Peter Kukielski, Chief Executive Officer; Andre Lauzon, Chief Operating Officer; and Eugene Lei, Chief Financial Officer, share their thoughts about the growth potential for copper and the impact that growth will have on Hudbay.
The demand for copper is growing and is on track to exceed supply. With its attractive pipeline of assets, Hudbay is well positioned to reap the rewards of stronger future copper prices.
Eugene Lei: Hudbay believes copper has the best long-term fundamentals of any metal in the industry. Our thesis is founded on both supply and demand, the growing interest in decarbonization on a worldwide scale and a significant expected increase in copper demand from making that energy transition. All of that, coupled with what we see as a very bare supply pipeline and an inability to meet even flat demand, is creating the most interesting supply dynamic we’ve seen in two decades.
Peter Kukielski: We are well positioned with our copper pipeline, including early-stage exploration assets such as the satellites near Constancia and advanced projects such as Copper World. Growth in demand will materialize – we exist in a cyclical world where metals are concerned. Those who will not accept that will be left behind. Long-life assets that span multiple cycles will win every time, which is why we focus on adding long-life, low-cost assets to our portfolio.
Andre Lauzon: The one sure thing is that copper assets are not increasing in supply. So a balanced approach to growth – develop and buy – is necessary if you want to participate in providing the metals the world needs.
Peter Kukielski: We have an enviable pipeline of copper projects, and one way to unlock the value of this pipeline is through partnerships – securing joint venture partners who can help fund the next steps of development. We also need to be open to expanding our production profile through inorganic means if this can be done in an accretive manner, such as our recently announced proposed acquisition of the Copper Mountain mine.
When it comes to funding growth, Hudbay’s prudent capital allocation process is key to delivering strong risk-adjusted returns.
Peter Kukielski: Over the past few years, we have focused on low capital intensity, low-risk, high-return brownfields growth to liberate free cash flow to build cash on the balance sheet and reduce net debt.
Eugene Lei: This has been my driving concern since becoming CFO in October 2022 – reinvigorating our focus on deleveraging while managing discretionary spending until the copper price fully reflects the true price of producing copper. Allocating capital to near-term free cash flow generation today is the key to subsequently being able to allocate capital to develop our longer-term asset pipeline with the right risk and reward balance.
Copper is Hudbay’s primary metal, but it also produces a meaningful amount of gold, offering favourable commodity diversification.
Peter Kukielski: Gold accounts for approximately 25% of our revenues. It is a good cash flow generator that balances volatility in other metals’ cycles. In our strategy, gold helps fund growth in one way or another, and we will continue to enjoy the diversified cash flows it brings and the flexibility it provides in helping us achieve our long-term growth objectives.
Eugene Lei: Gold is a complementary part of our portfolio and historically has been countercyclical with copper. However, currently, they both have a positive outlook for two different reasons. Gold has incredible optionality value that we can monetize at any time to complement our higher-return copper growth pipeline. We’ve developed our gold asset in recent years, so, at the right time, we may consider different options for using our gold to reduce debt or unlock copper growth in the future.
