2014 Annual and CSR Report
2014 Annual and CSR Report
2014 Annual and CSR Report
Hudbay’s strong commitment to shareholder value and corporate social responsibility is integral to our achievements in 2014 and will be key to sustaining our long-term growth and profitability.
2014 was a pivotal year for Hudbay. Five years earlier, we outlined a growth plan for creating long-term value that was put into action across the Company. By the end of 2014, our plan had delivered major achievements: the Reed and Lalor mines both achieved steady-state commercial production and Constancia achieved commercial production by the middle of 2015 on schedule. Our new mines joined the 777 mine, a reliable producer for many years.
At the beginning of 2014, Hudbay had one mine operating at steady state. By year’s end, we had three. With Constancia now on stream, we are a multi-jurisdictional operating company with production from four operating mines.
Corporate social responsibility (CSR) is an integral component of our recent achievements. Our commitment to CSR makes us better planners and operators, supports transparency and strong governance, contributes to improved safety and environmental performance, and strengthens our connection with stakeholders. Managing the economic, environmental and social impacts of our activities also plays a key role in securing the social and legal licences to operate that are essential to our future growth.
The growth plan we adopted in 2010 reflects our experience: namely, the best way to deliver sustainable value in mining is by finding and building new mines and then operating them in an environmentally and socially responsible way. Our plan was built on three pillars that leverage our strengths in exploration, development and operations:
Since 2010, we have added to those strengths, particularly with respect to large-scale, open pit developments. Our capabilities and our record of bringing three mines into production while maintaining high standards of CSR performance all played a part in our successful acquisition of the Rosemont project in July 2014. Situated in a historic copper mining area in Arizona, Rosemont is perfectly aligned with our growth strategy in terms of geography, geology, jurisdiction and long-term potential.
With physical construction completed at Constancia, and with our new Lalor and Reed mines at steady state, our assets are positioned to contribute to significant and sustainable growth in production across the board. We expect an approximate 300% increase in copper production in 2015 from our current production base. This increased production will lead to economies of scale that should drive unit operating costs down considerably this year.
Our capital budget will also decrease in 2015 to $425 million, or by 60% compared to 2014. This decrease, coupled with increased production and lower operating costs, will improve revenues and cash flow. We expect to be in a strong position to fund a significant portion of Rosemont’s construction through funds from operations.
CSR is a core part of Hudbay’s culture and success. We have put in place policies, management systems and processes to codify our commitments to our stakeholders and help manage risk. These include the OHSAS 18001 health and safety management standard and the ISO 14001 environmental management standard, which all of our operating sites are expected to meet within two years of start-up or acquisition. We have also adopted the Mining Association of Canada’s Towards Sustainable Mining initiative, the Voluntary Principles on Security and Human Rights, and other international best practice standards that help guide our actions and evaluate our performance.
We expect an approximate 300% increase in copper production in 2015 from our current production base.
Our commitment does not eliminate CSR challenges. Because stakeholders are engaged on issues they care about, disagreement about goals, approaches and outcomes is always possible. This is often the case with issues that touch communities. While we always work to be a good neighbour and to understand and consider community views and expectations, we are in negotiations with some of our communities regarding what is fair and feasible for Hudbay to provide. By being open and flexible, and striving for peaceful processes to resolve conflict, our record shows that we manage to work through the challenges.
Our operations make a positive contribution to neighbouring communities. We strive to provide local residents with access to the opportunities presented by our activities. We prioritize hiring people from nearby communities, and, when necessary, help them gain the skills they need to qualify for jobs at Hudbay and in the larger employment market. In Manitoba, we are partnering with several organizations to recruit and train local Aboriginal candidates for jobs at our new mines. At Constancia, our workforce needs have declined since completion of the labour-intensive construction phase, and we are now helping people to manage the change. This includes providing training to local residents for operations and logistics roles at the mine. We are helping others make the transition back to farming and ranching, by providing access to expert guidance on crop management and cattle breeding.
In 2014, our efforts to mitigate impacts and sustain natural environments near Constancia included a program to show farmers, who need water for their crops and animals, the benefits of the sustainable management of local bogs and wetlands, which are an essential part of the region’s ecosystem. We also supported a variety of environmental monitoring studies near Constancia and established a nursery to grow protected and native flora for revegetation programs.
In addition to being a good neighbour, Hudbay is dedicated to being a top employer, with a total focus on safety. Since 2010, we have built three mines with a remarkable safety record. Reed was completed with no lost time accidents (LTAs); Lalor had two LTAs during construction; and Constancia, with over 7,000 people on-site during peak construction, reported close to 21 million hours worked in 2014 with only a single LTA. Key personnel who worked on Lalor and Constancia are now bringing their experience and Hudbay’s strong safety culture to Rosemont.
In Arizona, Rosemont is in the permitting process. We are working with local stakeholders and all levels of government to establish strong relationships and help move the process forward responsibly. We firmly believe that thorough permitting processes produce better mines. During development, and as an operating mine, the plans for Rosemont will demonstrate leadership in environmental practice. They include a program to control light emissions and sky glows, reducing light by approximately 70% compared to conventional lighting technology and design, and a proposed dry-stack tailings plan that will help cut our water use by approximately 50%, when compared to traditional approaches in the southwest.
After four years of mine building, we expect to deliver substantial growth in operating cash flow in 2015, better positioning us to return capital to shareholders. With Constancia poised to join our producing assets, Hudbay will deliver significantly increased production, decreased capital expenditures and improved economies of scale.
This does not mean an end to hard work, just a change in emphasis. In the year ahead, we will continue to concentrate on improving efficiency and cost management at all operations. We will also keep exploring in order to increase reserves at our operating mines. The November 2014 agreement we reached with Callinan Royalties Corporation gives us access to the War Baby claim, which is adjacent to 777, where we will use our technical expertise to determine if there is opportunity to extend the mine’s life.
The successful implementation of our growth strategy strengthened our capabilities as an explorer, developer and operator, and captured the attention of the global mining industry. Hudbay is recognized as a valuable potential partner for joint ventures and other cooperative undertakings that will help to populate our growth pipeline.
2015 will see the 100th anniversary of the discovery of the Flin Flon deposit. This VMS deposit is literally the foundation for everything that Hudbay has achieved, from northern Manitoba to Peru. In celebrating this event, we will be celebrating our relationship with the community of Flin Flon, a model that has also served us well over the course of 88 years.
As the five-year plan we launched in 2010 comes to an end, we look forward to a new phase of sustainable, responsible growth that will position Hudbay to enter the top 20 of global copper producers. I thank our Board of Directors for their guidance and support, and our shareholders for their patience and confidence. Two of our directors, Wes Voorheis and John Knowles, will not stand for re-election at our upcoming annual meeting of shareholders. Six years ago, Wes assumed the role of Chairman and helped transform Hudbay from a one-mine regional company with limited mineral reserves to a major international copper producer with four low-cost operating mines and our fifth in development. As a former Chief Financial Officer of Hudbay, John Knowles brought insight, industry expertise and valuable institutional memory to our Board. On behalf of all my board colleagues, I would like to thank Wes and John for their valuable contributions to Hudbay’s success.
Finally, I wish to thank all of our employees and contractors – their initiative, hard work and commitment made the major achievements of 2014 possible and provided Hudbay with a remarkable foundation for growth.
I encourage you to look through our report to learn more about our priorities, initiatives, challenges and achievements.
Sincerely,
David Garofalo
President and Chief Executive Officer