2015 Annual and CSR Report
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Business and Financial Review Operations

GRI Indicators

2015 was a transitional year for Hudbay. The successful ramp-up of our new mines supported a shift in focus from advancing development to delivering production. Backed by nearly 90 years of experience, we were able to provide sector-leading growth in low-cost copper and zinc production. We also took action to further optimize our mine operations, enhance our liquidity status and achieve sustainable cost reductions. In 2015, our experience, our strategy and the strong performance of our mines combined to ensure that Hudbay is well positioned to weather the current commodity price environment.

2015 PERFORMANCE HIGHLIGHTS

  • Launched a Hudbay-wide efficiency improvement initiative. This ongoing review, combined with cost containment efforts, resulted in expected 2016 capital expenditure and operating cost reductions of more than $100 million, with no impact on our 2016 production expectations.
  • Ratified new three-year agreements, which provide enhancements to wage rates, pensions and benefits, with all seven labour unions representing employees at Hudbay’s Manitoba Business Unit.
  • Resolved an inventory backlog at our Constancia operation by increasing the size of our trucking fleet and expanding and optimizing our routes to the port of Matarani. See the Constancia case study to learn more.
  • Acquired the New Britannia mine and mill (NBM), located in Snow Lake, Manitoba, for approximately $11 million in net cash consideration, plus a contingent payment of $5 million. Currently on care and maintenance, the NBM mill, if refurbished, can potentially process approximately 2,000 tonnes per day of gold zone ore from Lalor. A technical study on restarting the NBM mill is currently underway and, as a result of the acquisition, Hudbay no longer anticipates constructing a new concentrator at Lalor.
  • Achieved full-year production guidance and met or came in below cost guidance at all operations.

Manitoba

  • In 2015, production of all metals increased compared to 2014 as a result of increased production at Lalor and increased copper grades at Reed. Production of all metals and unit operating costs were within our guidance ranges.
  • Ore production was 9% higher than in 2014 as a result of increased production at our Lalor and Reed mines, which achieved commercial production in 2014. This was partially offset by lower production at our 777 mine as a result of equipment availability in the second and third quarters of 2015.
  • Copper and silver grades were lower than in 2014 by 2% and 10%, respectively, and zinc and gold grades were higher by 11% and 4%, respectively.
  • Combined, Hudbay’s Manitoba operations produced 41,383 tonnes of copper metal in concentrate, 102,919 tonnes of zinc metal in concentrate and 92,793 ounces of precious metals in concentrate.*

* Precious metals production includes gold and silver production on a gold-equivalent basis. Silver is converted to gold at a ratio of 70:1.

Peru

  • Constancia achieved commercial production in the second quarter of 2015, and subsequently ramped up to full production in the latter half of the year. Over the course of the year, the Peru operations produced 105,897 tonnes of copper concentrate and 47,263 ounces of precious metals in concentrate. Production was within our guidance range for 2015.*
  • Throughout 2015, optimization of plant performance was an important focus as on-site teams became increasingly familiar with operating the mine and with varying ore types. A key challenge for the year was managing shipping and inventory issues. In May and June, shipments from the Constancia mine to the port of Matarani were constrained by a number of factors, including truck availability, protests unrelated to Hudbay on portions of the trucking route, and road repair activities that increased cycle times for concentrate trucks. As a result of these constraints and a faster ramp-up to full production than anticipated, an excess inventory of copper concentrate began building up at the mine. Mine management addressed these issues in several ways, including by expanding the size of the mine’s trucking fleet. By year-end, inventory was back to normal working levels. See the Constancia case study to learn more.
  • Looking to 2016, expansion of the port of Matarani is near completion, with the new Pier F starting to handle concentrate shipments in February. This new facility is intended to alleviate port congestion as other mines ramp up production.

* Precious metals production includes gold and silver production on a gold-equivalent basis. Silver is converted to gold at a ratio of 70:1.