Our Business

CEO Message

2019 was a year of transition and positioning for Hudbay. I was named interim Chief Executive Officer in July, and in early 2020 I was appointed as Hudbay’s President and CEO. Stephen Lang, a veteran executive with experience in virtually every aspect of mining, joined our Board as its Chair in October.

In my first letter as CEO, I am pleased to report that 2019 was also a year of considerable achievements for Hudbay. Through a combination of operational know-how and technical sophistication, all driven by the energy, expertise and commitment of our people, Hudbay delivered impressive results and improved performance at our existing mines.

Hudbay’s history of finding, developing and repeatedly extending the life of orebodies has been simply phenomenal, and we continue to build on it everywhere we operate.

Peter Kukielski

Opportunities for Growth

We also laid the foundation for increased performance near our operating mines through a mix of prudent, targeted enhancements, which included increasing the capacity at our Stall mill, initiating the refurbishment of our New Britannia mill and further optimizing processes at our Constancia mine. Additionally, we extended the resource potential in Snow Lake with the discovery of the 1901 deposit and our work on the Lalor gold zone. We also set the stage for expanding our operating footprint in Peru through acquiring the surface rights to Pampacancha and by deepening our relationships with the local communities that hold the surface rights over our prospective land package within trucking distance of Constancia. Through these efforts, we helped position Hudbay for long-term growth in both copper and gold through exploration and development.

Of course, 2019 also contained one undeniable disappointment: after successfully completing the permitting process and initiating an early works program at our Rosemont project in Arizona, an unexpected judicial order halted our progress. This stoppage was the result of an unprecedented judicial decision, which we are appealing, alongside government agencies involved in issuing the permits. We are optimistic of our eventual success on appeal and, in parallel, are pursuing a variety of options to maximize Rosemont’s potential.

With construction work currently on hold at Rosemont, we moved to advance exploration activities at Mason, our advanced exploration project in Nevada. Mason is one of the largest undeveloped copper resources in the Americas. We believe it will make a significant addition to our robust copper pipeline in the future.

A History of Extending Value

Hudbay can trace its origins as a company back to 1927, when it started mining operations in northern Manitoba. Since then, the Company’s history of finding, developing and repeatedly extending the life of orebodies has been simply phenomenal, and we continue to build on it everywhere we operate.

Manitoba

At our Lalor mine, production ramped up from 3,600 tonnes per day to targeted capacity of 4,500 tonnes per day. Along with enhanced performance, we also delivered an updated mine plan for Lalor that will substantially increase gold production once the New Britannia mill is commissioned and that positions Lalor as one of the lowest cost gold mines in Canada. The mine plan lays out our approach for refurbishing the New Britannia mill, which will significantly enhance gold recoveries at Lalor while providing additional processing capacity in Snow Lake. Creating a new gold business gives Hudbay greater flexibility through commodity diversification and value maximizing opportunities.

As already mentioned, our team discovered a new deposit in the Snow Lake region that we named 1901, and we subsequently completed our initial resource estimate just six months after that discovery. The 1901 deposit is located near our existing mining and processing infrastructure and is now part of our long-term growth pipeline.

As we expanded operations at Snow Lake, we communicated openly with the communities of Flin Flon, Creighton and Denare Beach about the confirmed shutdown of the 777 mine in 2022, even as we kept looking for efficiencies at the mine to enhance the viability of the operation. Hudbay will continue to support the community during this transition while reinforcing our ties to northern Manitoba. Transition plans are in place to move some employees to our Snow Lake operations, where the refurbishment of the New Britannia mill will help to ensure that Hudbay remains a reliable partner in the region for many years to come.

Peru

Thanks to the efforts of both mine and technical teams, the story of Constancia in 2019 was one of continuous improvement, with copper recoveries increasing throughout the year. Enhanced recovery effectively gives us more copper without markedly growing costs. During the year, our activities were occasionally affected by road blockades and port closures related to community actions against other mines in the region. We were never the target of these actions and were able to adjust to and recover from their impact quickly. Establishing and maintaining good relations with neighbouring communities has always been a priority for Hudbay, and this has been rewarded in many ways, including a social acceptance. Over 2019, we made notable progress in securing land access at Pampacancha and advanced discussions with communities to the north of Constancia in relation to the additional satellite mineral rights we acquired in 2018. Our efforts are focused on further expanding Hudbay’s sizable growth pipeline.

A Company with Diverse Strengths

As we shift from 2019 to 2020, I think it is worthwhile to enumerate Hudbay’s diverse strengths. We are a Canadian copper company with assets in jurisdictions with sound regulatory and business environments. Our assets, both those in operation and those in our pipeline, lend themselves to expansion, and Hudbay has the in-house skills needed to deliver on that potential at every stage of the mining cycle – from exploration and development to operation and reclamation. Very few of our peers can point to a comparable mix of assets and abilities.

One of Hudbay’s greatest strengths is the culture of safety we have built across our company. It encompasses our assets, our people, communities and the environment and is expressed in our commitment to zero harm, across everything we do, everywhere we operate. As you will see in this report, in both Manitoba and Peru we delivered strong safety performance in 2019. However, in this case, good is not good enough, and our focus in 2020 will be to aim for perfect safety records.

The Strengths of Copper

Copper has been a valuable metal for centuries, but, in the face of climate change and other challenges, it is becoming the essential metal. It is absolutely required for the electric infrastructure and vehicles that are needed to meet the world’s decarbonization or green objectives. And Hudbay is well positioned to deliver sustainable and dependable copper production for many years to come. We have the pipeline, and we have the people. The skills we have and the assets we own will enable us to grow progressively while investing judiciously. It is a compelling proposition.

Hudbay’s Response to COVID-19

While the focus of this integrated report is Hudbay’s overall performance in 2019, it is written during the early months of 2020. So I felt it would be appropriate to say something about Hudbay’s initial response to the COVID-19 pandemic. We have kept an eye on the rapidly evolving situation across all of our operations, and our company-wide business preparedness plans were activated in mid-March 2020. At the business unit level, the response plans have been developed based on the dynamics and context of the local situation. We have been engaging with local communities, health authorities, government and other stakeholders in each of our regions. It is an uncertain time, but we remain vigilant and ready to respond to the ever-changing circumstances to ensure we protect all of our stakeholders and the continuity of our business.

Hudbay is an iconic Canadian company that has successfully weathered many storms. It has been around for 90 years, and I am confident it will be around for 90 more. I am proud and excited to be a part of it. I want to thank our Board for their guidance, and my colleagues across the Company for their warm welcome and continued support.

Sincerely,

Peter Kukielski’s signature

Peter Kukielski
President and Chief Executive Officer

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Key Accomplishments

Across Hudbay, we produced 137,179 tonnes of copper in concentrate, 119,106 tonnes of zinc in concentrate and 114,692 ounces of gold in concentrate.

Generated $310.9 million from operating activities in 2019, with an ending cash balance of $396 million, and are well positioned for future growth initiatives.

Reached a community agreement to acquire Pampacancha surface rights.

Business Activities

Peru

Constancia achieved record mill throughput and copper recoveries in 2019.

Moved from original daily rate of approximately 76,000 tonnes per day to processing almost 86,000 tonnes per day.

Reached a community agreement to acquire Pampacancha surface rights.

Manitoba

Lalor and 777 increased mine output by 22% and 15%, respectively, on a year-over-year basis.

Ramped up production at Lalor from 3,600 tonnes per day to 4,500 tonnes per day.

Refurbishing of the New Britannia mill is on track for completion in 2021; Hudbay expects this will increase Lalor’s annual gold production to approximately 140,000 ounces in 2022.

Arizona/Nevada

Advanced preliminary economic studies at Mason.

Pursuing appeal of Rosemont decision through the US Ninth Circuit Court of Appeals.

Sustainability Approach

Hudbay recognizes that operating in a sustainable way is essential to meeting our goal of creating lasting value for all of our stakeholders. Everywhere we operate, we seek to minimize our impact on the environment while doing our best to ensure our activities have a positive long-term impact on the communities near our mines. Our approach aligns with our values, and makes us a better neighbour, a better partner and a better company.

Award

Hudbay’s Manitoba operations received the Towards Sustainable Mining Leadership Award in 2019

73,000 hours

of annual occupational health and safety training completed by employees and contractors in Peru

$8.1 million

contributed toward community investments and charitable donations

Vision, Mission, Values

Vision

We will be a responsible top-tier operator of long-life, low-cost mines in the Americas.

Mission

Our mission is to create sustainable value through the acquisition, development and operation of high-quality, long-life deposits with exploration potential in jurisdictions that support responsible mining, and to see the regions and communities in which we operate benefit from our presence.