The Lalor mine resources and exploration potential provide a foundation for growth in the town of Snow Lake, and continued operations in Manitoba for a currently estimated 10.5 years. However, a mine cannot last forever – this is inherent in the nature of mining, and we recognize the impact of closure on local employees and communities.
Planning for Closure
With production at the 777 and Reed mines ending in the next few years, we’re assessing future options for the Flin Flon metallurgical complex in the hope of identifying operations that can continue to contribute an acceptable return to shareholders.
We’re also participating in the efforts of the mayors and municipal administrators of Flin Flon, Creighton and Denare Beach, who have joined forces to support a smooth social and economic transition and encourage economic diversification of the region. In 2016, Hudbay engaged a community planning consultant who held two planning workshops with community leaders on this topic. We participated in the workshops at the request of the communities.
Building Relations in Snow Lake
In Snow Lake, we initiated quarterly meetings with the mayor and town council and participated in two community meetings during the year. Two key topics of discussion were the accommodation camp we maintain at the site and the annual grant-in-lieu (GIL) payment made to the Town of Snow Lake.
With the continued expansion of the Lalor mine, and the need to recruit skilled workers from across the region, we have had to keep the camp open longer than anticipated. Many employees are choosing to commute to work and stay at the camp during their shifts rather than move their families. We understand the concerns of the Snow Lake community and expect to work through the issue with them over time in a way that suits our employees and the community.
While we pay municipal taxes for facilities situated within the Town of Snow Lake, our mining operations are located outside the town proper and are covered by an annual negotiated grant-in-lieu payment to the Town. Despite extended negotiations, we were unable to resolve the amount of the 2016 GIL by year-end. In order to maintain our longstanding commitment, we made a payment just before year-end, which represented a 5.3% increase over the payments made in the two previous years, and committed to continuing negotiations in 2017.
Progressive Aboriginal Relations
The Aboriginal communities near our operations include Opaskwayak Cree Nation, Mosakahiken Cree Nation and Mathias Colomb Cree Nation in Manitoba and three communities in Saskatchewan that are part of the Peter Ballantyne Cree Nation. Through meetings, school presentations, mine tours, open houses and collaborating on joint initiatives (usually related to employment), we work to maintain constructive relationships.
Our Aboriginal Liaison Officer (ALO) spearheads our efforts. In 2016, this work culminated in our achieving the Canadian Council of Aboriginal Business bronze level standing in the Progressive Aboriginal Relations program.
The ALO assists Aboriginal job candidates throughout the recruiting, interviewing and onboarding process, recognizing the challenges they may encounter as they enter an industrial work environment for the first time and the need for Hudbay to be flexible and accommodating. The mentoring process includes personal, financial and policy advisement from the ALO and continues for as long as needed.
In response to the Truth and Reconciliation Commission of Canada Recommendations, particularly Recommendation #92, which is a call to action to businesses, we hosted a presentation on the intergenerational effects of residential schools, together with the Flin Flon Aboriginal Friendship Centre, the Opaskwayak Cree Nation and the Flin Flon Chamber of Commerce. Elders, community members and Hudbay employees were on hand to hear a moving personal account by a second-generation residential school survivor.
We also partnered with the Flin Flon Aboriginal Friendship Centre to create a unified understanding of the Mino Pimatisiwin (sweat lodge ceremony) on the eve of the Fall Equinox. The intention of the ceremony was to make peace with past activity and build on respectful relationships with teachings from the past that are conducted in contemporary time. Several individuals gathered to pray, sing and share a feast. The Elder shared teachings on meanings behind the ceremony before, during and after the event. We plan to hold a similar event in the spring of 2017.
Other activities included cultural awareness workshops for Hudbay employees and separately for committee members from the Saskatchewan government and the Peter Ballantyne Cree Nation communities; youth outreach related to careers in mining; and the start of quarterly economic development meetings to inform First Nations communities of business opportunities at Hudbay.
At the corporate level, Hudbay made a third annual donation of $25,000 to the Indspire Building Bright Futures Bursaries, Scholarships and Awards program in 2016. Our contribution supported 15 Aboriginal students from Manitoba enrolled in post-secondary education programs in Canada in 2016.
Supporting Our Neighbours
Hudbay donated approximately C$160,000 to community initiatives and university research benefiting the Flin Flon/Snow Lake area, primarily in the areas of health, education, environment, culture and sports. Major contributions ($10,000 or more) included:
Flin Flon Community Adult Learning Centre sponsorship
Flin Flon Bombers junior hockey team
Green Project – a multi-year project aimed at accelerating restoration of forest land around Flin Flon and Creighton
NW Regional Caribou Research and Management Committee
In addition, our employees contributed more than 200 hours to community projects, such as helping out at the Flin Flon School Division Science Fair and with Operation Red Nose, a safe ride home service for area residents during the holiday season.
Community Hotline
We invite community members to report any concerns or complaints through our concern/alert email and phone line. There were four complaints registered in 2016, relating to one contractor’s safety, another contractor’s environmental performance, lake safety and a visual annoyance.
Dealing with the Inevitable: Managing Price Cyclicality
The ebb and flow of demand – and the rise and fall of prices – have always been part of mining. This means that Hudbay has been successfully managing price cycles in the metals markets for close to 90 years. That history, combined with the experience of our leadership team, provided useful perspective and insight throughout the low copper price environment of the last few years.
When Hudbay incorporated in 1927, our operations were based in Manitoba and our primary market was North America. Today, our company is international and our market is global. Over the last 10 years, demand for copper was largely driven by economic and industrial growth in China. In recent years, China’s economy has slowed, and growth in the world’s other major markets has also been largely muted.
At the same time, as a result of investment earlier in the decade, a number of new sources of copper – including our Constancia mine – came on stream and global production grew. As a natural consequence of increased supply and slower demand growth, the price for copper dropped, hitting a multi-year low in January 2016.
We responded to these events by focusing our efforts where we could make a difference – on improving efficiencies, strengthening our balance sheet and managing costs at all of our operations.
As Alan Hair, Hudbay’s President and Chief Executive Officer, observed at the Company’s year-end town hall staff meeting: “We began January with copper at a multi-year low price, and the upside of 2016 is how the organization responded. We delivered cost reductions at our operations, while still meeting guidance. We also restructured our credit facilities, positioning the Company for an even tougher pricing environment than turned out to be the case. Most importantly, we showed we could weather the storm while still moving forward.”
Toward the end of the year, the copper price improved, and our focus on cost control and generating cash flow from operations meant we were able to begin devoting resources to plans for growth and exploration. Unlike many in the copper sector, Hudbay had maintained core exploration teams. Our capacity to respond effectively to near-term challenges, while continuing to build and plan for the long term, is the key to delivering positive performance.
A Foundation for Rewarding Community Relationships
Mining is of tremendous importance to Peru. In 2015, it accounted for 17.6% of the country’s GDP and roughly half of its exports. Mining brings tax revenue, jobs, investment, infrastructure and other important benefits. Understandably, it can also prompt questions and concern from local communities.
In 2016, our Constancia mine saw a protest march, a roadblock and a brief occupation. For safety reasons, the occupation led to a temporary suspension of operations. The occupiers were from communities that had all signed co-operation and development agreements with Hudbay and with local and national governments. For various reasons, they were dissatisfied with the scope of the agreements and the pace of their implementation – and they voiced their concerns through protests such as these, which are commonly employed tactics in rural and outlying districts of Peru.
With forbearance and discipline from all sides, both legitimate protest and civil disobedience can be resolved peacefully, as were the three actions around Constancia. However, we know it doesn’t always happen this way in Peru and we work very hard to maintain good relationships with our neighbours and mitigate potential issues. We do so with the understanding that points of difference arise even in the best relationships. The key to maintaining those relationships is regular and open communication, and, on both sides, a willingness to consider other points of view.
Our Constancia operations have more than 17 people who focus on engaging with communities and supporting development. They keep our neighbours informed about what we’re doing, and why, while making sure we understand and acknowledge their concerns. They also work with local communities on projects to improve infrastructure, upgrade health facilities and build capacity for sustainable economic development and growth.
Managing Our Impact and Supporting Biodiversity
Nothing better defines the nature of modern mining than the commitment to operating in accordance with the principles of environmental responsibility and sustainability. An example of this commitment can be seen every day in the hands-on, practical steps Hudbay takes to foster biodiversity.
In many cases, our steps are framed out in protocols established by organizations like the Mining Association of Canada (MAC), the International Standards Organization (ISO) and the International Finance Corporation (IFC). While the guidelines and standards set by these outside organizations play a key part in helping us be a responsible operator, the drive to meet them comes from inside our organization.
People who don’t know the industry might be surprised to discover the extensive effort companies and employees make to ensure our activities are compatible with surrounding ecosystems. In addition to miners and engineers, we employ and partner with biologists, botanists, ecologists and environmental scientists. They understand industry’s part in society’s overall impact on the environment, but they also recognize that sustainable mining can contribute to enhancing the quality of life around the world and they are dedicated to making sure that Hudbay meets high standards for environmental performance.
In our approach to conserving biodiversity, we’re guided by the “mitigation hierarchy”, a series of defined steps, taken throughout the life of a project, that help limit the adverse impacts of a development on biodiversity, and can potentially lead to a net gain. Here are a few examples:
In Peru, we’re gathering, breeding, relocating and releasing two threatened animal species, an aquatic frog in conservation status and an endemic reptile from the region to similar habitats outside of the mine site. We’re also working with members of local communities near our operations to preserve and restore wetlands, including helping area ranchers identify practical alternatives when it comes to finding places for feeding and watering their cattle.
In Manitoba, we have an ongoing partnership with Manitoba Sustainable Development (formerly Manitoba Conservation) to help ensure that the local caribou populations are not adversely impacted by our operations. We consulted with Manitoba Sustainable Development during the planning stages of our Reed and Lalor mines to make our activities as caribou-friendly as possible, and we continue to provide financial and practical support to help them monitor caribou populations.
In Arizona, we will be funding a variety of mitigation measures including aquatic and bird species conservation activities, salvaging and replanting agave plants that are a food source for an endangered bat, avoiding specific sites to prevent plant species impacts, implementing jaguar and ocelot monitoring programs, as well as providing financial support to the Forest Service to hire a biologist for the term of conservation to manage funds and monitor results.
Biodiversity conservation is integral to modern mining, and one of the cornerstones of our approach to building a business that is sustainable and successful.
Human Rights Primer for Mining Personnel
Hudbay was a significant supporter of a human rights video developed by the Canadian Centre for Excellence in Corporate Social Responsibility for the Extractive Sector. The video introduces mining employees to the Universal Declaration of Human Rights and what they and their companies should do to respect and protect human rights. Produced with support from Global Affairs Canada, Natural Resources Canada and the Mining Association of Canada and its members, the video is publicly available on YouTube.
Post-Verification Review Drives Improvement
As a member of the Mining Association of Canada (MAC), Hudbay participates in the Towards Sustainable Mining (TSM) initiative, which requires mining companies to annually assess their facilities’ performance across six important areas:
Tailings management
Aboriginal and community outreach
Safety and health
Biodiversity conservation
Crisis management
Energy use and greenhouse gas emissions management
The results are freely available to the public and externally verified every three years.
Every year, two or three companies that have recently undergone external verification are asked to participate in a Post-Verification Review (PVR). Led by a multi-stakeholder Community of Interest (COI) Advisory Panel, the PVR helps the panel analyze activities that contribute to TSM results and promote continuous improvement in the environmental and social practices of the mining industry. We were pleased to participate in a PVR in 2016 as a way of improving our own performance and helping raise industry standards.
As part of the PVR, we submitted background information about Hudbay’s sustainability and TSM performance, presented to the COI Advisory Panel via webinar and then participated in a face-to-face dialogue in Ottawa. The Panel’s summary of findings are published on the MAC website.
Safety Accountability Starts at the Top
Recognizing the importance of leadership in creating a positive safety culture, we introduced a company-wide Visible Felt Leadership (VFL) program for all levels of management including the CEO. VFL guides leaders to conduct regular safety-focused workplace visits and to engage constructively with employees at all levels of operations. It’s a way of demonstrating to employees the importance we place on their safety and well-being, and to engage positively around safety issues.
As part of the corporate VFL procedure, senior leaders complete a form each time they conduct a workplace visit. They document who they talked with and all safe acts and at-risk behaviours or conditions they observed. They also establish responsibilities and timelines for follow-up on safety concerns. Each business unit has implemented its own VFL procedure tailored to its workplace and used by its business unit leaders.
“Employee conversations are an essential part of the program,” says Ian Cooper, Manager, Health and Safety. “They provide an opportunity for employees and leaders to have meaningful one-on-one or small group discussions about safety performance and concerns in their workplace, which leads to a greater sense of personal accountability for safe work practices and ultimately to better results.”
Building Leaders from Within
Over the next three years, we’ll be rolling out a global leadership initiative aimed at building sustainable leadership bench strength throughout Hudbay. An important part of it will be training courses offered at introductory, intermediate and advanced levels. Introductory level courses will be held locally, while intermediate courses will bring people from different business units together at rotating locations, and advanced courses will be customized to individual needs.
As a starting point, we created a leadership model with business input that articulates what we consider to be Hudbay’s core leadership competencies. The competencies fall into three main categories: growing people, growing the Company and growing oneself.
According to Amanda Abballe, Human Resources Manager: “Growing people is important because experienced and talented people are the basis for our company’s success and we are responsible for developing a skilled workforce. Growing Hudbay is important for being an adaptable and focused organization positioned to succeed in an ever-changing environment. Growing oneself builds confidence in one’s abilities and a desire to continuously improve, which are building blocks for personal success.”
Course content will be finalized in 2017 and we expect to begin delivering the program to the first cohort before year-end.
Benchmarking Hudbay’s Efforts in Aboriginal Inclusion
Hudbay achieved a Bronze level standing in the Progressive Aboriginal Relations (PAR) program of the Canadian Council for Aboriginal Business (CCAB) in 2016. The PAR program supports improvement in corporate performance in Aboriginal relations in Canada through benchmarking against a broad set of criteria in the areas of employment, business development, community investment, community engagement and company strategy. The certification process confirms performance through an extensive questionnaire that is assessed by an independent third-party verifier who reviews the responses and meets with Aboriginal stakeholders and company personnel to validate the responses. Final determination at the Bronze, Silver or Gold level is by a jury comprised of Aboriginal business people.
In each of the past three years, Hudbay completed the PAR questionnaire for our Canadian operations, and each year the verifier’s report provided guidance to improve our program. In 2016, the report was then reviewed by a jury of Aboriginal business leaders who determined that Hudbay met the requirements for Bronze level in the PAR program.
Thirty-one of the 123 CCAB member companies are PAR certified, and six of these companies are at the Bronze level. For Hudbay, achieving Bronze level represents important progress in our efforts to include Aboriginal communities in our business. “It’s important to us as a company that we deliver on this commitment with Aboriginal communities. This achievement shows that we’re on the right track,” said Pam Marsden, Aboriginal Liaison Officer, Manitoba Business Unit.
From Peru to Ontario – An Organic Opportunity
As part of our development-focused relationship with the regional government, Hudbay Peru sponsored the construction of a modern dairy plant in the Chumbivilcas region. The Cullahuata dairy currently processes 4,000 litres of milk per day and expects to increase production to 12,000 litres in the near future. It also produces several varieties of cheese, yogurt and butter.
The long-term goal is to establish a “dairy corridor” in the region. In 2016, Harmony Organic dairy in Kincardine, Ontario, stepped up to help, establishing a mentoring relationship with the Cullahuata dairy. Harmony Organic came to know the dairy through one of the Global Indigenous Development Trust trips that Hudbay had sponsored.
Harmony Organic’s CEO visited the Cullahuata dairy and is helping it become certified as organic. As part of that effort, two farmers from Chumbivilcas were invited to Kincardine to work at Harmony for a term and learn by doing. Two more will go in 2017. The knowledge they bring back – about farming, animal management and dairy operation – will be important in establishing the region’s first certified organic dairy.
In August 2016, at the third annual Community Relations International Conference in Peru, Hudbay was honoured to receive a community relations award for its work in the construction and management of the Cullahuata dairy plant.
Awarded for Reclamation
Hudbay Peru received an SNMPE (National Society of Mining, Petroleum and Energy) Sustainable Development Award in the environmental management category for its progressive reclamation practices.
In keeping with environmental best practices, we try to return land to its original state as soon as it’s no longer required as part of production. At Constancia, we implemented a program that paid community members for collecting native grass seed for reclamation purposes and helping plant the seeds and erect erosion control structures.
The response to the program by the local communities of Chilloroya, Uchucarco, Casa Blanca, Collana Alta and Huaylla Huaylla was overwhelmingly positive, with 2.2 tonnes of native seeds collected, and over 26 hectares of land revegetated in less than a year.
Six community members work with us on an ongoing basis, managing our tree nursery and doing reclamation work. We’re planning to conduct a larger-scale forestation program in 2017 and will hire additional workers for that.
Maintaining Dark Skies
Maintaining dark skies is important to scientific astronomy in Arizona, but must be aligned with the need to meet employee safety requirements of the Mine Safety and Health Administration (MSHA). To achieve both goals, the Rosemont project will implement a groundbreaking, technologically advanced lighting system.
We updated our lighting plan in 2016 in consultation with an International Dark Sky Association board member. Features include the use of filtered LED fixtures, colour rendering to avoid blue-spectrum lights (which are among the most harmful to dark skies), and shielding/beam control on non-fixed lights to reduce direct uplight. All of these measures will minimize the effects artificial lighting can have on the night sky. In addition, we plan to implement a variety of dust control measures that will aid in reducing potential light dispersion.
The impact of these new measures will be significant – reducing output from 21,815,355 lumens in the original engineering plans to 6,529,184 lumens.
Our other commitments include annual funding to the Smithsonian Institution at the Whipple Observatory to measure light and light effects and implement additional ground-based monitoring sites. During operations, light emissions will continue to be monitored by STEM Labs, a non-profit organization dedicated to understanding the effects of maintaining dark skies for astronomy and environmental impacts.
Once Rosemont’s permits are received, a Sky Brightness Monitoring Plan Oversight Committee will be created to monitor all pertinent data from the operations. Should any impacts exceed expectations, the Committee will make recommendations for corrective action. The committee will be comprised of experts from the astronomy community and the lighting industry and representatives from both the Forest Service and Rosemont.
Studies in Orchids
We’ve done a lot in the interest of the Coleman’s coralroot (Hexalectris colmaneii), a rare orchid found growing in southwestern New Mexico and southern Arizona, in part near the site of the proposed Rosemont mine.
Rosemont is contributing to the science and understanding of the plant.
Extensive surveys conducted by Rosemont have expanded the known distribution of the species to over 15 locations in seven distinct mountain ranges in southeastern Arizona.
Originally the Coleman’s coralroot orchid was thought to have a very specialized habitat, occurring only in the bottoms of shaded canyons with dense oaks and then only in a few canyons in three mountain ranges in southeastern Arizona.
Rosemont has redesigned the mine plant site to avoid one location where large numbers of Coleman’s coralroot spikes have consistently been observed. The area will be fenced to limit potential impacts from disturbance. The dry stack tailings position has also been realigned to avoid a second population known to occur in the vicinity of the project. Consequently, the project will directly impact small numbers of Coleman’s coralroot.
Overall, our surveys since 2010 have greatly increased the understanding of the habitat, range and relative abundance of orchid spikes known to exist. These surveys have also greatly expanded understanding of what is habitat for Coleman’s coralroot by documenting the orchid in areas that are strikingly different from the large drainages originally thought to be a requirement for the species. Surveys commissioned by Rosemont have also documented several locations of a similar species, Hexalectris arizonica, that had not been known previously, as well as a species of orchid, Hexalectris parviflora, that was not previously known to occur in the US.
Rosemont continues to survey areas in the vicinity of the Rosemont Copper Project to document the persistence of known locations of Hexalectris species and search for additional locations. Rosemont has also continued to monitor three locations where large numbers of orchid spikes are consistently found in order to provide long-term data to look for trends in orchid numbers and correlations with climate and habitat variables.
