Hudbay Minerals Inc.

Thank you, operator. Good morning and welcome to HUD-BAY's 2022 Second Quarter Results Conference Call. HUD-BAY's financial results were issued yesterday and are available on our website at www.hudbay.com. A corresponding PowerPoint presentation is available and we encourage you to refer to it during this call. Our presenter today is Peter Kikilski, HUD-BAY's President and Chief Executive Officer. Accompanying Peter for the Q&A portion of the call will be Steve Douglas, our Senior Vice President and Chief Financial Officer, Andre Lauzon, our Senior Vice President and Chief Operating Officer, and Eugene Lee, our Senior Vice President, Corporate Development and Strategy. 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. and 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 CDAR 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 Peter Katilski. Peter?

Thank you, Candice. Good morning, everyone, and thanks for joining us. Over the quarter, we've seen a volatile commodity market and continued inflationary pressures that have affected industries across the globe. At HUD-Bay, we continue to focus on operating efficiencies and effective risk management systems in order to mitigate these forces. As you'll see in today's presentation, we had a strong operating quarter with unit operating costs within guidance expectations and our consolidated cash cost benefit from our commodity diversification with higher gold byproduct credits. As a result, we have reaffirmed our 2022 production and cost guidance. Beginning on slide three, we achieved a solid operational quarter, setting us up for a strong second half of the year. Our consolidated copper production in the quarter was 25.7,000 tons, in line with our expected quarterly cadence and 4% higher than in the first quarter. Consolidated gold production increased 9%, another record for HADBE, due to higher gold grades in Peru and higher output at New Britannia. Consolidated zinc production in the second quarter was 23% lower than the first quarter, primarily due to lower tons and grades at 777 as the mine approached the end of its life and the continued transition toward mining the gold lenses at Lalor with a corresponding decrease of production from the base metal zones. Consolidated cash costs decreased to $0.65 per pound of copper from $1.11 in the first quarter. This improvement was a result of higher zinc and gold byproduct credits and higher copper production. Consolidated sustaining cash costs decreased to $1.87 per pound in the second quarter compared to $2.29 in the prior quarter due to the same reasons affecting cash costs. Both measures were within the 2022 guidance ranges. Consolidated all in sustaining cash costs decreased to $1.93 in the second quarter from $2.54 in the first quarter due to the same reasons I've already mentioned, along with lower corporate selling and administrative expenses. Operating cash flow before change in non-cash working capital was $124 million during the second quarter, reflecting a marked increase from the first quarter primarily as a result of an increase in non-cash working capital, higher realized zinc metal prices, and higher copper, gold, and zinc sales volumes. Second quarter adjusted net earnings per share was 12 cents after adjusting for a non-cash gain related to the revaluation of the environmental provision and the specific asset impairment loss among other items. This compares to an adjusted net earnings per share of two cents in the first quarter. Second quarter adjusted EBITDA was $141 million, 28% higher than the previous quarter, primarily as a result of the same factors affecting operating cash flow. We exited the quarter with $259 million in cash, as well as undrawn availability of nearly $365 million under our revolving credit facilities. We believe that our current liquidity combined with future cash flow from operations positions as well to whether the volatility in commodity prices experienced during the second quarter. I think it is important to note that as part of our risk management efforts, we enter into short-term quotational period hedges to manage provisional pricing adjustments on our concentrate sales. This resulted in our realized prices closely matching the spot prices in any given period and eliminates the risk of pricing adjustments post-quarter. Turning to slide four, our Peru operations benefited from higher mill throughput and slightly higher grades compared to the first quarter. We produced approximately 21,000 tons of copper, 14,000 ounces of gold, over 584,000 ounces of silver and 390 tons of molybdenum. Production of all metals was higher than the first quarter. As previously disclosed, full-year production in Peru is expected to benefit from higher grades in the fourth quarter of 2022. As such, full-year production of all metals remains on track to achieve guidance ranges for 2022. Total ore mine declined slightly quarter over quarter due to higher amounts of waste being mined. Ore mine from Pampacuncha increased in the second quarter as mining rates in the pit returned to normal productivity levels following heavy rains and delays in the water management system earlier in the year. Ore milled during the second quarter was higher compared to the previous quarter, and copper, gold, and silver grades also increased. Second quarter combined unit operating costs in Peru were within the guidance range at $12.02 per ton, lower than the first quarter due to lower milling costs and higher throughput. Peru's cash costs in the second quarter were $1.82 per pound of copper, higher than the previous quarter, primarily due to higher mining and general and administrative costs and lower byproduct credits, partially offset by lower milling costs. Cash costs are expected to decline with higher expected copper production and contributions from precious metal byproduct credits in the fourth quarter. However, full year cash costs are expected to trend towards the upper end of the 2022 guidance range, reflecting the current inflationary cost environment. Peru's sustaining cash costs increased compared to the first quarter, mainly due to the same factors affecting cash costs and slightly higher sustaining capital expenditures. Moving on to Manitoba on slide five, but before getting into the quarterly results, I'd like to acknowledge the team in Flin Flon and their efforts over the 18 years of steady operations at the 777 mine. Many of our workers come from multi-generational families of Hud Bay employees over our 90 years of continuous operations in Flin Flon. Since our discovery in 1915, Hud Bay has developed and operated 29 mines in the Flin Flon Snow Lake Greenstone Belt and we will continue to evaluate future exploration programs in the area while we ramp up production at our operations in Snow Lake. The last wall was hoisted up the 777 shafts in June the 17th, and closure activities to safely decommission the mine and place the flint flung concentrator on care and maintenance are well underway. HUD Bay employees and equipment have been transitioned from 777 to LALOR to support LALOR's ramp up to 5,300 tons per day by the end of the year. Our sincerest thanks go to everyone in Fluentflon for their hard work over the life of the 777 mine and for contributing to the success of the entire Fluentflon operation. During the second quarter, the Manitoba operations produced nearly 45,000 ounces of gold, over 17,000 tons of zinc, 5,000 tons of copper, and 281,000 ounces of silver. Gold and silver production increased by 4% and 1% respectively. while copper and zinc production decreased by approximately 14% and 23% respectively compared to the first quarter. Precious metals production increased due to higher throughput recoveries at the New Britannia mill, while copper and zinc production declined due to lower grades at Laulau and 777. Full year production of all metals in Manitoba are on track to achieve guidance ranges for 2022. All mines at Laulau increased by 7% in the second quarter, while production at 777 decreased as the mine approached closure in June, resulting in an overall 1% decline in total ore mined in Manitoba compared to the first quarter. Mined zinc and copper grades were lower compared to the first quarter, but in line with the mine plan, while precious metal grades remained relatively constant. The combined Snow Lake Mills processed 2% more ore in second quarter compared to the previous quarter, tracking the increase in Laulau's production over the same period. The New Britannia Mill achieved higher than targeted throughput in the second quarter, averaging approximately 1,590 tons per day due to a number of improvement initiatives aimed at increasing throughput and further improving recoveries. With the inclusion of DORE, the gold and silver recoveries at the New Britannia Mill have also improved significantly in relation to previous quarters. Stall mill recoveries were consistent with the metallurgical model for the head grades delivered. Manitoba combined units operating costs decreased 5% compared to the previous quarter, mainly due to lower costs at 777 as the mine approached closure, partially offset by higher inflationary cost pressures for bulk commodities, fuel, and LALOR contractor costs. Looking ahead to the second half of 2022, we expect combined units operating costs to increase due to ongoing inflationary cost pressures and the removal of the lower cost flim-flom operations. As such, we expect the full year combined unit cost to trend towards the upper end of the 2022 guidance range. Gold cash cost net of byproduct credits in the second quarter was negative $207 per ounce, which was lower than the first quarter and well below the 2022 guidance range as the operations benefited from higher zinc byproduct credits, lower operating costs, and higher gold production. On slide seven, we begin our discussion of the progress we've made on our organic growth pipeline. The most advanced and exciting growth project is our Copper World Complex in Arizona. In June, we released the results of the preliminary economic assessment for the Copper World Complex, which incorporates the recently discovered Copper World deposits along with the Rosemont deposit that has been renamed to the East Deposit. The PEA outlined a two-phase mine plan. Phase 1 reflects a standalone operation on private land and patented mining claims over a 16-year mine life with average annual copper production of approximately 86,000 tons from mined resources. Phase 1 cash costs and sustaining cash costs are $1.15 and $1.44 per pound of copper, respectively. Phase 1 generates robust economics with an after-tax net present value of $741 million at a 10% discount rate and an internal rate of return of 17% using a copper price of $3.50. Phase II expands mining activities onto federal land and extends the mine life to 44 years with average annual copper production of approximately 100,000 tons from mined resources. Cash costs and sustaining cash costs for Phase II are $1.11 and $1.42 per pound of copper, respectively. The second phase adds $555 million to the after-tax NPV and generates an IRR of 49%. The projected after-tax NPV at the time of sanction would be $2.8 billion, which demonstrates a significant upside opportunity this second phase brings to the project. From an ESG perspective, there are many benefits of Copper World. It will support U.S. copper supply through onshore production of copper cathode expected to be sold entirely to domestic customers. The production of an onsite copper cathode reduces total energy consumption and eliminates greenhouse gas and sulfur emissions associated with overseas shipping and processing. We are also targeting further greenhouse gas reductions as part of our corporate reduction targets to align with the global 2030 climate change goals. We are advancing a pre-feasibility study for phase one of Copper World during the second half of 2022, which will focus on converting the remaining inferred mineral resources to measured and indicated and evaluating many of the project optimization and upside opportunities. The project and capital optimization opportunities will examine the modular nature of the processing complex at Copper World, which can be flexed based on market conditions and funding strategy. Specifically, The pre-feasibility study will contemplate multiple options for developing the concentrate leach facility and upfront capital. The permitting process for the copper world complex is expected to require state and local permits for phase one and federal permits for phase two. We recently received approval from the Arizona state mine inspector for our amended mine land reclamation plan for the copper world complex. The MLRP was initially approved in October, 2021. and was subsequently amended to reflect a larger private land project footprint. We expect to submit applications for the other key state-level permits for phase one of the Copper World Complex in the second half of 2022. In June, we released our 19th annual sustainability report with highlights shown on slide eight. We are truly proud of this report, which provides transparency and progress on key accomplishments and initiatives in 2021 along with goals for the upcoming year and the long term. We believe global demand for the metals that we mine will continue to rise alongside the need for green technology that will play an essential role in meeting the challenge of arresting climate change. We're committed to a reduced greenhouse gas emissions future, and we are currently working towards specific emissions reduction targets to align with the global 2030 and 2050 climate change goals. Last year, to better understand the nature of our greenhouse gas footprint and the best options for approaching and achieving sustainable emissions reductions, we began working on a 10-year greenhouse gas reduction roadmap. This roadmap will identify key sources of emissions, including Scope 3 emissions and the nature of the changes, operational or technical, that will be required to make full or significant impacts in each source area. We are also a proud member of the Mining Association of Canada, and implement the towards sustainable mining or TSM protocols. These protocols are increasingly being recognized globally and adopted as best in class. Our goal is to maintain a score of A or higher for all protocols. And in 2021, we achieved a rating of AA across all TSM tailings management protocol indicators in both Manitoba and Peru. We also saw a 7% decrease in energy intensity per ton of ore processed and over 50% of our indirect energy consumption is from renewable sources. Slide 9 highlights the progress we've made on several of our exploration growth initiatives. In Peru, we control a large contiguous block of mineral rights with the potential to host mineral deposits within tracking distance of the Constancia processing facility. These mineral rights include the past producing Caballito property and the highly prospective Maria Reyna property. Discussions with the community of Oaxaca related to a surface rights exploration agreement on the Maria Reina and Caballito properties are progressing well. We expect to finalize an agreement in the coming weeks before commencing field exploration activities. We are also continuing to compile results from our recent drilling at the Yaguen Copper Porphyry Target in northern Peru and remain on track to complete an initial inferred mineral resource estimate in the third quarter of 2022. In Snow Lake, we have been actively conducting drilling activities in the Snow Lake area with success in identifying extensions of the copper-gold rich feeder zone at the 1901 deposit and compiling results from ongoing infill drilling at Larlor. And in Nevada, an IP ground survey will be conducted in the second half of 2022 on the Mason Valley properties, which are located on private land claims near the Mason project. This work, in combination with the reinterpretation of geological data from past operating mines and previous exploration data, will be used to finalize a drill plan to test high-grade scar and targets in the future. I'd like to conclude here on slide 10. We have delivered many of the catalysts which we laid out at the beginning of the year, and we are on track to continue to accomplish our corporate objectives throughout the balance of 2022. In Manitoba, we are advancing our snow lake gold strategy with plans to achieve 5,300 tons per day at Larlor, as I touched on earlier. We are also implementing a recovery improvement program at the store mill this year to increase copper and gold recoveries. We'll continue regional drilling in Manitoba to explore for base metal and gold upside and continue to compile results from ongoing infill drilling programs at Larlor and 1901. In Peru, we already touched on our exploration initiatives, and we are also continuing to advance our recovery, uplift, and ore sorting programs at Constantia. In the United States, in addition to advancing the pre-feasibility study and state-level permit applications at Copper World, we are continuing our infill drilling program with three drill rigs turning at site. In summary, We are proud of our operating performance to date, which positions us well to reaffirm our full-year production and cost guidance for 2022, and we'll continue to focus on generating free cash flow while prudently advancing our high-quality pipeline of organic growth opportunities to deliver value for all of our stakeholders. And with that, we're happy to take your questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then two. We will pause for a moment as callers join the queue. Our first question comes from Jackie Przybylowski of BMO Capital Markets. Please go ahead.