Operations

2014 Performance

• Despite an unscheduled two-week shutdown at our 777 mine in October 2014, we met our guidance with respect to copper production but fell short of expectations for zinc and precious metals.
• 777 – Commercial production at 777 began in 2004, and after a decade of solid performance, we are now experiencing challenges related to diminishing operational flexibility and increased ground support requirements. We are taking steps to address these challenges, such as mobile fleet renewal, that should contribute to improved reliability and cost performance.
  
  Ore production in 2014 was 11% lower than in 2013 due in part to the unscheduled two-week shutdown of the 777 shaft. Zinc, gold and silver grades were lower by 20%, 15% and 7%, respectively, compared to 2013, as a result of lower grade areas being mined as well as a zinc concentrate inventory adjustment. Annual operating costs in 2014 were 10% higher than in 2013 as a result of lower production volumes.

Source: Hudbay company disclosure, Wood Mackenzie

1. LOM as per NI 43-101 “Technical Report on 777 Mine” dated October 15, 2012, with the exception of cash costs (see note 3).
2. Production represents contained metal in concentrate.
3. Wood Mackenzie LOM average from 2015 to 2020; cash costs per pound of copper, net of byproduct credits, adjusted for precious metals stream.
4. Combined mine and mill unit operating costs per tonne of ore processed. Includes mill costs for Flin Flon concentrator. 2015 combined mine and mill unit operating cost guidance for the entire Manitoba Business Unit is C$73–$88/tonne of ore.

• Lalor – Ore production was 38% higher than in 2013 due to increased access to additional mining areas and the commissioning of the production shaft. Copper, gold and silver grades were higher by 5%, 89% and 23%, respectively, and zinc grades were lower by 10% compared to 2013, due to the sequencing of the mine plan and transitioning from development mining to longhole mining. Operating costs in 2014 were 21% lower, compared to the same period in 2013, primarily due to increased production volumes. In May 2014, our Snow Lake/Lalor mine rescue team won the Manitoba mine rescue competition held in Thompson, Manitoba.
• Reed – The Reed mine commenced production in September 2013 and achieved commercial production on March 31, 2014. Ore production in 2014 reflects Reed achieving full production capacity when compared to 2013. Mine production began in 2013 from lens 30 with higher zinc and lower copper grades and was exhausted in the first half of 2014. Production in the second half of 2014 was from lens 20, which had significantly higher copper grades and lower zinc grades as compared to lens 30. Unit costs at Reed in 2014 were in line with our expectations.
• Flin Flon concentrator – Ore processed in 2014 was 12% higher than in 2013 due to commercial production and ramp-up success at Reed, offset in part by reduced 777 production. Copper concentrate production was 23% higher than in 2013 as a result of Reed production. Zinc concentrate was 21% lower than in 2013 as a result of reduced zinc head grades from both 777 and Reed. Recoveries of copper and zinc in 2014 remained fairly consistent compared to 2013. Recoveries of gold and silver in 2014 were 7% and 10% lower, respectively, than in 2013 as a result of the lower precious metal grades from 777. Operating costs per tonne of ore processed for the full 2014 year were 5% lower than in 2013 due to increased production. Copper production in 2014 at the Flin Flon concentrator was within guidance, while zinc and precious metals production was lower than expected, primarily as a result of lower grades at the 777 mine due to the sequencing of stopes, along with the impact of an unscheduled two-week shutdown of the 777 shaft in October 2014. Combined unit costs for Flin Flon operations were within guidance range.
• Snow Lake concentrator – Ore processed in 2014 was 25% higher than in 2013, as a result of increased availability of ore from Lalor as the production shaft was brought into operation in the third quarter of 2014. Copper and zinc concentrate produced were 69% and 22% higher, respectively, compared to 2013, as a result of increased production from Lalor and improved copper grades as compared to 2013. Recoveries of copper, gold and silver in 2014 were 8%, 11% and 10% lower, respectively, than in 2013, as a result of commissioning activities at the expanded concentrator. Unit operating costs per tonne of ore processed in 2014 were 4% lower than in 2013 as a result of higher production in 2014, which was partially offset by increased costs of supplies of the expanded concentrator.
• Copper and zinc production in 2014 at the Snow Lake concentrator was within guidance, while precious metals production was lower than expected, primarily as a result of lower than expected recoveries as optimization work continued on the expanded concentrator. The Snow Lake operations unit costs were slightly higher than 2014 guidance, mainly due to lower than expected ore production.
• Zinc plant – Production of cast zinc was 9% higher than in 2013 as a result of concentrate availability, both domestic and purchased. Operating cost per pound of zinc metal produced in 2014 was relatively consistent period over period as a result of higher energy costs for heating experienced in the first quarter of 2014 offset by higher levels of production. Zinc plant production and unit costs were within guidance ranges.