HudBay Minerals Inc (HBM)

HBM 
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HudBay Minerals Inc Ord Shs (HBM)

Q2 2013 Earnings Conference Call

August 1, 2013 10:00 AM ET

Executives

David A. Garofalo – President and Chief Executive Officer

David S. Bryson – Senior Vice President and Chief Financial Officer

Alan T. C. Hair – Senior Vice President and Chief Operating Officer

Cashel Meagher – Vice President, South America Business Unit

Brad W. Lantz – Vice President, Manitoba Business Unit

Analysts

Orest Wowkodaw – Scotiabank

Brett Levy – Jefferies & Company

David Charles – Dundee Capital Markets

Oscar Cabrera – Bank of America Merrill Lynch

George Topping – Stifel Nicolaus

Matt Murphy – UBS

Alex Terentieu – Raymond James

Patrick Morton – RBC Capital Markets

Zach Zonir – GMP Securities

John Hughes – De Jardin Securities

Alex Kaduski – CIBC

Presentation

Operator

Welcome to the HudBay’s Second Quarter 2013 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session and instructions will be provided at that time. (Operator Instructions) I would like to remind everyone that this conference is being recorded today, Thursday, August 1, 2013.

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

John Vincic

Thank you, operator. Good morning and welcome to HudBay’s 2013 second 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 the following, 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 CEDAR 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’d like to pass the call over to David Garofalo. Dave?

David Garofalo

Thanks John. Good morning everyone. HudBay delivered another safe and productive quarter from our existing operations in Northern Manitoba. In particular, unit cost at 777 settled to historic levels in the second quarter on strong ore production and less contractor activity in operations. Also, Lalor delivered strong ore production grades in the first quarter and its first quarter commercial production.

Lalor unit costs are expected to improve over the balance of 2013 as we achieve steady state production up at temporary hoist in the ventilation rates. We believe this puts us in a good position to achieve annual operating targets for the seventh consecutive year. Both the new Reed mine and main production shaft at Lalor are nearing completion on time and on budget, putting us in a position to deliver meaningful growth in 2014 from Manitoba operations for the first time, since the start up of 777, 10 years ago.

With the construction of the Constancia project in Peru now we are 40% complete and detailed engineering now 90% complete, we believe we have made significant progress in all three of our development projects. However we are disappointed by capital cost increase of approximately 15% at Constancia and we have taken decisive steps to refocus our spending priorities by identifying opportunities to defer approximately one-half of this potential capital increase to Constancia into the production phase by resequencing some non-critical path components of the development plan.

Deferring approximately CAD325 million for the construction of the new Lalor concentrator, by doubling the capacity at the Snow Lake plant for CAD9 million to accommodate ore from the new Lalor shaft by the middle of 2014. And reducing and deferring CAD100 million of discretionary expenditures through the end of 2014 including reductions in dividends and exploration and deferring sustaining capital expenditures. As part of our spending reductions, our Board declared a semi annual dividend of $0.01 per common share payable in September down from the previous level of $0.10 per share.

We expect to be able to maintain this new annual semi dividend, sorry this new semiannual dividend level through the completion of our major capital projects at which time we will reconsider the dividend rate in light of the additional cash flow expected from our new mines.

Project highlights during the second quarter include commercial production for the first phase of the Lalor project, which was declared on April 1, since then underground project development has progressed very well as we completed the 910-meter level for mining and a load-up facility at the 955 meter levels.

The main production shaft has now reached 882 meters in depth and is 90% complete. The Lalor mine project remains on time and on budget. The advancement of the underground ramp at Reed is also progressing well, the project remains on schedule and on budget and we expect initial production by the fourth quarter of 2013.

At Constancia we have now completed 90% of the detailed engineering, more than 40% of the construction and have secured the mine fleet of 18 haul trucks scheduled for delivery between August 2013 and August of next year with some trucks having already arrived in Peru.

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