Hudbay Minerals Inc (HBM) 2018 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the Hudbay Minerals Inc.

Q4 2018 Conference Call.

(Operator Instructions) I would like to remind everyone that this conference call is being recorded today, February 20, 2019, at 10:00 a.m.

Eastern time.

I'll now turn the conference over to Candace Brule, Director of Investor Relations.

Please go ahead.

Thank you, operator.

Good morning, and welcome to Hudbay's 2018 Fourth Quarter Results Conference Call.

Hudbay's financial results were issued yesterday and are available on our website at www.hudbay.com.

A corresponding PowerPoint presentation is also available and we encourage you to refer to it during this call.

Our presenter today is Alan Hair, Hudbay's President and Chief Executive Officer.

Accompanying Alan for the Q&A portion of the call will be David Bryson, our Senior Vice President and Chief Financial Officer; and Cashel Meagher, our Senior Vice President and Chief Operating Officer.

Please note that comments made on today's call may contain forward-looking information, and this information, by its nature, is subject to risks and uncertainties, as such, actual results may differ materially from the views expressed today.

For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR and EDGAR.

These documents are also available on our website.

As a reminder, all amounts discussed on today's call are in U.S. dollars unless otherwise noted.

And now, I'll pass the call over to Alan Hair.

Alan?

Thanks, Candace.

Good morning, everyone.

I'd like to begin today's call with a quick outline of the items I'll be discussing this morning.

I will start with an overview of our corporate achievements in 2018 and the consolidated financial results.

I will then review each operating business units, speaking to the 2018 performance, development milestones and regional growth potential, along with highlights from our 2019 operational guide.

I'll spend a few minutes reiterating the elements of our growth strategy, and we'll conclude the presentation with a summary of our near-term catalysts.

I wanted to note that the shareholder had put forth a (technical difficulty) action at our annual general meeting and recently released further details about their claims against Hudbay.

Our board expects to provide a [full] response in due course.

The purpose of today's call is to discuss our quarterly results and business outlook.

So when we get to the Q&A portion of the call, I'd be happy to take any questions on our business.

Reflecting back on the 2018 year, I'm very pleased with the work completed in each of our operating business units to utilize process improvements to drive additional new efficiencies in our operations.

In Peru, our continuous improvement initiatives in the processing plants resulted in record mill throughput in 2018, record copper recoveries and higher utilization of the moly plant.

As a result, Peru copper and moly production was better-than-expected.

In Manitoba, we overcame the operating challenges we had in the first half of the year, and through ongoing operational and maintenance improvements, the Stall mill achieved record throughput in 2018.

Also, the Lalor mine is on track to achieve 4,500 tonnes per day after the commissioning of the paste backfill plant and improved availability of skilled labor in the second half of 2018.

As a result of the business's operational efficiencies consolidated copper production exceeded 2018 guidance midpoint by 14% and zinc and precious metals production were within guidance ranges.

Combined unit cost in Peru were in line with 2018 guidance ranges after reflecting a cost of increased moly production and Manitoba unit cost were within revised 2018 guidance (technical difficulty) capital expenditures were also in line with expectations.

As a result, the business continues to generate incremental free cash flow of $274 million in 2018.

In addition to the operational achievements, we made several advancements on the growth side of the business in 2018.

At Lalor, we completed the test mining of the gold zone, additional infill drilling of the copper gold zone and processing trade-off studies in the gold and copper gold zones.

And in October of 2018, we concluded that the optimal long-term processing in (technical difficulty) is to refurbish the New Britannia mill, realizing incremental value through the improvement in (technical difficulty).

We are pleased to have announced yesterday the increased reserve and resource estimates at Lalor, along with the updated mine plan incorporating the refurbishment of New Britannia, which I will discuss in detail shortly.

In January 2018, we acquired control of a large contiguous block of mineral rights to explore for minable deposits within trucking distance of the Constancia processing facility.

And in December 2018, we completed the acquisition of Mason Resources for approximately $15 million, adding the large greenfield Ann Mason copper deposit to our asset portfolio and adding leverage to higher copper prices by increasing resources per share.

In the fourth quarter of 2018, we continued our trend of generating strong operating cash flow as we remained focused on our strategic priorities of developing and operating our portfolio of high-quality assets in mining-friendly jurisdictions.

We produced 57,000 tonnes of copper equivalent in the fourth quarter and 237,000 tonnes for the full year 2018.

We are proud of the operating performance in both Peru and Manitoba, resulting in consolidated copper production exceeding guidance 2 years in a row, further generating cash flow beyond expectations.

All-in sustaining cash cost in the quarter were higher than the previous quarter, primarily due to higher sustaining capital expenditures and capitalized exploration, in line with our annual capital expenditures guidance.

All-in sustaining cash cost were $1.52 per pound of copper for the year.

Earnings and earnings per share in the fourth quarter were affected primarily by noncash deferred tax adjustments driven by foreign exchange movements, which would've increased earnings per share by $0.05 on an adjusted basis.

We ended the year with $515 million in cash, further adjusting our net debt position to $466 million and increasing our liquidity to almost $1 billion, putting us in a strong position to fund our future growth initiatives.

Since early 2016, our management team is focused on free cash flow generation and reducing our net debt is apparent through the trend shown in the charts on Slide 6 of the presentation.

We achieved $100 million cost reduction targets during the downturn in copper prices in 2016, and continue to generate significant free cash flow over the last few years through unhedged production and stable low-cost operations.

In the fourth quarter of 2018, operating cash flow, before change in noncash working capital, was $107 million with total operating cash flow generation of $493 million in the last 12 months.

Since 2016, we have reduced our net debt position by more than $750 million, notwithstanding weaker copper prices in the second half of 2018.

Now let's turn to our South American business units, our Constancia mine, where we continue to achieve operational milestones.

Our processing plant at Constancia continues to perform well, averaging approximately 90,000 tonnes per day during the fourth quarter after accounting for the 5-day semiannual mill maintenance shut down that was scheduled in November.

We continue to be pleased with the mill's performance, achieving approximately 85% copper recoveries in the quarter.

While recoveries will vary from quarter-to-quarter depending on the complexity of the ore feed, we continue to see good results in the improvement initiatives that we're implementing and we expect to continue to deliver the recoveries anticipated in the 2018 technical report.

A key part of our program to optimize recoveries has been our ore stockpiling and blending strategy which had the effect of delivering somewhat higher grades in 2018 than contemplated in the technical report, as we adjusted the mine plan to facilitate the blending strategy.

We expect copper grades in 2019 to be in line with the technical report.

During the fourth quarter of 2018, Constancia produced 31,000 tonnes of copper and 18,000 ounces of precious metals.

The moly plant continued to operate at substantially higher rates during the quarter, resulting in the production of 329 tonnes of moly for the current quarter and 904 tonnes in the full (technical difficulty).

Combined unit costs in Peru were higher than the most recent quarter, primarily due to the maintenance shutdown in November, which increased spending and reduced ore throughput.

We continue to operate the moly plant substantially more than expected in 2018, following ongoing plant optimization initiatives, and the increase in revenue from moly sales from 2017 to 2018 more than offset the additional moly plant cost over the same period.

We expect continuous high utilization of the moly plant in 2019, resulting in higher moly production and moly plant costs, which is reflected in the 2019 guidance I will describe shortly.

I would like to reiterate the strong performance track record Constancia has achieved on the cost side.

Slide 8 shows Wood Mackenzie unit cost data for all sulphide open pit copper mines in South America, and I'm proud to say that Constancia's 2018 unit cost is leading the industry as the lowest cost open pit copper mine in South America.

I'm also proud of enhancements we've made in the processing plant at Constancia, incorporating both the copper recovery, mill throughput and moly plant optimization initiatives.

In addition, I feel it is important to note the success we've had in the development and ramp up of Constancia.

To put Constancia's development into perspective, we acquired the deposits in 2011, sanctioned fill project developed in 2012 after completing our own detail of engineering studies, and achieved commercial production in early 2015.

The mine was completed on time with a 10% increase in development cost.

Constancia was constructed during the last major copper project build cycle, and when compared to other greenfield open pit copper mines in the Americas, Constancia's capital cost performance was best-in-class.

In addition, Constancia's commission schedule was the fastest ramp up timeline achieved in the industry.

Other global mining companies have recognized this achievement and view Constancia as the benchmark for their own mines.

Having completed the initial ramp up in 2015, our priority was optimizing ore throughput.

Based on these optimization initiatives, we have achieved that objective, and ore throughput is consistently running at or above design rates.

We next turned our focus to improving copper recoveries.

We've made significant progress on this in the second half of 2018, and we continue to work in improvement initiatives.

We've also made significant progress on the moly plant optimization initiatives.

We expect to continue to add value at Constancia through starting to mine the Pampacancha satellite (technical difficulty), which will extend the current high-grade profile into the next 5 years.

Our discussions with the local community to acquire the surface rights at Pampacancha are progressing.

Turning to the rest of the Constancia region, we're excited to test the potential of the other nearby satellite deposits we acquired last year, including the Maria Reyna, Caballito Kusiorcco targets, which could provide high-grade feeds to the Constancia mill after the Pampacancha ore body has been mined.

Geophysical characteristics indicate these satellite properties have the potential to be even more prospective than the Constancia or Pampacancha ore bodies.

We have commenced permitting, community relations and technical services required to access and conduct drilling activities in these properties, and have been successful in reaching the community agreement covering 2 of the properties to date with plans to drill in 2019.

Given the prospectivity of these satellite deposits, we continue to be disciplined with the community negotiations around Pampacancha to ensure that any agreement supports are longer-term development plans for the Constancia region.

Moving on to our Manitoba operations, total ore milled in Manitoba was lower compared to the third quarter due to the planned closure of the Reed mine.

Ore performance continues to improve quarter-over-quarter and achieve record throughput in 20 (technical difficulty) as a result of ongoing operational and maintenance improvements and better metallurgical understanding of the Lalor ore as I mentioned earlier.

Manitoba combined unit operating costs were higher in the fourth quarter compared to the third quarter, due mainly to the Reed closure, by mining cost of 777 at Lalor and Flin Flon mill maintenance.

At our Lalor mine, we overcame some of the challenges we experienced in the first half of 2018, successfully commissioned the new paste backfill plant, and Lalor is on track to ramp up to 4,500 tonnes per day in 2019.

We are also very pleased to release an updated Lalor reserve and resource estimate, details of the Lalor gold business alongside our fourth quarter results.

The updated Lalor mine plant demonstrates a significant value we have unlocked so far by leveraging our existing processing infrastructure and several inexpensive acquisitions to develop a compelling strategy to maximize the value of our gold mineralization at Lalor and nearby deposits.

In October 2018, we announced the refurbishing of the New Britannia mill as the optimal processing solution for Lalor gold.

Gold recoveries are expected to increase to 93% in New Britannia from 53% at the Stall mill.

Also, through the addition of a copper flotation circuit in New Britannia, copper recoveries are expected to increase approximately 94% from 84% at (technical difficulty).

The new reserve estimate at Lalor increases in-situ contained gold by 65%, copper by 23%, zinc by 11%, and silver by 15% compared to the most recent reserve estimate in our 2018 annual information form, adjusted for 2018 production depletion.

Similarly, life-of-mine production increased gold by 91%, copper by 16%, zinc by 13%, and silver by 21%, compared to the 2017 technical report for Lalor for the period starting January 1, 2019.

The revised mine plan is based solely on proven and probable reserves and supports a 10-year mine life, utilizing the existing mining capacity of 4,500 metric tonnes per day at Lalor for the first 6 years of the mine plan.

Based on the technical work completed to-date, we believe that a nominal 4,500 tonnes per day is the optimal throughput rate for Lalor from a net debt present value perspective, although the production shaft has the capacity to hoist at higher rates.

The production plan has the gold and copper gold rich material feeding (technical difficulty) refurbished New Britannia mill in 2022, at an average feed rate of 1,100 tonnes per day for 7 years, based on the current reserve estimate.

An estimated investment of $95 million will be required during -- between 2019 and 2021 for the refurbishment of New Britannia.

During this period, the Stall mill is expected to process approximately 3,500 tonnes per day and approximately 1,000 tonnes per day of Lalor-based metal ore is expected to be transported to the Flin Flon mill for processing.

Lalor's annual gold production is expected to be more than double from current levels once the New Britannia mill is refurbished, with average annual production of approximately 140,000 ounces during the first 5 years as a sustaining cash cost net of byproduct credits of $450 per ounce.

That will make Lalor one of the lowest cost gold mines in Canada.

The net life-of-mine revenue at Lalor showed primarily zinc to 50% precious metals, 33% zinc, and 17% copper, with precious metals revenue increasing to approximately 60% of total life-of-mine revenue from 2022 when New Britannia is expected to be in production.

The current 10-year reserve life could be extended and total throughput of 4,500 tonnes per day can be sustained for longer, with successful conversion of additional mineral resource at Lalor and additional resources of our satellite deposits in the Snow Lake region within trucking distance of Stall and New Britannia.

We discovered the Lalor deposit in 2007 on our 100% own land using our innovative technologies and it is the largest VMS deposit found in the Snow Lake region to date.

In 2009 we started construction, with initial ramp access from the Chisel North mine.

Construction of the main production shaft was approved in 2010, and it was completed on time and on budget in 2014, a mere 7 years from initial discovery.

We acquired the New Britannia gold mill in 2015 for approximately $10 million as a potential long-term processing option for the Lalor gold and copper gold zones.

Since acquiring New Britannia, we've conducted significant technical work to assess the grade, tonnage, mineability and the tonnage of the gold and copper gold zones at Lalor to support and derisk the investment required to refurbish New Britannia and maximize the net present value of Lalor.

Lalor is an example of a low-cost, high-return organic growth opportunity, raising value through all stages of exploration, mine development and operations.

It was also one of the fastest development timelines from discovery to first production in the industry, similar to a very fast lead times at Constancia and Reed.

Refurbishing New Britannia is expected to significantly increase gold production from Lalor, and enable new gold and copper gold exploration opportunities in the Snow Lake region, by having an operating processing facility with substantially higher gold and copper recoveries.

The New Britannia demonstrates the opportunity to create additional value through owning multiple processing facilities in the Flin Flon and Snow Lake regions, as we pursue low-risk brownfield development opportunities that could unlock further value in the region.

During 2018, we were focused in drilling and test mining in the gold rich Lens 25 and have confirmed the existence of a continuous high grade core mineralization within the wider lower grade mineral resource estimates reported in the 2017 technical report.

In parallel, we have revised the geological model of the copper gold rich Lens 27, which better reflects the steeper orientation of the mineralization observed during (technical difficulty).

This reinterpretation indicates there's a simpler and more consistent mineralizing block, and together with the additional drilling conducted in 2018, has resulted in the increase in tonnage of this high-grade mineralization.

The revised mine plan for Lalor optimizes net present value by preserving gold rich ore for processing at the New Britannia mill and zinc rich ore for Stall mill, which is expected to result in significantly higher gold and copper recoveries, as I previously mentioned.

On a gold equivalent production basis, the new mine plan for Lalor delivers value beyond the previous mine plan in 2017 annual report, growing annual production at industry low cash cost.

Based on this optimized plan, and comparing Lalor to other gold mines in Canada, Lalor ranks in the middle of the group for annual gold production, and is one of the lowest sustaining cash cost gold mines.

That makes Lalor a meaningful gold producer at industry-leading costs with a potential for substantial cash flow generation.

Beyond Lalor's strong production profile from proven and probable reserves, and the upside from the conversion of Lalor inferred material, Hudbay controls a very large land package prospective for gold mineralization in the Snow Lake region.

Geochemical sampling and geophysics surveys conducted in high-priority areas during the fourth quarter will be used to define drill targets to be tested in 2019.

The upside potential for mineralization amenable to processing the New Britannia mill extends from Lalor to the old Chisel mine, where we have several historical occurrences of copper and gold mineralization beneath the existing ramp.

As shown in Slides 19 and 20, known mineral resources at nearby satellite deposits include over 4 million tonnes of indicated resource estimates, and over 11 million tonnes of inferred resource estimates at Hudbay's New Britannia and Pen II deposits, as well as the recently acquired WIM deposits.

The WIM deposit was acquired for approximately $500,000, and is a copper gold deposit that starts from surface, and is located approximately 15 kilometers by road from New Britannia.

Hudbay is developing a mine plan and conducting metal testing in the deposit, with the objective to upgrade the resource to reserve (technical difficulty).

WIM has the potential to be developed via an underground ramp and could feed the New Britannia mill after the richest portions of the Lalor reserves and resources have been depleted.

New Britannia is a former gold mine with significant mineral resources, which remain accessible in 3 zones, with some investment in the existing mining infrastructure.

We plan to initiate technical studies in the second half of 2019 to determine the technical and economic viability of the existing mineral resources, and the potential to process this material in New Britannia mill.

Pen II has a low tonnage and high grade zinc deposit that starts from surface, and is located approximately 6 kilometers by road from the (technical difficulty).

Pen II can constitute a supplemental source of feed for this mill.

There remains yet another area of further growth potential.

In addition to upgrading the known resources to reserves, there's an opportunity to expand the gold zone beyond what is currently defined.

We plan to drill Lens 17 from underground during 2019.

To date Lens 17 has only been explored from surface holes and through a 2-phase underground drilling approach this year, we will test both the upper and lower portions of this analog to the copper gold rich Lens 27.

Lens 17 is not currently included in any Lalor mineral resource estimates.

The opportunity to expand Lalor's mine life is further demonstrated by the success we've had in several years beyond the initial reserves at many of the mines we've operated in Manitoba over the past 90 years.

To conclude in Lalor, we are very pleased with the results of the work to set as a strategy for unlocking the value of the gold potential of the Lalor and the Snow Lake region.

As Lalor evolves from a significant zinc mine to becoming one of the lowest cost gold mines in Canada, we will continue to assess all options to maximize value for Hudbay's shareholders.

We believe the substantial addition of value to unlock from the exploration potential at Lalor and in the Snow Lake camp generally and through execution of our plan to refurbish New Britannia and build the necessary related infrastructure.

The work we've completed at Lalor is another example of our ability to add value to deposits through exploration.

Since acquiring Constancia, we've almost doubled the reserve estimates.

The exploration success at our 777 mine, we've grown the reserve by over 30%.

And with the new reserve estimates at Lalor, we've nearly doubled the reserves through exploration success.

I'll touch now briefly on our Arizona business unit.

We understand that the Army Corps of Engineers have completed the consultation process, and we believe they're in the final stages of the parent review.

We are well-positioned to move the Rosemont project into construction soon after permitting is complete.

Rosemont is expected to increase Hudbay's copper recurring production by 45% over the next 5 years.

Once we receive the final permits, we will finalize the financing and construction plans of the project.

We have a number of options available to us to fund Rosemont and our approach we designed to minimize Rosemont's cost of capital while ensuring we take a prudent approach to project development.

As we consider our financing plans for Rosemont, we are working within a disciplined framework that we developed in 2017, which was carefully considered and approved by our Board of Directors.

There's clear criteria on financial risk tolerance, and our disciplined approach to financing our pursuit of long-term growth and value creation initiatives.

As I pointed out in the past, unlike many of our peers, we were not forced to issue discounted equity, sell assets or hedge, cycle ore metal prices in 2017, and notably, we did not enter into a gold stream in Lalor in 2017 and 2016 despite some pressure from analysts and investors to do so.

Our framework is intended to ensure that we can continue to grow our business prudently, while maximizing value through the metal price cycle.

It is important to note that, since our acquisition of Rosemont, we have secured 6 new permits for the projects, including a final record decision from the U.S. Forest Service, and we have been involved in the successful defense of 5 lawsuits related to road permits.

The next milestone is obtaining the Section 404 water permit from the Army Corp.

While the permitting process for Rosemont has been lengthy, we respect the diligence exercised by the permitting agencies in ensuring that their processes are robust.

We are confident that we will receive the remaining required approval based on our permitting track record to date.

We are also pleased to provide a 2019 production and cost guidance with our results yesterday.

Compared to 2018, our copper and zinc production guidance reflects a successful and planned closure of the Reed mine as well as lower copper and zinc grades in line with our mine plans.

The precious metal guidance also reflects our plan to defer the mining of higher-grade gold ore from Lalor until we have completed the refurbishment of New Britannia in 2022.

We've also taken a conservative approach to our Peru guidance having included the capital spending to develop Pampacancha, while leaving the higher precious metal grade material from that deposit out of our 2019 guidance for the time being.

Our unit cost guidance reflects lower anticipated costs after some of the onetime costs we incurred in 2018 in both Manitoba and Peru.

Our CapEx guidance reflects higher spending for Peru in our tailings dam as anticipated in our technical report, and higher spending in Manitoba, in large part to support underground development for Lalor and initial work in the New Britannia refurbishment.

We have included $20 million in Arizona spending in our guidance and that amount would be expected to increase significantly once we receive the remaining permits and initiate early works at Rosemont.

Based on our proven strengths in exploration and mine development, we've developed our copper and gold strategy back in 2010.

We have a long-held belief that the most significant opportunities for value creation are through exploration and mine development.

Applying our expertise in these areas, together with our strength in community relations and efficient operations, we are able to effectively analyze acquisition opportunities with a focus in creating long-term value for our shareholders.

We screen acquisition opportunities against a number of long-standing stringent criteria.

We target copper deposits in select mining-friendly jurisdictions in the Americas, with the potential to be long life, low-cost operations once developed.

Potential opportunities should have a meaningful operating role for Hudbay, and be accretive on a per share basis, primarily not per share and reserve and resources per share.

An excellent example of executing on our acquisition strategy is the acquisition of the Ann Mason property, which was completed in December 2018.

Ann Mason has the potential to be a long life low-cost mine in one of the world's best jurisdictions for mining, and adds a significant asset to our pipeline for development after Rosemont.

It is at a stage where we can leverage our management expertise in exploration, engineering, permitting and construction to maximize the projects' ultimate value for our shareholders.

Our strategy is focused on assets with long mine lives and significant exploration (technical difficulty) Hudbay's assets all have mine lives of 19 years or longer from first production, which provides exposure to multiple commodity price cycles.

Equally important is having assets with low cash cost, providing the ability to withstand the low periods in the commodity cycles.

Hudbay is positioned in the first quartile of the C1 cash cost curve and the sustaining cash cost curve, the lowest of the peer group.

As I previously mentioned, we are focused on per share accretion and have been successful in growing reserves per share by 142%, and resources per share by 467% since 2007.

As a result of our consistent growth strategy, we offer the best growth profile and the lowest political risk jurisdiction (technical difficulty) in addition to being one of the top investable pure play copper producers globally.

In executing our strategy, we've developed a track record of strong environmental and social practices.

Based on our successful development of Constancia and proven ability to build social license to operate, we are recognized in Peru as a leader in community relations, and our track record compares very favorably to other nearby mining operations.

We're proud of our success in community relations and we are thrilled to receive several awards in Peru, recognizing our industry-leading community relations practices.

As a primary copper producer, one of our objectives is to provide shareholders with meaningful and growing leverage to copper prices.

We've seen a consistent pattern of Hudbay providing investors with this leverage over the past several years, with strong performance in 2016 and 2017 periods of rising copper prices, in 2018 with the decline in copper prices, it was not surprising that the share price performed as it did.

While we don't control metal prices, the execution of our plans in 2018 has positioned us well for improving copper prices in the future as evidenced by a significant outperformance versus our peer group year-to-date in 2019.

As we continue to execute on our strategic plan, we believe our share price will continue to provide shareholders with leverage to rising copper prices based on the quality of our asset base of low-cost long-life assets in mining-friendly jurisdictions in the Americas and our strength as proven mine developers and operators.

We are constantly evaluating new opportunities in screening for high-quality assets which have growth criteria.

I want to highlight the lack of actionable opportunities in the copper space.

Ann Mason was the third largest resource held by a junior company in our operating jurisdiction in Canada, the U.S., Peru and Chile.

It's also important to note that when you evaluate new opportunities and apply real-world operating and capital cost numbers, the number of actionable opportunities diminishes quickly.

We're proud of our success of executing on our consistent growth strategy since 2010, which has provided us with a diversified portfolio of operating mines and extensive development pipelines to perpetuate production growth and support long-term value creation for shareholders.

Through both organic exploration and our prudent acquisition strategy, we have developed a large portfolio of earlier-stage opportunities to provide future optionality to grow the business with a highest return assets.

We believe we have several near-term and medium-term catalysts within our robust growth pipeline.

I've already touched on few of our upcoming catalysts throughout the presentation, but to summarize, we have a number of near-term (technical difficulty).

We have the near-term Rosemont (technical difficulty) milestones with the 404 water permit in the final stages of review.

Beyond this, we look forward to unlocking value by advancing the project through financing and construction.

There are several upcoming catalysts at Lalor, with the imminent ramp up to 4,500 tonnes per day, conversion of resources to reserves, incorporating the satellite known resources into the mine plan, and ultimately achieving first gold production in New Britannia in 2022.

We expect to be drilling at our satellite deposits near Constancia later this year, and expect to commence mining in Pampacancha also later this year.

In Snow Lake, we intend to explore our large land package to provide potential additional feature at Stall and New Britannia Mills, in addition to testing in-mine exploration targets at Lalor.

We expect to drill high-grade targets at Mason this year, with a focus on enhancing project economics along with advancing exploration activities on our other prospective grassroot exploration opportunities in Chile, Peru, and Canada.

In conclusion, we have continued to execute on our consistent long-term growth strategy and developing our world-class asset base.

We have demonstrated our proven track record of successful project development through best-in-class construction and ramp up in Constancia and Lalor.

Our flagship mines are expected to be the lowest cost in the respective regions, confirming our operational excellence and we have added value through successful exploration at all of our mines.

We are pleased with our operating results and financial performance as we continue to generate strong cash flow from unhedged copper and zinc production, positioning us well for our future capital allocation plans.

We have a robust pipeline of near-term and medium-term catalysts.

We have a team in place to deliver on these catalysts, and we look forward to continuing to deliver on our objectives through safe and responsible practices.

That concludes the presentation portion of the call, and we'd be pleased to take your questions.

(Operator Instructions) And we'll take our first question from Orest Wowkodaw from Scotiabank.

Cashel and Alan, I was hoping we can get a bit more color on what's going on with the mine plan at Constancia?

And specifically, I mean, when I look at the tech report issued last year, in 2018, Constancia was supposed to do a grade of 0.42, and it looks like you came in at 0.48.

So much better-than-expected.

How should we think about 2019 and the tech report is basically showing, I think, 0.43.

How much upside is there for that number?

And what's driving it?

Orest, I think we've explained before, part of the difference is just changes in the short-term mine plan compared to the long-term mine plan that the 43-101 was based on.

This has been partly driven or mainly driven by a better understanding of the impact of impurities like zinc and lead on copper recoveries.

And last year, we saw quite a movement on material to and from stockpile to help better blend those zinc levels so that they don't -- didn't have the impact on recovery or concentrate quality.

Within that there's also some other minor changes related to be used, mine waste for tailings dam construction and dependent on the material properties of that waste, we sometimes have to switch mining areas as well.

So those factors, we believe, are the main things contributing to the difference in grade.

And at this stage for 2019, we're just sticking with what's in the technical report.

So are you getting a positive grade bias anymore from the original block model or is it all other factors?

At this point, we'd say that any bias is within, what we -- the normal physical range, so where -- when it's not leaving us to look at any revision currently.

And next we'll go to Matthew Fields of Bank of America Merrill Lynch.

I want to touch on something I read in the MD&A, which was that you altered your stream agreement with Silver Wheaton.

Can you give us, first, at a high-level, kind of why Silver Wheaton felt the need to change that agreement with you?

Or was it you felt the need to change it with them?

How did that come about?

We worked with Silver Wheaton precious metals, I mean, obviously, we've had a long relationship with them, and we worked just to make some improvements on the simple operability of the agreement.

No, it says you now have the option to take cash or shares for the deposit.

Why would you take Silver Wheaton shares to fund CapEx rather than cash?

I'll let David work through some of the details.

Matt, it's something similar to what we had in the Constancia stream agreement with Wheaton.

It's something that they had requested and we were willing to accommodate.

There's a mechanism that's included in that, that allows us to liquidate the shares on an orderly basis at the same price that's used per the numbers of shares issued.

And so, what happened when we received the Constancia stream payment is we were able to realize cash proceeds from those shares, that was sort of within 1% of the face value and so don't expect it to expose us to any market risk.

There's no lockup period?

Right.

And then lastly, it said that now you are providing the parent guarantee to Rosemont's obligations.

Two questions on that: one, is that like the offtake financing loans to your Korean partners in the stream obligation, and any other debt at the project level that we're kind of now thinking about that maybe wasn't in the plan before?

Sorry, I'm not sure -- could you restate that?

Yes.

So you're going to -- Hudbay, the corporate issuer will now offer a guarantee to Rosemont's obligations.

What debt is at Rosemont pro forma for this financing that we're going to be thinking about that you're now going to guarantee?

At present, there is no debt at Rosemont, obviously, but we are currently anticipating a financing for Rosemont.

It's very similar to what we did for Constancia.

The Constancia offtake financing was secured at the project level, with a corporate guarantee and to the extent that we do a offtake or cost overrun financing at the Rosemont level, we'd expect the same structure.

And then lastly, and I'm sorry for all the questions, but will Rosemont be a guarantor for the existing Hudbay debt now, now that you're guaranteeing it?

No.

There is an expressed carve out for that in the indenture.

Next, we'll go to Ralph Profiti with the Eight Capital.

Just a quick one on the Lalor gold zone versus the base metal zone, Alan.

When we think about issues like ground conditions and mining methods and even tailings deposition, were there any differences that stood out in the study?

And what I'm getting at is that $92 a tonne mining cost consistent across all zones and lenses?

Sorry, you were a bit faint there.

Can you repeat the question?

Yes, sorry, about that.

My question is on Lalor gold versus the base metal zone.

And when we think about mining methods, tailings deposition and even some of the ground conditions, are there any differences that stood out in the study on the gold zone versus the base metal zone?

And what I'm getting at is whether or not we're going to see a pretty even distribution of that $92 tonne mining cost.

I think, given that the gold is coming from a variety of different zones within the mine, I think, that average should be a good average.

Okay.

And is there any issues, Alan, with regards to tailings deposition as you get further and further away into the gold and the copper gold zones?

No.

The project is predicated in using the Anderson tailings facility.

And obviously, with a significant proportion of tails going back underground as paste.

And next, we'll go to Matthew Murphy with Barclays.

Another question on Lalor.

The -- just trying to square the cash -- unit cash cost with the unit operating cost.

I know the unit cash cost include G&A, the unit operating cost don't.

So I'm just wondering what kind of unit G&A you're assuming beyond the closure of 777 that would be attributable for Lalor?

So what we're anticipating is obviously, once the Flin Flon facility sort of (technical difficulty) mine life that we would see a significant reduction in G&A as we rationalize ramp (technical difficulty).

And so that reduction is reflected in the sustaining cash costs and cash costs that are set out in the press release.

Okay.

And the other element being offsite cost, I'm assuming that those cash costs include kind of market treatment charges, et cetera?

Correct.

All right.

Next, we'll go to George Topping with Industrial Alliance.

Alan, are you planning to do any update or provide more information on the 777 cleanup cost at Flin Flon, the smelter?

We're actually working through now all aspects of the Flin Flon closure planning.

We basically announced 777 looks as if it will be closed by the end of 2021, currently.

And there's a number of studies in play to see what's the best way to maximize the value of those assets.

So the current thought is that we put the Flin Flon concentrate and tailings facility in some form of maintenance.

If you look at New Britannia, New Britannia, we acquired in 2015, already being on care and maintenance since 2005 and we're going to bring into operation close to -- approaching 20 years after this period of care and maintenance.

These assets with associated tailings facilities and already permitted are obviously very valued and provide optionality for developing future deposits that wouldn't necessarily support the capital associated with that level of infrastructure.

So in terms of what form the care and maintenance might take, in terms of what the ongoing carrying cost, George, we're still -- we've left some of the detail work and there's always a trade-off between what level of care and maintenance you go with and ultimate restart costs of that sort, trade-off has to be completed.

Right.

So it's suffice to say there's probably no large payments in the near term but...

We'd look to go ahead with the remediate 777, for example, I mean, it's a standalone entity.

So there's about $2.5 million associated with closing that.

Then we have to make the decision how best to optimize the remaining process assets and that as I mentioned is part of some of the studies that are currently ongoing.

All right, great.

And just a follow-up on Constancia.

I noticed that the unit cost guidance, it's quite a wide range, why is the range so wide, I mean, $790 to $970 per tonne?

George, I think that's fairly consistent with our past practice of unit cost guidance.

While we currently intend to make a significant change in the sort of the width of those ranges.

And next we'll go to Greg Barnes with TD Securities.

If I understand it rightly, the tailings from New Britannia will be pumped over to the Stall Lake tailing stand.

Is there enough capacity there to handle everything that you’re talking about now with the new Lalor mine plan?

The tails will actually be pumped to the -- be combined with the tailings of the Stall mill so that they can then be an integral part of the overall paste backfill system, and so they either go back underground to the mine or they go to Anderson tailing facility, which has got the ability to be expanded further.

And I assume that speeds up the permitting process for New Brit as well?

It certainly -- when we looked at the overall optimization approach and the various studies that we did, that certainly makes life simpler, but also, we'll be looking to filter the copper component of the material at the New Brit facility.

So the New Brit tails will go to the Stall and the Stall copper concentrate will go back to New Brit minimizing capital and maximizing the equipment that we've got.

Just a secondary question for David Bryson.

Can you give us a sense of what you think is your weighted average cost of capital?

Greg, there's obviously a number of ways to measure that.

I think sort of the biggest driver is sort of the equity cost of capital and to the extent that we're looking at sort of reinvesting free cash flow generation from the business, we think there's an 8% cost of capital on that equity.

And then sort of, to the extent that we're raising debt and when you look at the secondary levels on the high-yield bonds, we have outstanding debt of 6.5% to 7.5% range.

Obviously, when we're looking at a required return on our new capital investment that needs to have a significant spread over our cost of capital in order to generate shareholder value.

At a high level that's sort of what the key components would be.

And next we'll go to Stefan Ioannou with Cormark.

Just curious, fair bit of sort of detail and focus on regional exploration around Snow Lake.

Are there any plans to spend any money on sort of exploration closer to the Flin Flon area or is it very Snow Lake focused this year?

No, actually last year we did a large airborne geophysical survey some 400,000 hectares to the region south of Flin Flon.

That generated a number of targets and the nature of especially the terrain down there lends itself more to winter exploration and we're actually drilling some of those targets this year as well.

And next we'll go to Jackie Przybylowski with BMO.

Actually, my question is pretty similar to Stefan's.

I was just wondering when could expect to get some of the initial results back from some of the satellite deposits you have, I guess, around Snow Lake and also at Ann Mason?

I know you're doing some work on it this year.

Are we going to hear anything about it later this year?

Yes certainly, given as I mentioned that we are currently drilling in both Flin (technical difficulty) Lake those results will come out in the ordinary course.

Ann Mason, we'll be drilling that by the middle of the year, hopefully, and both in the second half.

Sorry, can you repeat that last part, Alan.

You just cut off for a second there.

At Ann Mason, we should be drilling by the middle of the year, hopefully, and certainly having some results for Q4, would be reasonable to expect.

And next, we'll go to Dalton Baretto with Canaccord.

My first question is on Lalor.

I am just looking for some context around why the 4,500 tonnes per day scenario is your preferred alternative over higher MTP, let's say, than 6,000 tonnes per day scenario just given that you've got submission of waste and service processing capacity?

It's more about the layout of the ore body and how you can sensibly address the infrastructures like ventilation and the likes.

Okay, so it's the incremental infrastructure spending underground basically?

Sorry, you were bit faint, can you repeat that?

So it has to do with incremental cost of mining at a higher rate?

Yes, that would be a fair way of looking at it.

Okay, and then next one is on Rosemont.

Alan, you mentioned a number of times at the Army Corps, is in its final stages.

So really 2 questions there.

Number one, when was the last time the Army Corps came back to you for either more information or more consultation?

It's basically been in a period now where we understand that the Army Corps had it interactions -- completed its interactions with both our sales and other stakeholders.

So that's why we believe that they're actually in the permit review phase.

Okay, and then have you had any conversations with your Korean partners in terms of kind of next steps moving forward and what the terms are on, maybe buying back their stake if they choose to sell that sort of stuff?

Yes, I mean, we're obviously in constant dialogue with them.

I think it's reasonably well known that the Korean government has announced, I think, it was 18 months ago, their intent to wind down KORES, one of our partners there and we were part of this business over a period of 5 years, I think, so wasn't exactly a great success for them.

And we're having discussions with the Koreans and we see that they could withdraw from the project, but we've -- there's widespread interest in other people to come in and JV with us.

We are seen as a very popular partner.

And given the relative success of recent JV processes, minority processes, you've seen Anglo-American run a very successful process at Quellaveco, you've seen Teck run a very successful process at (inaudible) run a successful process at [Minahasa] project.

So we contemplate the Koreans exiting and bringing in another partner, maybe even for a larger stake.

Rosemont is one of the best near shovel-ready projects out there.

It's one of the few in our opinion that does provide an acceptable rate (technical difficulty) long-term copper prices of $3, so we think that there should be no problem attracting another partner to replace the Koreans.

Okay, so your preferred outcome is still having a partner as opposed to consolidating the project.

I think realistically, the overall financing, absent a real run in copper pricing, I think, that would be a prudent way to approach it.

And next we'll go to Lawson Winder with Bank of America Merrill Lynch.

Sorry, about that, guys.

Just on Constancia, the $45 million growth CapEx that you guys have budgeted for this year.

You mentioned that, I mean, that is dependent on receiving land access by the end of May of 2019.

I'm just curious, I guess, assuming that land access is not received by May 2019, where do that $45 million go and then alternatively, assuming it if we receive today, could that $45 million go up?

I am just trying to get a sense of some flexibility around that growth CapEx?

Yes.

The main number is a bit of a red herring.

I mean, that's just what was in the current mining plan to treat, I think, those 4 million tonnes in the technical report.

To access Pampacancha, we obviously need to complete the whole road and finish some of the pit dewatering, do the initial pre-strip.

I mean, if we didn't get access until later in the year, we'd still be spending those dollars.

If we get access earlier, we'd be moving into the operating phase sooner.

So I think really in terms from a guidance perspective given that we are confident that we'll have access to Pampacancha before the end of the year, that's a reasonable number regardless of the exact timing.

I mean, it's not that we -- we still got the ability to mine Constancia, it's not that we are not treating material.

Yes, no, no, of course.

And then just in terms of the land access discussion.

I think, previously you guys have described it as being mostly economic in nature.

Has anything changed or is that still the case?

Well, it's partly that.

It's also, I mean, there's a tendency to want to reopen some previous agreements and things.

So it's a process.

It is a process that we've navigated, I think, very well in our time in Peru.

I think, as I mentioned frequently, I mean, our community relations performance is second to none, given that we're in a region that our neighbors Las Bambas and Antapaccay who both suffered from significantly worse community relations performance than we have.

I think our approach has been good and we don't see any reasons to change it especially as we now have another 4 communities we have to get, initially exploration, and hopefully exploitation agreements with to access what is really, in our opinion, some very, very prospective territories to the northwest of Constancia.

So with all things -- with Hudbay, when we look at carrying out a strategy, we've taken a very long term view and I think, we've been consistent in growing the company and continue to take that long term view and really there's nothing particular about the exact date of Pampacancha access that's in anyway mission-critical, so we are continuing to do what we consider to be the right thing.

And then I think in your comments, I heard you mentioned that you hope to ultimately be drilling some of the other satellite deposits around Pampacancha and Constancia in 2019?

Did I hear you correctly?

And if so, I guess, you have some sort of similar timeline for land access there as you do for...

We have an agreement with 1 community that covers 1 complete target and part of a second target.

So we certainly be planned to be drilling by -- we've got the land agreements, we've have to run through the drill permitting process.

So it would be reasonable to expect us to be drilling there by Q4 of this year.

And next we'll go to Oscar Cabrera with CIBC.

Alan, if we can just go back to the capital allocation question.

If we were to assume copper price stayed close to $3, what would be the main driver to drill down the part of the Rosemont project and would you still consider being the operator of the project?

I think, as I mentioned in the first part of the call, one of our criteria, Oscar, is to be the operator.

We don't -- we've actually looked at structures where we could still be a minority and opportunity to leave the operators away.

It's really one of our key points when we look at things, because we think that's where we bring the most (technical difficulty).

We've had a proven record obviously of building mines and operating mines, so we don't necessarily -- we see that as something that we don't necessarily really want to give up on.

The -- I think the question of exactly what the capital allocation plan is for Rosemont looks like will depend on the timing and where the copper price environment is.

We are fortunate with Rosemont, the project CapEx is very light at the front end.

So if we did get the permits reasonably soon, even in a lower price environment, we think we're well-placed to move the project forward with an early-works program.

We remain very bullish on copper fundamentals in the long-term, and I think we should start to see those copper prices fundamentals start to kick in sometime this year and drive the cost of the copper price back up above $3.

Right.

Based on David Bryson's comments on your cost of capital, it looks like debt is still the preferred way to go.

Can you just remind me what are the parameters that you're looking at just in terms of not exceeding your net debt-to-EBITDA levels or any other metric that you're looking at?

Obviously, our metrics are very dependent on what stage of the cycle we're at.

So when you're in hoisting phase it is going to be more like 1x, 1.5x debt-to-EBITDA, when you're approaching the last few months of buildout, obviously, that number is going to rise more in the order of 3x.

Okay.

And then lastly, looking at your Slide 11, talking about the Constancia optimization project, the 5-year average production about 105,000 tonnes, that assumes Pampacancha comes on stream in 2019 -- you're mining Pampacancha in 2019?

I just wonder what that would look like if Pampacancha is not mined in '19 and '20?

Pampacancha was only 4 million tonnes, like I have 4 million out of 31 million tonnes, Oscar.

So really it wouldn't make a great deal of difference to the copper production as we indicate in the guidance it would shave some (technical difficulty) production.

For '19, but would that be the case for 2020?

Well, we would expect to be mining in Pampacancha by 2020.

I mean, if -- when would you need to get the land rights by if you expect to be mining in 2020?

Well I think we're saying that is about 4 or 5 months -- 4 months maybe of lead time for prestripping and some of the infrastructure.

And next, will go to Mark Llanes with Crédit Suisse.

Just a question on Constancia.

Your guidance for Peru 100,000 to 125,000 kilotonnes of copper, does that include potential for positive grade volumes at Constancia?

No.

I mean, we're assuming that the grades are as per the technical report.

All right.

And I noticed your recoveries at Constancia dipped a little bit below, it went to 84.8% just slightly down from the 85%, I believe, in Q3.

Do you expect that to maintain at 84%, 85% throughout the rest of the year?

Yes, as we've indicated, I mean, we expect recoveries to vary from quarter-to-quarter, and that will be the case through 2019.

As we mentioned, we're trying to control blending as best as we can.

But the numbers do vary depending on what particular ore type and what the sort of impurity levels are.

The mine still consists of a number of different ore sites, so it's combination of those and purity levels will impact the recovery.

In all aspects, I think, what we've been advising people is just use the numbers in the technical report.

I mean, we might harbor some hopes that we'd actually build better than that once we've completed some further optimization work, provided our technical report provides a good base case for recoveries.

We've achieved what we've stated for 2018 right on the money, and we expect to continue that way.

And next, we'll go to Brian Lalli with Barclays.

I'll be brief.

Most of my questions have been asked.

David, just curious if your thoughts around the Rosemont funding has changed at all?

Obviously, given the longer permitting time line has generated more cash, you also have some growth projects lined up.

So just be interested to hear your thinking about the funding requirements relative to potential high-yield issuance?

Brian, I think, as Alan mentioned, once we have the Rosemont permits, we'll evaluate all the options available to us based on the market conditions, copper prices at the time.

We obviously appreciate that we have access to the high-yield markets.

Pricing is back to more favorable levels compared to where it was a quarter-or-so ago.

But we'll also look at other options.

We talked about metal price hedging of our production period.

And as Alan mentioned, obviously, we think that looking at joint venture partnership options are an important element to arranging a prudent financing plan for Rosemont.

And next we'll go to Sean Wondrack with Deutsche Bank.

Most of my questions have been answered.

Just one more follow-up here though.

Should you not find a partner for Rosemont and receive the requisite approvals, would you continue to develop the asset on your own in the near term while you try to find a partner?

And could that potentially impact your [3 turns] net leverage ceiling?

Would there be any risk that you could possibly go through that?

As I mentioned earlier, the Rosemont capital spend profile is weighted to the years 2 and 3. So to initiate an early-works program, we're only talking -- consistent with the overall project schedule.

We're only talking in the region of just under $150 million, so that's well within our capability.

We see, given that people have approached us to partner with Rosemont, we think -- and based on, as I mentioned, the recent experience with some of the other projects, such as Quellaveco and QB2, we don't -- we actually don't really see a particular issue with getting a JV partner and potentially maybe even get one for a slightly larger buy-in than the Koreans currently have.

As I mentioned, I mean, Rosemont, people are well aware, it does provide a greater than 15% rate of return along with copper price of $3.

There's not many projects out there to have those sort of economics.

So it's a valued asset in the marketplace.

And next we'll go to John Tumazos.

The -- in some other commodities, there's also acquisition opportunities.

Last year, Glencore bought some coal properties at 3, 4x EBITDA and coal price rose subsequently.

Recently, iron ore properties were not too popular.

And now AngloGold and Newmont and Barrick are selling a bunch of gold mines, many of whom are built and running.

Would you consider departing from copper and considering other commodities, there's a lot of companies who want to buy copper mines, some of these other things go begging?

I'd say, John, a fundamental part of our strategy, I mean, we stay with geographically focused in mining-friendly, low-risk environments in the Americas and we're geologically focused really on most of the jurisdictions we're in, the focus is really on copper.

Obviously, Manitoba tends to be by its nature polymetallic, and we wouldn't necessarily -- a significant part of our portfolio remains zinc and precious metals.

So -- but really our focus -- strategic focus and positioning is as a copper mining company.

(Operator Instructions) Next, will go to a follow-up question from George Topping with Industrial Alliance.

It is good to expedite the exploitation of the Lalor gold sort, as gold price rally continues on.

Most of the typical blocks there is it at the processing side or the access development?

It's actually will be -- the permitting time line that really dictates the (technical difficulty) of that, George.

We would always look to expedite a project.

I mean, that's just in our nature.

So if -- once we've advanced the engineering further, there's potential to maybe tighten up the schedule, but right now we're just guiding to first production in early 2022.

All right.

So the permitting is ongoing at the same time because the engineering work is taking about a year almost.

Correct, yes.

And next we have a follow-up from Matthew Fields with Bank of America Merrill Lynch.

Understanding that when you get the permit, you'll get for Rosemont, sort of, evaluate other options on the debt markets, bonds, loans what have you.

Just can you give us a quantum of -- an idea of the quantum of debt at the various levels whether it's -- if it's sort of almost $2 billion to fund the whole project, how much is going to be at the Rosemont level, and how much is it going to be at the parent level, roughly in general terms?

Matt, I think it's really going to be a function of circumstances.

And so I don't think that we want to sort of guide to a particular amount of debt.

We got some debt at the project level.

We talked about a couple hundred million dollars of equipment financing.

We'd expect to put in place a cost overrun facility.

But beyond that, we're going to sort of stay within some of the debt-to-EBITDA parameters that Alan talked about.

We're going to make sure that the overall package is prudent and doesn't expose us to undue pressure, sort of whenever copper goes into the next down cycle, as this business inevitably does.

But we'll evaluate that when the time comes.

You said before it's about a $1.1 billion sort of funded by you and maybe $800 million-or-so from these collection of other sources.

Is that still sort of the scale that we're thinking about?

Depends on the sort of the (technical difficulty) venture partnership that we might put in place.

And that does conclude today's question-and-answer session.

I'd now like to turn the call back over to Candace Brule for any additional or closing remarks.

Thank you, operator.

And thank you, everyone, for participating.

Please feel free to reach out to our Investor Relations team if you have any further questions.

And that does conclude today's conference.

We thank you for your participation.

You may now disconnect.