HudBay Minerals Inc (HBM)

HBM 
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HudBay Minerals Inc Ord Shs (HBM)

Q1 2014 Earnings Conference Call

May 1, 2014 10:00 AM ET

Executives

Candace Brûlé – Director-Investor Relations

David A. Garofalo – Chairman, President & Chief Executive Officer

Analysts

David Charles – Dundee Securities Corp.

Alex Terentiew – Raymond James Ltd.

Stefan Ioannou – Haywood Securities, Inc.

Orest Wowkodaw – Scotia Capital Markets

Gary Lampard – Canaccord Genuity Corp.

Presentation

Operator

Ladies and gentlemen thank you for standing by. Welcome to the Hudbay’s First Quarter 2014 Conference Call. At this time all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session with instructions provided. (Operator Instructions) I would like to remind everyone that this conference is being recorded today.

And I will now turn the conference over to Candace Brûlé, Director, Investor Relations. Please go ahead.

Candace Brûlé

Thank you, Operator. Good morning, and welcome to Hudbay’s 2014 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; (Technical Difficulty)

Operator

Ladies and gentlemen, I apologize for the interruption. We just lost the line of one of our speakers, and they will be reconnected momentarily. Please stand by. And ladies and gentlemen, please stand by. The conference will resume momentarily. Ladies and gentlemen, I would now like to reintroduce our speakers.

David A. Garofalo

Apologize for the technical difficulties. Hopefully, it won’t happen again, our line dropped. This is David Garofalo speaking. So I’ll just go right into an overview of our results. Our financial results in the first quarter of 2014 were affected by lower sales relative to metal production. As a result of rehabilitation work at the 777 mine was successfully completed in February 2014, production of copper concentrate rebounded as expected late in the first quarter and was in line with overall expectations.

Despite better copper production volumes late in the quarter, the availability of concentrate for shipping prior to quarter end, was limited and extreme cold weather in the quarter affected railway service from our Manitoba operations. As a result, cash flow from operations, net earnings, and cash cost per pound of copper sold were all negatively affected by a significant accumulation of unsold copper and precious metals. Specifically, 29% of copper and 44% of precious metals produced in the quarter was not sold.

Operating costs at our Manitoba business unit improved in the first quarter relative to comparable periods. At 777, operating costs per tonne of ore were 12% lower compared to the same period in 2013, primarily due to reduced contractor costs offset partly by higher propane costs due to unusually harsh winter conditions. Operating costs per tonne of ore at Lalor improved by 12% when compared to the fourth quarter of 2013, as progress was made in replacing contractors with permanent employees.

Further economies of scale are projected in the second half of 2014, when Lalor is expected to double its production capacity to 2,700 tonnes of ore per day and increase its production rate.

Full year 2014 production and operating cost guidance remains unchanged. During the quarter, we received a third deposit under the precious metals stream transaction with Silver Wheaton of US$125 million. Also, we have received commitment letters from lenders for a US$150 million Constancia standby credit facility. The facility is expected to have a term of four years with any draw- downs bearing interest at LIBOR plus 3.5%.

We also intend to enter into a long-term agreement for the sale of approximately 20% of the life-of- mine copper concentrate production from Constancia on standard market terms. We expect to close the financing and enter into the offtake agreement during the second quarter at 2014. We continue to achieve significant project milestones at all of our three new mines. At Constancia, we recently achieved 8 million man-hours without a loss-time accident. The project is on track towards initial production late this year with construction approximately 71% complete at March 31, 2014.

Critical path community relocations are complete. Pre-stripping activities commenced in early March and are progressing well, as is concentrator construction and infrastructure activities. We also continue to optimize the project by announcing a substantial increase in copper equivalent reserves at Constancia, as we completed engineering for a tailings facility expansion, allowing for the conversion of a portion of the mineral resource into reserves. This resulted in a mine-life extension to 22 years, from 16 years.

At the Lalor project, we are approaching 1,000 days without a loss-time accident. We have completed the excavation of the production shaft and are continuing underground project development, including steel guide installation. We have recently received our Environmental Act license for Lalor, which will enable full production via the main shaft.

We anticipate doubling the production capacity at the mine and concentrator in the second half of the year, as the main production shaft is commissioned and the refurbishment of the Snow Lake concentrator is completed. Lastly, not only did we achieve commercial production at Reed at the end of the first quarter, ahead of guidance and under budget, we completed the entire project without one loss-time accident.

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