Slightly increased production in northern Manitoba and the opening of a new mine in Peru weren’t enough to stave off big losses for Hudbay in the second quarter, the company reported Wednesday.
Hudbay lost $55.2 million in a quarter that saw Flin Flon-Snow Lake production rise three per cent over the same period last year and the Constancia copper mine in Peru launch commercial production.
The company said a major factor for the loss was a pre-tax $24.6-million impairment charge related to its decision not to build a new concentrator for the Lalor mine.
Instead, Hudbay plans to refurbish Snow Lake’s former New Britannia mine mill, which it purchased in May.
Pension expenses arising from new collective bargaining agreements with most Manitoba unions added another $21.1 million in pre-tax costs, the company said.
Earnings were further lowered by higher depreciation resulting from commercial production at Constancia and Lalor, and higher interest expenses as interest related to Constancia is no longer being capitalized, Hudbay said.
Hudbay cited improved production at the Lalor mine near Snow Lake, partially offset by lower production at Flin Flon’s 777 mine, as the main reason for the production increase in northern Manitoba.
Compared to the second quarter of 2014, zinc and gold grades in Manitoba were seven and 11 per cent higher, respectively, with copper and silver grades seven and 17 per cent lower due to “normal mine sequencing,” the company said.
Hudbay said recoveries of copper and silver in the latest quarter were four and 13 per cent higher compared to the same period last year due to better copper ore grades received by the Flin Flon concentrator.
Recoveries of zinc and gold in the latest quarter were consistent with the same period in 2014, the company said.
However, combined operating costs per tonne of ore processed in the latest quarter were 25 per cent higher over last year.
Hudbay said this was mainly due to increased production at Snow Lake operations, which have higher unit costs, and higher unit costs at Flin Flon operations resulting from reduced production at 777.
The company said a shortage of rail cars – a challenge that has dogged it in the past – led to a build-up of copper concentrate in Manitoba.
With additional leased rail cars anticipated to enter service in the third quarter, Hudbay expects to draw down inventory levels.
The slight increase in reported production in Manitoba comes despite a strike involving machinists, mechanics, pipefitters and the other 161 tradespeople represented by IAM Local 1848. The strike began on May 2, one-third of the way into the second quarter.
The news also follows reports from workers within Hudbay who have told The Reminder that production was down – though those workers could not speak to what was happening at Lalor, where the company says production has gone up.
“The Manitoba operations continue to operate under a comprehensive contingency plan,” Hudbay said in a news release outlining its quarterly data.
For the first six months of 2015, Hudbay reports a nine per cent increase in ore processed in Manitoba compared to the first half of 2014. The company credits improved production at both the Lalor and Reed mines.
Elsewhere, the company said cash flow was “positively impacted” by “significant increases” in production of all metals as Constancia achieved commercial production in late April.
But Hudbay also reported that shipments from Constancia to a shipping port were “constrained” in May and June by factors such as truck availability, protests unrelated to Constancia and road refurbishment work along the route.
Steps have been taken to boost the size of the trucking fleet, the company said, with Constancia’s excess inventory of metals expected to be drawn down over the final six months of 2015.
Back in Manitoba, Hudbay said the latest assay results from exploration at a copper-gold zone at Lalor confirm “a high-grade thick core down the middle of the main zone with decreasing grade and thickness towards the contacts, as well as separate hanging wall and footwall mineralization.”
An exploration ramp extension to the north, which will allow testing of the copper-gold zones down plunge, and step out drilling to the east and west, is progressing well and is expected to be complete by the end of August, the company said.
On the corporate front, given commercial production at Constancia, Hudbay said that as of July 1, 2015, its corporate entity will use US dollars, not Canadian dollars.
As such, the company intends to change its reporting currency to US dollars effective with financial reports for the three and nine months ending September 30.
Hudbay turned a profit of $300,000 in the second quarter of 2014. The company lost $23.7 million in the first quarter of 2015.
