Our Business

Hudbay is a copper-focused company, though we benefit from our increasing exposure to gold and welcome the opportunities created by the other metals we mine. Our company was founded in northern Manitoba in 1927, and in the intervening years has demonstrated an exceptional ability for creating value across every stage of the mining lifecycle. We have assets throughout the Americas and are recognized as a dependable operator of long-life, low-cost mines everywhere we operate.

CEO Message

INFLECTION POINT

At the close of 2021, Hudbay finds itself at an inflection point. After making significant investments in exploration, infrastructure and productivity improvements, we are poised to deliver value for all of our stakeholders. We completed two crucial projects in 2021 – Pampacancha and the New Britannia mill – and we expect to enjoy growing cash flows thanks to increased copper and gold production and anticipated higher metal prices throughout the year. We also made a significant discovery at our Copper World properties adjacent to Rosemont. These milestones were all reached while we continued to meet the COVID-19 challenge with discipline and determination.

Across Hudbay, we can look at 2021 as a year of execution and achievement. In 2022, our stakeholders will reap the rewards of our disciplined growth strategy while we advance our ‘triple A’ copper growth pipeline.

Peter Kukielski

Hudbay’s stakeholders are already reaping the benefits of our hard work over the last few years: communities from our investments, northern Manitoba from growth in Snow Lake, and employees and shareholders from our improved profitability. The significant production and cash flow growth expected in 2022 will provide continuing stability and benefits, particularly for our investors, who have been patient during this period of capital expenditure. We also advanced growth projects drawn from our in-house pipeline across all three business units. These achievements are connected: they reflect a 100-year-long tradition of running efficient operations while maximizing the long-term value of our existing assets. They highlight our connected strengths across the mining lifecycle in exploration, development, operation, and mine closure and maintenance.

A COMMITMENT TO ZERO HARM

Our excitement over our achievements in 2021 is tempered by the fatal incident that occurred at our Lalor mine in June. A worker, well known and well regarded by his fellow miners, was fatally injured from a fall. We are deeply saddened by this loss of a colleague who was also a beloved husband and father. This tragic incident was a powerful reminder that there is always an element of risk in mining, and that safety must always be our top priority. Hudbay continues to support those who were affected, and we are more committed than ever to achieving our objective of maintaining a zero-harm workplace.

SUCCESSFULLY NAVIGATING THE PANDEMIC

Throughout 2021, Hudbay continued to navigate the COVID-19 pandemic successfully. In the face of new variants, we experienced incidents in Manitoba and Peru but were still able to maintain continuous operations at our sites. Across the Company, the majority of employees and contractors are vaccinated, with a 96% vaccination rate in Peru. In Manitoba, where both vaccination and reporting are voluntary, over 82% of the workforce and contractors have confirmed that they are vaccinated, and there is regular testing for non-vaccinated individuals. Like the rest of the world, we are eagerly looking forward to the day when we can put the pandemic behind us. In the meantime, we will continue to work closely with local health authorities, remain vigilant and stay focused on keeping our people and communities safe while still meeting our performance and strategic goals.

MANITOBA

In a significant year for Manitoba, three-and-a-half-year contracts with the six Manitoba unions were ratified and built on our strong relationship as all groups looked ahead to managing the impact of the closure of the Flin Flon operations. In addition, we commissioned the New Britannia gold mill and transitioned quickly into full production. Both events took place ahead of the original schedule and were critical milestones in the shift of Lalor to a gold-focused mine. In bringing the New Britannia mill online, we embraced the opportunity for innovation; this included introducing a modern, first-of-its-kind copper concentrate circuit based entirely on Jameson Cells. The pioneering usage of these cells in Canada highlights the exceptional capacity of our Technical Services team. It is just one example of the many ways they create value for Hudbay.

Hudbay has been operating in northern Manitoba for close to a century. While we have always complied with regulations, times change, and technical understanding and expectations evolve. Accordingly, in 2021 we invested close to $25 million in upgrading existing tailings structures as part of a three-year $60 million program to improve the Flin Flon Tailings Impoundment System’s factor of safety. This commitment reflects the management diligence through which our Manitoba operation can maintain its AA rating in the Mining Association of Canada’s Towards Sustainable Mining (TSM) program. In addition, we are in the early stages of evaluating the potential of reprocessing the tailings left over from close to a century of mining in the area. New processing techniques could reclaim significant value in terms of gold, copper, zinc and silver, while helping to address and mitigate the impact of tailings deposits and potentially acid-generating rock. If our studies live up to our expectations and confirm the project is viable, it could also deliver significant economic benefits to the city of Flin Flon.

In preparation for the closure of the Flin Flon operations in June 2022, we continued to work with employees and the community of Flin Flon. The full extent of our efforts is outlined elsewhere in this report, but, as our tailings reprocessing initiative demonstrates, we remain committed to supporting Flin Flon and looking for potential opportunities in the area.

PERU

We completed our land user agreements for Pampacancha in early 2021 and moved forward with pit development activities. Subsequently, production ramped up quickly and, in line with our mine plan, contributed to increased production at our Constancia operations. Securing the land user agreements at Pampacancha was the result of a careful and disciplined process and is a testament to the efforts of the community relations team at Constancia. Our focus is always to make sure that we meet the needs of the community as well as the business. This approach, and a recognized commitment to open dialogue with all stakeholders, has served us and our communities well, in terms of dealing with both our immediate neighbours and all levels of government.

In addition to pursuing business sustainability by expanding the resource footprint around Constancia, we also found ways to use innovative technology to enhance productivity while keeping costs low. In 2021, we completed a three-stage project aimed at optimizing the flotation circuit at Constancia. By installing centre launders to increase the froth surface area generated throughout the flotation circuit, we were able to increase recoveries by 0.7% for copper and 1.4% for molybdenum. The incremental increase in cash flow enabled us to pay for the project in less than six months. Subsequently, this project was recognized with an award from Mining magazine.

Our constant focus on enhancing both productivity and profitability led us to initiate a project aimed at improving our ore-sorting capabilities by using X-ray fluorescence (XRF)-based technology to quickly distinguish valuable ore from waste rock. If the project proves economic, high-speed XRF sensors will be installed in the buckets of shovels used in our pits. Data from the scans provide the mine with real-time insight that allows the on-site team to quickly assess grades and direct the material to the mill, stockpile or waste.

Throughout the year, we continued to evaluate the underground potential at Constancia Norte while pursuing discussions with the community of Uchucarcco on the Maria Reyna and Caballito properties. Beyond Constancia, we conducted a drilling program at Llaguen, a property in northern Peru. We also successfully negotiated a collective agreement with the union at Constancia.

ARIZONA AND NEVADA

In Arizona, we continue to be focused on ways to unlock value at Rosemont for the benefit of all our stakeholders. One such possibility is through the further development of our recently discovered Copper World project. Found primarily on our wholly owned private land, Copper World offers many potential synergies with Rosemont in an alternative joint development plan. We completed extensive drilling on Copper World throughout 2021, which resulted in a sizeable initial resource estimate – at a higher classification than expected – and demonstrated Copper World’s attractive grade and near-surface nature, as well as our team’s proven strengths in exploration. We expect to publish the results of a preliminary economic assessment (PEA) for Copper World in the first half of 2022. In April 2021, we released a positive PEA for our Mason copper project in Nevada, which has the potential to more than double Hudbay’s current production levels.

Together, Copper World and Mason highlight the remarkable depth of Hudbay’s portfolio, which allows us to create value from our existing asset base and selective acquisitions.

OUR FOCUS ON ESG

Environmental, social and governance (ESG) considerations have always been fundamental to our business; it’s not new for us. The announcement, in early 2021, that David Clarry, our Vice President of Corporate Social Responsibility, had been appointed to a two-year term as Chair of the Mining Association of Canada, is a testament to both David’s insight and abilities and the importance of ESG at Hudbay. We recognize that every business has an obligation to help the world meet the challenge of climate change. This year, we took the necessary steps to begin laying out our Greenhouse Gas Reduction Roadmap, which will allow us to define specific targets and reduction paths in 2022. Our work in 2021 was to define and understand the sources and drivers of greenhouse gas (GHG) emissions at our operations. Our work in 2022 will be to define GHG reduction goals for 2030 and 2050, and develop technical and management plans for achieving those goals. We also made significant progress, including an organization-wide culture survey, toward strengthening our culture of diversity, inclusion and belonging. We understand that a culture that supports people in bringing their best selves to work is essential to maintaining and growing the talent pool that gives Hudbay a competitive edge.

LOOKING FORWARD

In early 2021, we strengthened our balance sheet through a bond offering and moved to extend our debt maturities and further lower our interest rates. Together with renegotiating our revolving credit facility, these steps will give us greater flexibility and enhance our ability to capitalize on a range of internal opportunities. We are primarily a copper producer, but with gold, our secondary metal, we have a diversity that will help us manage market volatility while pursuing growth through the development of high-potential assets within our existing portfolio. As the world moves to address the challenge of climate change with green technologies, the demand for copper will continue to grow, and Hudbay remains uniquely well placed – in terms of both in-house expertise and organic assets – to meet that demand. The strong supply-side fundamentals for copper – a lack of inventory of new copper projects, growing social and regulatory issues in relation to mining, and declining copper grades on a global scale – all contribute to a robust long-term outlook for the metal. Hudbay has proven capabilities across the mining lifecycle and an exceptional portfolio of assets. Moreover, we are recognized for operating transparently and responsibly, so customers and other stakeholders know that the metals we mine are produced in accordance with leading ESG practices. I believe this will be an increasingly important consideration and a source of advantage for Hudbay.

REAPING THE REWARDS

Across Hudbay, we can look at 2021 as a year of execution and achievement. We leveraged our people, technical skills and thoughtful investments to enhance performance, extend resources and improve production through brownfield projects at Pampacancha, New Britannia and Lalor. At the same time, we saw encouraging exploration results in Manitoba, Peru, Arizona and Nevada. As a result, we created value by building on the assets in our current portfolio and can look forward to meaningful growth in copper and gold production along with growth in our EBITDA and cash flow.

In 2022, our stakeholders will reap the rewards of our disciplined growth strategy while we advance our “triple A” copper growth pipeline. It is a tremendously exciting time for Hudbay, and I want to thank our employees for their continued commitment and resilience; they make our achievements possible. In addition, I want to thank our Board for their guidance and support, which has also been crucial in putting Hudbay on the path to deliver strong, lasting growth.

Sincerely,

Peter Kukielski’s signature

Peter Kukielski
President and Chief Executive Officer

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Key Accomplishments

Consolidated copper production of 99,470 tonnes and consolidated gold production of 193,783 ounces represented an increase of 4% and 55%, respectively, in 2021 as compared to 2020.
Discovered seven deposits at Copper World on our wholly owned private land adjacent to Rosemont in Arizona.
Full-year consolidated cash cost and sustaining cash cost per pound of copper produced, net of byproduct credits,¹ of $0.74 and $2.07, respectively, achieved 2021 guidance as inflationary cost pressures were offset by strong byproduct credits.

¹ Cash cost and sustaining cash cost per pound of copper produced, net of byproduct credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under “Non-IFRS Financial Performance Measures” beginning on page 56 of Hudbay’s Management’s Discussion and Analysis filed February 23, 2022.

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Business Activities

Manitoba

Announced phase three of the Snow Lake gold strategy with an anticipated 18% increase in annual gold production – to approximately 180,000 ounces at average cash costs of $412 per ounce – over the first six full years of New Britannia operating.

Refurbishment of New Britannia gold circuit completed in July with first gold pour in August, ahead of the original schedule; construction of new copper flotation circuit completed in October, followed by a brief commissioning period; commercial production achieved in November 2021.

Production ramp-up strategy underway to increase Lalor’s throughput from 4,650 tonnes per day to 5,300 tonnes per day by the end of 2022.

Nevada

Published preliminary economic assessment for Mason in April 2021, anticipating a 27-year mine life and potential production level that could more than double our annual copper production.

Arizona

Copper World project discovered in early 2021 with the identification of four deposits, followed by an extensive drill program that expanded the mineralization to seven deposits by September.

December 2021 initial resource estimate for Copper World includes indicated resources of 272 million tonnes and inferred resources of 142 million tonnes at 0.36% copper.

Successfully expanded our private land package and now hold over 4,500 acres to support a potential operation entirely on private land.

Initiated state-level permitting on private land in Arizona for Copper World.

Peru

Annual gold production increased by 306%, exceeding the 2021 guidance range, due to the successful ramp-up of Pampacancha; Pampacancha on track to achieve higher copper grades in 2022.

Finalized land user agreements at Pampacancha in order to gain land access to begin development and achieve first production in April.

Increased Constancia’s copper reserves by 11% and gold reserves by 12% with the inclusion of newly discovered Constancia Norte near the Constancia pit.

Updated Constancia mine plan increased annual copper production to 102,000 tonnes at cash costs of $1.18 per pound over the next eight years.

level rating across all TSM Tailings Management Protocol indicators in both Manitoba and Peru

$9.3

million in community investments and charitable donations

Sustainability Approach

Environmental, social and governance matters are as crucial to our strategy and decision-making as safety and profitability. The factors are interrelated, and successfully managing and integrating them is essential to building the relationships and realizing the opportunities that will enable Hudbay to continue to grow. Our sustainability efforts align with the UN’s Sustainable Development Goals and with our commitments, including our GHG emissions targets for 2030 and 2050.

Feature Story

Technology Advances at Lalor Enable a Better, Safer Mine

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Feature Story

Transforming Mining into Sustainable Development

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Our Values

Our values of dignity and respect, caring, openness and trustworthiness guide our efforts to promote an inclusive workplace that embraces the diverse backgrounds, experiences and perspectives that make us a stronger business. Our OneHudbay approach provides a crucial foundation for attracting and retaining diverse talent.