks, Orest. And we’re really pleased with the progress we made in 2023 to reduce our net debt to EBITDA ratio from 2.0 times to 1.6 times as Peter mentioned, and that’s ahead of the plan, and the plan is to get this to 1.2 times, and we’ll continue to make progress on that plan in 2024 with prudent capital management and a focus on discretionary spending. But in 2024, looking ahead, we really improved our exposure to both copper and gold. And so for every $0.25 increase in copper, that’s $75 million of additional net free cash flow and $100 of gold is another $25 million of net free cash flow. So we’re really going to see the — start to see the benefits of this enhanced diversified production platform that will allow us for accelerated deleveraging and that continues to be a focus for us.

Orest Wowkodaw: Thanks. Just as a follow-up, I think I noticed your languaging in the release talked about permits now as a ’24 event rather than a mid-year ’24 event. Are you expecting some, I guess, delays there? And I’m just wondering if the JV partner process is waiting for permits before it gets going or is that in the background happening independently?

Peter Kukielski: No. Orest, there are no delays in the permits. The [act for protection] (ph) plan has been drafted and it’s now in the statutory public comment period and we expect to receive permits during the year. I think it’s likely in the third quarter, but no, there’s no delay in anything at all. Your question with respect to the JV partnering process, we want to have the permits in hand before we initiate that, but it’s safe to say that we have a lot of interest expressed by various parties and we’ll bring them along in due course.

Orest Wowkodaw: Perfect. Thank you very much.

Operator: Thank you. Your next question is from Ralph Profiti from Eight Capital. Please ask your question.

Ralph Profiti: Thanks, operator. Good morning, everyone. The accelerated stripping at Copper World — excuse me, Copper Mountain over the next three years, there doesn’t seem to be a significant increase versus the technical report. There was a lot of this captured in some of the discretionary stripping decisions. So I’m just wondering, is it safe to say that this $70 million number in 2024 is a good carryover number into ’25 and ’26?

Andre Lauzon: Yeah. Thanks, Ralph. This is Andre. So, what you see for 2024 is the ramp-up, so the teams have done an excellent job of ramping up to the 28 trucks and we’re ramping up the truck drivers as we speak. We continue ramping up into ’25. So we’ll be hitting levels very close to the technical report. We mentioned that some of it was discretionary when we rolled out the technical report, so the technical report was then — it was a snapshot in time and when we had six months to get it out and so we put together a really sound conservative tech report, and there’s lots of opportunities the teams are working on blast practices and looking at ways to go with the more traditional stripping slope angles. We put in a very conservative slope angle into our technical report.

So there are some reductions based on permanent elimination of waste with new mine designs and the like. So there’ll be some subtleties as we improve and optimize the technical report, but those are positives.

Ralph Profiti: Great, yes, it’s good to see. My follow-up question is — and I don’t want to jump the gun on the three-year guidance that’s coming, but the original guidance had 2025 as a down year at Constancia, but given some of the numbers that we’re seeing in the new guidance and it looks to be Pampacancha, you may have for another full quarter in 2025, would it be safe to say that Constancia may actually look like on copper production a flat year-over-year in ’25 versus ’24?

Andre Lauzon: Thanks again. So, we’re working on opportunities. I know the teams have been looking at steeper — again, similar theme to what’s in Copper Mountain, steeper slope angles, geotechnical, hydrology, and they’re looking to try and get a little deeper in Pampacancha, but the overall for ’25 is still coming down, so — but the teams are continuing to look at it, but it’s not going to be the exact same, but there will be a tail in ’25 similar to what it was previously.

Ralph Profiti: Got you. Okay. Yeah. Thanks, Andre. Well done. Thank you.

Operator: Thank you. Your next question is from Lawson Winder from Bank of America. Please ask your questions.

Lawson Winder: Hey, thanks, operator, and good morning, Peter and team. Thank you for the update today. I wanted to ask about Copper World, similar question to what Orest asked, but just in a slightly different way. So, as you discuss with potential partners, is the feedback you’re getting that any sort of agreement is dependent on receipt of permits or are there any other sort of conditions that are coming up that might be limiting an announcement?

Peter Kukielski: Good morning, Lawson. No, and thanks for your kind words. Look, I — absolutely not. I think that the feedback that we’re getting is all is value-driven. Nobody is focused on what’s happening with the permits. I think there’s a high degree of confidence in the state permitting process and I think the focus from everybody that we’ve spoken to is completely value driven.

Lawson Winder: Okay, fantastic. And then, just in terms of the social license situation around Copper World, what is your sort of sense of whether there might be any degree of legal challenges once the state permits arise? And has there been any community engagement that might help you gauge that potential reaction?

Peter Kukielski: So, the first comment that I would make is that we are extremely open to working with anybody and everybody. Now, the state permitting process has a process that involves public comment, but the comment has to be associated with the specifics associated with the technical aspects of the permit. So it’s not like the NEPA process, which sort of allows for broader type of comment period. We — you will recall during the Rosemont project that the state permits were issued and that they were, in fact, challenged by opponents, it’s not unlikely that that won’t happen again, but remember that we overcame those or the state overcame those challenges and the permits were upheld. Now, in this case, the work that has been done by both ourselves and the Arizona Department of Environmental Quality has been huge, because we are ensuring — they are ensuring that they can withstand any challenge.

So, our feeling is that there may be a challenge, but they will be fairly easily overcome, because of the technical merits associated with the permits. Now, also remember that once we have the permits in hand, the next step is definitive feasibility. So it allows us time in which to resolve any of those outstanding issues in any case. From a PR perspective, we are making sure that we engage with a broader population as well as with the tribes in order to ensure that there’s much better understanding of what it is that we are trying to do and we have very, very significant engagement with the tribes currently being experienced.

Lawson Winder: Okay. Fantastic. And it’s nice to see that deleveraging accelerate, nice one.

Peter Kukielski: Thank you.

Operator: Thank you. [Operator Instructions] You next question is from Jackie Przybylowski from BMO Capital Markets. Please ask your question.

Jackie Przybylowski: Thanks very much. And congratulations on the quarter. It’s really terrific. I guess — my first question will be on Manitoba. You mentioned that you’re planning to start the exploration drift to 1901 and you’ve got some other properties that you’re working to get started on drilling, can you just maybe give us a quick overview as things stand now on where you see the next production coming from and how that fits into your existing mills in your existing infrastructure? Thanks.

Peter Kukielski: Sure. Jackie, and thanks for the kind comments. I think Andre and I were actually on site in Manitoba last week and we spent some time with the exploration team and it is, I have to tell you, there’s a lot of excitement there. But I think to answer your questions a little bit more specifically let me get Andre to do that.

Andre Lauzon: Sure. So, specifically to your question, Jackie, around what are the next lines of production and so, obviously, the very, very nearest stuff is the 1901, right? We do — we have identified some mineral resources and some reserves in that deposit. We started the drift. It’s on track and the teams are fully focused on that. And that drift itself, what it does, it also opens up some exploration targets for copper-gold zones that we previously couldn’t drill from surface along the way. So, later on this year, we’ll come into some new drill horizons that we haven’t been able to test for the down plunge, if you will, of the copper-gold zones of 1901. Our hope through this program is better grade and higher value material and potentially we’ll see on the [tonnes] (ph).