2017 Annual and CSR Report
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CEO Message

Positioned for Growth: Our Story and Our Focus in 2017

Hudbay’s strategic objective for 2017 was to make sure we’re positioned for growth – but, as always, safety remains our top priority.

So I’m pleased to report that we achieved a strong safety record across all of our operations. We maintained or improved performance with respect to the severity of lost time accidents and total recordable incident frequency in our Manitoba and Peru business units. In particular, at Constancia, we achieved an excellent safety record, with no mining-related lost time accidents (LTAs) for the year.

Going into 2017, we maintained the fiscal discipline that served us so well in the previous year. As 2016 came to a close, we were able to refinance debt that was scheduled to mature in 2020. In 2017, we were able to pay off our secured credit facility in full. Our strengthened financial position, coupled with an increasingly favourable environment for metal prices, gave us the capacity to shift our focus from the balance sheet to an extended period of growth – one that will have an impact across all of our business units.

Alan Hair

“Our strengthened financial position, coupled with an increasingly favourable environment for metal prices, gave us the capacity to shift our focus from the balance sheet to an extended period of growth – one that will have an impact across all of our business units.”

Meanwhile, Hudbay has made significant progress with the permitting process for the Rosemont project in Arizona. Last June, the US Forest Service issued a favourable Final Record of Decision, and we anticipate receiving the Section 404 Water Permit from the US Army Corps in 2018. We look forward to moving ahead with construction on this outstanding project, and we are well positioned to fund the bulk of Rosemont’s expenditures from our operating cash flow.

We have also taken important steps to expand our development pipeline. These included successful negotiations that concluded in January 2018 with the acquisition of three properties near our Constancia mine in Peru. We undertook exploration activities in Manitoba, British Columbia, Peru and Chile, and we re-established the position of Vice President of Exploration.

Preparing for the Future

Across our operations, Hudbay’s copper production exceeded our 2017 guidance ranges, and our production of zinc and precious metals was in line with our 2017 guidance.

At Constancia, the team made substantial progress in ramping up ore production, after some challenges in early 2017. Now that operations are running well, our technical teams are pursuing metallurgical methods to further enhance ore recovery.

As noted earlier, we made important strides toward consolidating our land package around Constancia, and we are currently involved in amicable negotiations for the Pampacancha surface rights.  At every stage of Constancia’s development and operations, we have prioritized maintaining good community relations and operating in a sustainable, responsible manner. This approach, which we apply everywhere we operate, has been essential to our efforts to expand our mining footprint in Peru. 

Another significant achievement for the year was our introduction of automation at Constancia. Automating the controls that feed our grinding circuit contributed directly to enhancing our efficiency and increasing production. As we introduced automation, we engaged proactively with employees to help them understand the benefits and opportunities it would create. Their support has been crucial to this initiative.

While our progress in automation has been rewarding, the key to our success remains the committed, motivated people on the Hudbay team, wherever we operate. A notable achievement at Constancia in 2017 was the three-year collective bargaining agreement we negotiated with our unions in Peru. This agreement represents an evolution from the initial one-year agreement, which is more typical across the mining industry in Peru. We recognize and appreciate the essential contribution that the unions in Peru made toward achieving these agreements.

Similarly, we successfully negotiated three-year collective bargaining agreements with the seven unions that represent our employees in Manitoba. We reached this agreement with no work interruptions, and it provides a solid ground for us to move forward.

Hudbay has its roots in northern Manitoba, which is one of the reasons we focus so strongly on planning for our future in the region.

At Lalor, we increased average production to 4,000 tonnes per day, putting us on track to reach our goal of processing 4,500 tonnes per day in 2018. The mine plan at Lalor for 2018 includes some mining of the gold zone for processing at Flin Flon, which will enable a better understanding of the gold zone characteristics and better inform the evaluation of options for processing Lalor gold.

We also introduced a new level of automation at Lalor, in the form of load-haul-dump vehicles (LHDs). Working underground and remotely guided by a human operator on the surface, LHDs load, haul and dump ore to feed our grinding circuit. Throughout this process, we kept our employees and their unions fully informed, and their support and co-operation has helped make the introduction of these autonomous vehicles a success.

At Reed, we continued to prepare for the mine’s scheduled closure in 2018. As soon as the last ore has been mined, we plan to initiate closure and simultaneously begin the remediation process. From end to end, Reed will serve as an example of how a responsible mine can access resources efficiently with minimal impact on the environment.

As Hudbay plans for growth, Flin Flon remains an important consideration, since we anticipate the closure of 777 in 2021. Nonetheless, we recognize that the region is one of the most mineral rich on earth. We have committed $50 million toward exploration in 2018, and a significant portion of those funds will be focused on opportunities near our existing operations, including the Flin Flon area. Consequently, exploration is still a relevant theme for Flin Flon, and we remain optimistic about the future. Although the closure of 777 is inevitable, we continue to work with employees and the community to achieve the best possible outcome for Flin Flon.

Organizational Effectiveness

In our industry and others, many companies have struggled to manage the challenge of growth. To prepare Hudbay for the future, we implemented a number of measures in 2017 – including appointing a Vice President of Organizational Effectiveness – all aimed at ensuring that we have the values, processes and accountabilities we need to support our growth.

This initiative, which we have named OneHudbay, will develop our employees’ talents while assessing and enhancing our effectiveness across all levels of the organization. Our goal is to make Hudbay stronger, by equipping our people with a better understanding of their roles and accountabilities. We will then provide the support they need to accomplish their goals and reach their full potential. Ensuring that all of our employees understand how their performance connects to our mission will help us to achieve our objectives for responsible, sustainable growth.

A Growing Demand

We feel confident that Hudbay is poised to enjoy a period of sustained growth, in both the scale of our operations and the value we create for our stakeholders.

A stronger global economy, a renewed interest in large-scale infrastructure projects (notably in China), and copper’s key role as a component of the sustainable economy are combining to drive increased demand for both copper and zinc. This surge in demand follows a long period of minimal exploration and development of new supply. Against this background, Hudbay – which operates long-life mines in Manitoba and Peru and has a world-class copper project going through the final stages of permitting in Arizona, along with an active exploration program – is well positioned to meet this demand, now and over the long term.

While Hudbay looks ahead to a period of sustained growth, I want to thank our Board for the guidance they provided in 2017. I also want to thank our contractors, our community partners and my colleagues across the organization. Their support, throughout the year and in the years ahead, is what makes our growth and our success possible.

Sincerely,

Alan Hair signature

Alan Hair
President and Chief Executive Officer