After spending last year swimming in its deepest pool of red ink yet, Hudbay is hoping to come up for air in 2016 in part by reducing expenses in northern Manitoba and Peru.
Financial statements released Wednesday show the company lost US$331.4 million in 2015, double its previous record loss, as significantly higher metal sales failed to offset weak prices and other influences.
But Alan Hair, president and CEO, said in a news release that Hudbay is “well-positioned to weather the current commodity price environment” going forward.
“We have taken specific action already in 2016 to capitalize on mine optimization and sustainable cost reduction opportunities,” he said, “and have strengthened our liquidity position to ensure that the business is positioned to respond to a volatile metal price environment.”
Part of Hudbay’s plan is to lower across-the-board capital spending and operating costs by more than $100 million from previously released projections.
The good news for the company is that it does not expect these reductions will harm production.
Hudbay anticipates reducing capital expenditures by about $50 million in 2016 – $10 million in Flin Flon-Snow Lake and $40 million in Peru.
The Flin Flon-Snow Lake reductions relate partly to expenditures on underground equipment and development at the 777 mine. These reductions of about $15 million are partially offset by some $5 million in equipment purchases carried over from 2015.
Across the company, Hudbay has further outlined operating and general and administrative savings of about $55 million.
Of this amount, about $22 million relates to savings from renegotiated contracts for goods and services, while $18 million stems from other operating efficiencies and lower discretionary spending, including reduced corporate expenses.
Another $15 million comes from the current, lower-than-expected prices for commodities such as diesel, propane and steel.
All operating cost reductions in 2016 are considered to be sustainable based on current prices for input costs, in Hudbay’s view.
The impact of Hudbay’s cost-cutting was seen in Flin Flon-Snow Lake in late 2015 when the company laid off a very small percentage of its workforce. Sources put the number of layoffs at 27.
Financially speaking, 2015 ended with the single worst quarter in company history, a $255.5-million shortfall. Q4 was far worse than Hudbay’s entire 2011, its previous record-worst year, when losses totalled CA$161.9 million.
Hudbay said the Q4 loss came as a result of impairment charges of $198.8 million on Peru’s Constancia mine and $114.5 million on the proposed Rosemont mine in Arizona – and that these were mainly due to lower copper price expectations.
On the plus side, ore production in Flin Flon-Snow Lake shot up 31 per cent in Q4 compared to the same period in 2014. This was mainly thanks to higher production at the Lalor mine.
Last year’s red ink wasn’t for a lack of production or sales. The Lalor and Reed mines near Snow Lake saw their first full year of production and the Constancia mine was in commercial production for two-thirds of the year.
Company-wide production of copper (391 per cent), silver (374 per cent), gold (137 per cent) and zinc (125 per cent) all rose substantially in 2015 compared to 2014.
Actual sales of copper (424 per cent), silver (295 per cent) and gold (147 per cent) also soared, while refined zinc sales essentially held steady.
Looking ahead, Hudbay said it has commitments in place for credit facility amendments to allow it to defer $53.4 million in 2016 scheduled repayments.
As for the company’s proposed Rosemont mine in Arizona, the company plans to spend $30 million on the project over the entirety of 2016 rather than just the first six months as previously expected.
“This amount is expected to be sufficient to advance a definitive feasibility study and the permitting process, and, upon receipt of permits, complete a mine plan of operations,” the company said.
This year will mark Hair’s first as president and CEO. He replaced David Garofalo, who left for another company, effective Jan. 1.
Formerly based in Flin Flon, Hair had most recently served as Hudbay’s chief operating officer in Toronto. Cashel Meagher, who headed up Hudbay’s South America Business Unit from 2011 to 2015, is the new chief operating officer.
