Hudbay posts nine-digit annual loss from 2019, posts 2020 plans

Northern ore production up, $20 million for local tailings upgrade

Hudbay took it on the chin in their recent year-end financial update, posting an annual loss well into the hundreds of millions of dollars.

In total, the company reported a loss in the fourth quarter of 2019 and an eight per cent decline year-over-year in overall revenues. Lower than expected base metal prices were blamed for the decrease.

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The company posted a loss of $343 million after taxes in 2019, compared to a year-round profit of $85.4 million in 2018. Overall operational performance across the company also dropped. Production of copper, gold, silver and precious metals throughout Hudbay operations declined, while zinc and molybdenum production saw modest rises.

 

Local production up

Ore production at 777 mine increased in 2019, stretching to 1.11 million tonnes of ore from 966,567 tonnes in 2018. Ore milled at the Flin Flon concentrator went up in the final quarter but dropped over the whole year, going from 1.42 million tonnes of ore in 2018 to 1.36 million last year. Production did steadily increase however, with numbers growing from 259,569 tonnes of ore in the fourth quarter of 2018 to 374,529 in the fourth quarter of 2019. 

According to Hudbay’s quarterly report, the key reason for the increase was that the company had “successfully implemented efficiency initiatives focused on maximizing the output from the mine.”

Lalor saw a similar increase, going from 1.26 million tonnes of ore mined in 2018 to 1.54 million tonnes last year. Snow Lake’s Stall concentrator also saw higher production last year, ramping up from 1.2 million tonnes milled in 2018 to 1.29 million tonnes in 2019. The concentrator has remained around 310,000 tonnes of ore processed since the final quarter of 2018.

Total operating costs at both the Flin Flon and Stall concentrators decreased in 2019 – by nine and one per cent, respectively – due to what Hudbay called “higher plant efficiencies.”

 

Tailings project

The company plans on spending $100 million in 2020 on sustaining capital in both Manitoba and Peru, while separately providing $80 million in growth capital in Manitoba. 

Part of the spending will include $20 million going toward the Hudbay tailings facility in Flin Flon. The company has earmarked a total of $60 million – $20 million each year between 2020-2022 – for what it calls “improvements on the legacy Flin Flon tailings impoundment area.”

Company representatives said the money would be used to bring the tailings area “in line with higher industry-wide standards for tailings dam safety following the failure of other tailings dams in recent years,” according to the report.

David Bryson, Hudbay’s senior vice president and chief financial officer, said the investment was not to be used to remediate the Flin Flon tailings facility after a pending closure, but to get the facility up to a more stringent building code.

“We’ve seen tailings incidents with other companies in the industry over the last number of years. There’s been a reassessment and there’s proposed guidance by the Canadian Dam Association to enhance those margins of safety. What we’re doing is we’re proactively sort of applying that to our legacy tailings facilities in Flin Flon and we’ve done the work to identify what needs to be done and we’re going ahead and doing that work over the next three years,” said Bryson in the company’s quarterly earnings call Feb. 21.

When asked if the project would have been done regardless of any Flin Flon or 777-based closure, Bryson said, “That’s correct.”

Funds used for the tailings improvements will not impact sustaining capital spending according to the company, because they will be considered as a drawdown of the company’s liability and decommissioning of the mine site and compound.

Hudbay will also spend around $25 million in exploration in 2020, most of it in Peru. Around $10 million has been allocated for Manitoba exploration. The new funding represents a large slash in the budget for Manitoba exploration, where the company spent $22.9 million in exploration last year. Hudbay spent $46.5 million on exploration last year worldwide.

 

Future

Production of zinc metal in Flin Flon is slated to either stand pat or go up slightly in 2020, going from 103,340 total tonnes produced to between 100,000 and 112,000 tonnes.

Hudbay’s three-year production outlook shows a steady decrease in projections for copper and zinc mined, going from guidances between 18,000 to 22,000 tonnes of copper and 105,000 to 125,000 tonnes of zinc in 2020 to 13,000 to 15,000 tonnes of copper and 75,000 to 90,000 in 2022. 

Hudbay plans to increase precious metal productions in their three-year plan, going from an outlook of producing between 110,000 to 135,000 ounces in 2020 to between 150,000 and 190,000 ounces in 2022. 

Targets for copper, zinc and molybdenum production in Peru are also slated to increase.

More changes will also be taking place within Hudbay’s executive structure. David Bryson, Hudbay’s senior vice president and chief financial officer (CFO), will retire from the company March 31. Bryson served as Hudbay’s CFO since 2009. 

The company has named former senior vice president in corporate development and strategy Eugene Lei as its interim CFO while searching for a new face. Lei is anticipated to return to his previous post once a candidate has been found.

Hudbay’s shares climbed to $4.31 CAD each at the end of day Feb. 20, but collapsed to their lowest price in years following the Q4 release, dropping to as low as $3.77 CAD a share Feb. 21. Hudbay shares have not hit such a low since Feb. 2016, when shares of the company traded as low as $2.62 CAD each.

 

 

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