HudBay Minerals Inc (HBM)

HBM 
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HudBay Minerals Inc. (HBM)

Q1 2013 Earnings Call

May 2, 2013 10:00 a.m. ET

Executives

John Vincic – Vice President-Investor Relations and Corporate Communications

David A. Garofalo – President and Chief Executive Officer

Cashel Meagher – Vice President-South America Business Unit

Brad W. Lantz – Vice President, Manitoba Business Unit

Alan T. C. Hair B.Sc. - Senior Vice President and Chief Operating Officer

David Bryson - Senior Vice President, and Chief Financial Officer

Analysts

David Charles - Dundee Capital Markets

Ralph Profiti - Credit Suisse

Greg Barnes - TD Securities

Patrick Morton - RBC Capital Markets

Cliff Hale-Sanders - Cormark Securities

Oscar Cabrera - Bank of America Merrill Lynch

Pierre Vaillancourt - Macquarie Capital Markets

Alex Terentieu - Raymond James

John Tumazos - John Tumazos Very Independent Research

George Topping - Stifel Nicolaus

David Charles - Dundee Capital Markets

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the HudBay First Quarter 2013 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. Instructions will be provided at that time. (Operator Instructions). I would like to remind everyone that this conference is being recorded today May 2, 2013.

I will now like to turn the conference over to Mr. John Vincic, Vice President, Investor Relations and Corporate Communications. Please go ahead, sir.

John Vincic

Thank you, operator. Good morning, and welcome to HudBay’s 2013 first quarter results conference call. HudBay’s financial results were issued yesterday, and are available on our website at www.hudbayminerals.com. A corresponding PowerPoint presentation is also available, and we encourage you to refer to it during this call.

Our presenter today is David Garofalo, HudBay’s President and Chief Executive Officer. Accompanying David for the Q&A portion of the call will be David Bryson, our Senior Vice President, and Chief Financial Officer; Alan Hair, our Senior Vice President and Chief Operating Officer; Cashel Meagher, our Vice President, South American Business Unit; and Brad Lantz, our Vice President, Manitoba Business Unit.

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 and EDGAR. These documents are also available on our website. Lastly, please be reminded that currency amounts discussed on today’s call are all in Canadian dollars, unless we indicate otherwise.

And now, I’ll pass the call over to David Garofalo. Dave?

David Garofalo

Thanks, John. Good morning, everyone. Since July 2010 our management team’s primary objective has been to fill our development pipeline with projects that would provide the company growth on a per share basis across all our key metals. As we near the halfway point of 2013, we are well on our way toward achieving that objective. This year our top priority is project execution. We are focused squarely on the construction of three new mines which are expected to provide significant copper, gold and zinc production growth over the next two years as they are brought into production.

After achieving initial production via the ventilation shaft at Lalor in the second quarter of last year, which was accomplished on time and on budget, we achieved another major milestone to the project by delcairing commercial production for the first phase of the project effective April 1, 2013. Initial producton at Lalor starting contiributing to profit at that time.

The development of the Reed copper project is also progressing well. This past March we were able to start hauling waste from underground with haul trucks, which is expected to reduce cycle time and improve the rate of ramp development. The project remains on schedule and we expect initial production by the fourth quarter of 2013.

At Constancia, we completed approximately one quarter of the project’s development and secured the mine fleet with 18 haul trucks with delivery schedule between June and August of 2013 -- next year and our permitting regulatory efforts remain on schedule.

I’ll discuss our project developments in greater detail in a moment, but let me first turn to our financial results for the quarter. Total revenue for the first quarter of 2013 was approximately $120 million, which decreased compared to the same quarter of last year, primarily because of lower sales volume due to the plant closures of Trout Lake and Chisel North mines in 2012 and lower metals prices compared to the first quarter of last year.

Operating cash flow was approximately $12 million, which represented a decrease of $30 million compared to last year, mainly as a result of lower sales volumes, lower realized prices and reduced gold and silver cash receipts within the quarter as a result of the precious metals stream transaction in 2012.

Now that we have achieved commercial production for the first phase of Lalor, we expect to see sequentially improved earnings and cash flow in the second half of 2013 to be followed by more substantial growth in 2014 as the Reed project comes online and we commission the main shaft at Lalor.

Our cash and cash equivalents decreased by approximately $287 million during the quarter of $1.1 billion as at March 31, 2013. This decrease was mainly driven by spending of approximately $201 million in capital expenditures primarily at Lalor and Constancia.

Our first quarter 2013 oil production in Manitoba was 16% lower than the prior year's first quarter due to the planned permanent closures of Trout Lake and Chisel North, partially offset by production at Lalor. Overall mine operating costs per ton were 6% lower than the prior year's quarter with the closure of the higher-cost Trout Lake and Chisel North mines, partially offset by higher operating costs per ton of ore at the 777 mine.

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