Hudbay Minerals, Inc. Q3 FY2024 earnings call

• Delivered strong operational and financial performance with steady free cash flow and debt reduction. - Record gold production in Manitoba due to New Britannia mill's high throughput. - Constancia mill had strong throughput and is lowest cost open pit copper mine in S America. - Copper Mountain achieved highest copper recovery since inception. - Continued debt reduction, reducing net debt by over $500M in 12 months. - Progress on Copper World project, received Aquifer Protection Permit, advancing feasibility studies. - Exploration activities in Peru and Manitoba, with permits and drill progress.

In the third quarter, consolidated copper production was 31,000 tons, in line with expectations. Consolidated gold production was 89,000 ounces, a 52% increase from the second quarter. Peru operations produced 21,000 tons of copper, 20,000 ounces of gold, roughly 650,000 ounces of silver and 362 tons of molybdenum. The Constancia mill averaged 87,000 tons per day year-to-date, with 88,000 tons per day in the third quarter, positioning it as the lowest cost open pit copper mine in South America. Manitoba achieved record gold production at 62,000 ounces in Q3, producing 3,000 tons of copper, 8,000 tons of zinc and 281,000 ounces of silver. Copper Mountain produced 6,700 tons of copper, 6,300 ounces of gold and 56,000 ounces of silver in Q3, with improved cash costs.

• Reaffirmed 2024 consolidated production guidance. - Improved consolidated cash cost guidance to $0.65 - $0.85 per pound of copper. - Expect fourth quarter cost improvement in Copper Mountain. - Progress on Copper World permit process, expecting final air quality permit in late 2024/early 2025, aiming for minority joint venture partnership in first half of 2025.

• Forward-looking information subject to risks and uncertainties, actual results may differ. - Risks related to metal price fluctuations, project execution, regulatory changes, and exploration outcomes.

Q: My question is around the gold in Manitoba. Obviously, a very strong Q3. I'm just curious, is this -- are you -- with the gold price environment the way it is, are you reprioritizing the mining plan here to focus on the gold zone versus the base metal zone? And I guess I'm trying to figure out if you're seeing better-than-expected grades or if you're just focusing on the gold zone versus base to drive the better grades?

A: Orest, this is Peter. Thanks very much for the question. And the answer to your question is no, not at all. We don't focus on those as gold zones. New Britannia is performing extremely well at the moment. So, we said what we can there, but Stall store is performing really well as well. You would have seen that we -- that recoveries at Stall have reached 70% of gold, whereas a long time ago, it was about 50%. But Andre, do you have any further comment for Orest?

Q: I just want to piggyback off the last question and ask you, Peter, given the performance of Constancia, both from a throughput perspective and a cost perspective, if scaling up the operation beyond the 10% regulatory allowance is kind of something that's entering your mind on sort of the planning stage or the preplanning stage?

A: Ralph, I think -- I mean I'll let Andre answer most of that, but I think that we've always looked at the idea of being ready with Constancia for such time as we bring some of the satellites into operation down the road. So having Constancia ready to operate at higher levels is a key component of that. Andre, any more details you want to provide?

Q: Congratulations on the $0.5 billion debt repayment and all the great progress, including cutting the project finance debt target for Copper World of $350. If you just had half of the free cash flow in the future quarters, as you just had $86 million in the third quarter, you generate another almost $400 million of free cash by the time Copper World construction might start at the beginning of '27. Why sell 30% of it? Why not sell only 20% of it or keep it all? It might be better than the next project at Mason in Nevada? Or it's hard to find a substantially better projects?

A: John, it's Peter. First, thank you for your kind words. And yes, Copper World is certainly a high-quality project. And yes, we don't need a partner. But for a variety of reasons, we likely will want one. Now we're not wedded to a number of 30%, for example. But there are several reasons why we might want one. I think it all comes down to value and maximizing returns and creating optionality around our broader pipeline of opportunities across the portfolio. But perhaps to give you a little bit more granular detail, I'll ask Eugene to address some of your questions.

Q: Congratulations on a great quarter. A couple of questions from me on Copper World, just given the incoming Trump administration. And I guess, first, I want to ask, do you think that you can accelerate any of the permitting process for Phase 2 over the next couple of years or the next four years, I guess?

A: For Phase 2 -- first of all, thanks for the kind words, Dalton. I think that it's premature to say what might be possible with Phase 2. I think the first thing we'd look at to see whether the Mining Clarity Act actually passes through the Senate. If it does, then that probably makes Phase 2. It simplifies Phase 2 and it also simplifies Mason. I think you know that the NPV of Phase 2 is such that it's so enormous that the extent whereby we can bring it forward creates massive value for the Company and our shareholders, and we'll do everything that we can to do that. But also remember that we're going to -- we've got the concentrate leaching facility to put in place. But I have no doubt that once we're in operation, once we stabilize, once we ramped up, we'll turn our mines to getting Phase 2 underway or getting Phase 2 permitted as quickly as possible.

Q: I was wondering if you could just provide any updates with regards to how the air permits going Copper World.

A: It is Copper World?

Q: Yes.

A: The air quality -- sorry, sorry. So, it is going well. I would say we have confidence in the state permitting process because, as we've told you several times, I believe that it's a scientific-based process. And we're working very closely with the Arizona Department of Environmental Quality to ensure that they've got all the data they need. It follows a similar process to that of the Aquifer Protection Permit and it's been progressing very well. As you know, the Aquifer Protection Permit was received in August, in line with our timing expectations. Now the public comment period for the air quality permit was completed in September. And we were very, very pleased with the level of local support that was received during that comment period. So, the permits on track to be received in late 2024. The ADEQ assures us that it's on track. So, we expect it to be delivered in late 2024. But honestly, with Thanksgiving and Christmas coming up, it would not surprise us if it slipped into early 2025, which will be no big deal, but we are assured by the ADEQ that it's on track.

Q: Peter or Andre, wondering if you can give me a little more insight on Copper Mountain and specifically the time line to steady state. I mean, I recognize that mill availabilities improved. The throughput is rising, but it still seems to me like a long-time line to get to that point. And so maybe walk me through what the key issues going forward? And is there any kind of ability to accelerate that given your success here?

A: So, I'll start off by saying that the team and I are sitting here at Copper Mountain right now. So, we're actually doing this conference call from the Copper Mountain office, and we're really, really pleased with what we're seeing over here. So, John Ritter and the team are doing an extraordinary job of bringing things along. We always said this wasn't going to be easy, but they're hitting it out of the park. Things are going pretty well. But for a little bit of granular detail on where things are and what's required, I'll let Andre respond to that.

Q: More of a housekeeping question on my end. Can you remind me, on Slide 7, your Manitoba operations review, where you show the combined statistics here. Can you just remind me why the gold recovery is at 63.6%? Why is it so much lower than the two mills reporting at 90% at New Brit and 70% at Stall?

A: Orest, it's Eugene here. The -- on Slide 7, that gold recovery is only the gold recovery from concentrate. So that's the 60-odd percent. At New Brit, it's the combined gold, copper and concentrate and doré is 90%. You'll see that in the MD&A that we actually -- there's a more specific line up. This is only the recovery from concentrate.