Great Bear Resources

Hudbay Minerals Announces 2018 Production and Cost Guidance and New Collective Bargaining Agreements in Peru and Manitoba

TORONTO, Jan. 17, 2018 (GLOBE NEWSWIRE) -- Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX:HBM) (NYSE:HBM) today released its production and operating cost guidance along with its capital and exploration expenditure forecasts for 2018 and announced the entering into of new three-year collective bargaining agreements in Peru and Manitoba. All amounts are in US dollars, unless otherwise noted:

Summary:

  • On a consolidated basis, Hudbay’s copper production exceeded 2017 guidance and production of zinc and precious metals were within 2017 guidance ranges.
     
  • Production results were achieved with strong safety performance, including zero lost time accidents at the Constancia mine in 2017.
     
  • Three-year collective bargaining agreements have been entered into with Hudbay’s unionized workforces at each of its Manitoba and Peru operations, providing labour stability.
     
  • Production of copper contained in concentrate in 2018 is forecast to decrease by approximately 15% compared to 2017 production, as the Constancia mine shifts to the lower-grade hypogene ore in the main pit, in line with the mine plan, and the Reed mine closes.
     
  • Production of zinc contained in concentrate in 2018 is forecast to decrease by approximately 13% compared to 2017 production, as zinc grades at Lalor and 777 are lower, in line with the respective mine plans.
     
  • Production of precious metals contained in concentrate in 2018 is forecast to increase by approximately 31% compared to 2017 production, primarily due to a planned increase in precious metals production from the Lalor mine in Manitoba and the expected start of mining at the Pampacancha deposit in Peru.
     
  • Exploration budget of $50 million, focused on exploration near existing processing infrastructure in Manitoba and Peru, as well as grassroots exploration properties in Chile and British Columbia.
     
  • Sustaining capital expenditures are expected to be $135 million, a decrease of approximately 27% from the previous year, as a major raise of the Constancia tailings management facility was successfully completed in 2017.
Contained Metal in Concentrate1 2018 Guidance 2017 Production 2017 Guidance
Manitoba2        
Copper (tonnes) 27,500 – 32,500 37,411 32,500 – 42,500
Zinc (tonnes) 105,000 – 130,000 135,156 125,000 – 150,000
Precious Metals3 (oz) 120,000 – 145,000 106,918 90,000 – 110,000
         
Peru      
Copper (tonnes) 95,000 – 115,000 121,781 100,000 – 115,000
Precious Metals3 (oz) 65,000 – 85,000 51,493 55,000 – 65,000
         
Total        
Copper (tonnes) 122,500 – 147,500 159,192 132,500 – 157,500
Zinc (tonnes) 105,000 – 130,000 135,156 125,000 – 150,000
Precious Metals3 (oz) 185,000 – 230,000 158,411 145,000 – 175,000
1 Metal reported in concentrate is prior to refining losses or deductions associated with smelter terms.
2 Includes 100% of Reed mine production; Hudbay owns a 70% interest in the Reed mine.
3 Precious metals production includes gold and silver production on a gold-equivalent basis. Silver converted to gold at a ratio of 70:1.
 

On a consolidated basis, Hudbay’s copper production exceeded 2017 guidance and production of zinc and precious metals were within 2017 guidance ranges. Production of zinc increased over 2016 levels by approximately 22% due mainly to the ongoing ramp up of Lalor production and the re-sequenced mine plan at 777 to mine stopes containing higher zinc grades in 2017. Production results were achieved with strong safety performance, including zero lost time accidents at the Constancia mine in 2017.

In 2018, production of copper contained in concentrate is forecast to decrease by approximately 15% compared to 2017 production, due to lower copper grades at Constancia as the mine shifts to production of lower-grade hypogene ore in the main pit, in line with the mine plan, and the Reed mine closes1. Production of zinc contained in concentrate in 2018 is forecast to decrease by approximately 13% compared to 2017 production, due to lower zinc grades at the 777 and Lalor mines, in line with the respective mine plans.  

Production of precious metals contained in concentrate in 2018 is forecast to increase by approximately 31% compared to 2017 production, primarily due to an expected increase in precious metals production from the Lalor mine in Manitoba and the expected start of mining at the Pampacancha deposit in Peru. In 2018, precious metals contained in ore production from the Lalor mine, which has no royalty or stream obligations, is expected to account for 67% of Manitoba’s precious metals production, compared to 49% of 2017 actual Manitoba precious metals production. Mine development at Lalor is now adjacent to the gold zones, and a recent batch sample of gold ore sent to the Flin Flon concentrator realized favourable gold recoveries of more than 60%. The mine plan for 2018 includes some mining of the gold zone for processing at Flin Flon, which is included in our precious metals production guidance. This will enable a better understanding of the gold zone characteristics and better inform the evaluation of options for processing Lalor gold.

Negotiations to secure surface rights over the Pampacancha deposit are progressing. The community has provided Hudbay with access to the land to carry out early-works activities and Hudbay expects to begin ore production later this year. In the event that mining at Pampacancha is unexpectedly delayed beyond 2018, Hudbay expects to mine material from the main Constancia pit instead, which would not impact copper production guidance, but would reduce 2018 Peru precious metals production guidance by approximately 25%.

1 Year-over-year forecasted changes to zinc, copper and precious metals production assumes the mid-point of the 2018 guidance ranges is achieved.

Twin hole drilling in the Constancia pit has indicated that the positive copper grade bias versus resource grades that has been experienced since the start of Constancia’s production is expected to persist through the life of the deposit, although the extent of the bias is expected to be less than what has been experienced to date. 2018 Peru copper guidance partially reflects the anticipated grade bias; work is ongoing to develop a revised mine plan and updated reserves, which are expected to be released by April 2018.

 

Capital Expenditure Guidance

2018 Capital Expenditure Guidance1   Millions
     
Sustaining Capital    
Manitoba   85
Peru2     50
Total Sustaining Capital   135
     
Growth Capital    
Manitoba   20
Peru   45
Arizona3   35
Total Growth Capital   100
     
Capitalized Exploration   10
Total Capital Expenditure   245
1 Excludes capitalized interest.
2 Includes capitalized stripping costs.
3 Capitalized spending.
 

Total planned sustaining capital expenditures in 2018 are expected to decrease approximately 27% from 2017 levels. The decrease is mainly due to a decline of approximately $70 million in spending in Peru, as a major raise of the Constancia tailings management facility was successfully completed in 2017. Planned capital expenditures in Manitoba include continued drilling of the gold and copper-gold zones at Lalor and development of the ramp to access zone 27, the copper-gold zone, in 2018.

Manitoba capital expenditures also include provisions for completion of the Lalor paste backfill plant, which is intended to reduce operating costs, increase mining rates and maximize ore recovery. Manitoba capital costs do not include expenditures for the refurbishment of the Stall mill, as Hudbay intends to continue to utilize available processing capacity at the Flin Flon mill to supplement Stall’s current processing capacity in lieu of expanding the Stall mill.

Peru growth capital of $45 million includes initial expenditures for developing the Pampacancha deposit and acquiring surface rights from the local community. Arizona spending of $35 million on the Rosemont project is intended to support ongoing permitting, legal and mitigation efforts, and would increase significantly if permitting is completed and the project is sanctioned for development during 2018.

Exploration Guidance

During the downturn in metals prices over the past few years, Hudbay more than doubled its owned or optioned mineral properties from approximately 380,000 hectares to approximately 860,000 hectares across Canada, Peru, the United States and Chile. Hudbay’s 2018 exploration budget of $50 million, more than twice that of 2017, will be focused on exploration near existing processing infrastructure in Manitoba and Peru, as well as grassroots exploration properties in Chile and British Columbia.

As disclosed on January 8, 2018, Hudbay has acquired a large, contiguous block of mineral rights to explore for mineable deposits within trucking distance of the Constancia processing facility. Hudbay is commencing permitting, community relations and technical activities required to access and conduct drilling activities on these properties and will provide further detail on its exploration plans in due course.

2018 Exploration Guidance Millions  
   
Peru 20  
Manitoba 15  
Generative and Other 15  
Total Exploration Expenditures  50  
 Capitalized Spending  (10 )
Total Exploration Expense 40  
 

Production and Unit Cost Guidance by Business Unit

2018 Production and Unit Cost Guidance
By Business Unit
Manitoba Operations
777, Lalor and Reed2
Peru Operations
Constancia
Total
Contained Metal in Concentrate Produced1      
Copper (tonnes) 27,500 – 32,500 95,000 – 115,000 122,500 – 147,500
Zinc (tonnes) 105,000 – 130,000 105,000 – 130,000
Precious Metals (oz)3 120,000 – 145,000 65,000 – 85,000 185,000 – 230,000
Combined Unit Operating Costs ($/tonne ore processed)4 C$110 – 123 US$7.5 – 9.2  
1 Metal reported in concentrate is prior to refining losses or deductions associated with smelter terms.
2 Includes 100% of Reed mine production; Hudbay owns a 70% interest in the Reed mine.
3 Precious metals production includes gold and silver production on a gold-equivalent basis. Silver converted to gold at a ratio of 70:1.
4 Reflects combined mine, mill and G&A costs per tonne of milled ore. Peru costs are presented in USD and reflect the deduction of expected capitalized stripping costs. Manitoba costs are presented in CAD and include the cost of ore purchased from the joint venture partner at the Reed mine.
 

Combined unit costs for Manitoba are forecast to be higher than 2017 guidance of C$88-108/tonne, due mainly to reduced ore production at the 777 mine, the cessation of the capitalization of development costs at Reed as it approaches the end of its mine life and costs for trucking ore from Lalor to the Flin Flon concentrator for processing, in lieu of capital expenditures on expanding the Stall concentrator. Combined unit costs for Peru in 2018 are expected to be approximately 4% higher than 2017 guidance as a result of the addition of a fourth operating shift at Constancia in line with the new three-year collective bargaining agreement, as well as higher diesel and steel prices.

Metal production in any particular quarter may vary from the implied annual guidance rate based on variations in grades and recoveries due to the areas mined in that quarter, the timing of planned maintenance, and other factors. Mining and processing costs in any particular quarter can also vary from the annual guidance rate above based on a variety of factors, including the scheduling of maintenance events and seasonal heating requirements, particularly in Manitoba.

2018 Production and Unit Cost Guidance
Flin Flon Zinc Plant
Zinc Metal Produced (tonnes) 100,000  – 115,000
Unit Operating Costs1 C$0.40 – $0.50/lb
1 Forecast unit operating costs are calculated on the same basis as reported unit operating costs in Hudbay’s quarterly and annual management’s discussion and analysis.
 

Hudbay’s anticipated zinc concentrate production from the Manitoba Business Unit in 2018 is expected to result in full utilization of the Flin Flon zinc plant’s processing capacity, with some zinc concentrate planned for sale to third parties.

Collective Bargaining Agreements

Hudbay has entered into separate three-year collective bargaining agreements with its unionized workforces at each of its Manitoba and Peru operations.

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