Hudbay Minerals Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the HUD-Bay Minerals Incorporated first quarter 2025 results conference call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then 0. I would like to remind everyone that this conference call is being recorded today, May 12, 2025, at 11 a.m. Eastern Time. I will now turn the call over to Candice Brule, Vice President, Investment Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to HUD-BAY's 2025 First Quarter Results Conference Call. HUD-BAY's financial results were issued this morning and are available on our website at www.hudbay.com. A corresponding PowerPoint presentation is available in the Investor Events section of our website, and we encourage you to refer to it during this call. Our presenter today is Peter Kikilski, HUD-Base President and Chief Executive Officer. Accompanying Peter for the Q&A portion of the call will be Eugene Lee, our Chief Financial Officer, and Andre Lauzon, our 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, 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 Plus 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 Kikilski.

Thank you, Candice. Good morning, everyone, and thank you for joining us for today's call. Our strong performance in the first quarter of 2025 demonstrated the benefits of HUD-Bay's unique copper and gold diversification from our enhanced operating platform in North and South America and our resilience through effective cost control. This has allowed us to continue to generate substantial free cash flow and achieve industry-leading margins. Consistent execution across all three of our operations has delivered inline consolidated copper production and better than expected gold production this quarter. We continue to benefit from strong and consistent mill throughput in Peru, higher grades and higher mill throughput in Manitoba, and ongoing optimization efforts in British Columbia. We are extremely well positioned to deliver our full year 2025 consolidated production and cost guidance. We also made significant progress in advancing our growth strategy during the quarter. We consolidated ownership at Copper Mountain to increase our exposure to a high quality asset in the tier one jurisdiction. And we are now fully permitted at Copper World, which once in production will increase our long-term copper production by more than 50%. We are executing our plan to continue to increase exposure to copper and gold and unlock significant value for all our stakeholders. Turning to slide three, the results in the first quarter reflect stable copper production, complementary gold production, and exceptional cost performance across the business. Consolidated copper production was 31,000 tons, in line with quarterly cadence expectations. Consolidated gold production was 74,000 ounces, exceeding our expectations for the quarter, primarily due to continued outperformance in Manitoba, which I'll touch on in a moment. We had another quarter of industry-leading cost performance with record low consolidated cash costs of negative 45 cents per pound and sustaining cash costs of 72 cents per pound. These costs significantly improved compared to last quarter as a result of higher byproduct credits and strong operating cost performance across all business units, partially offset by planned lower production levels in Peru during the quarter. First quarter adjusted EBITDA achieved a new quarterly record of $287 million and represented a further 12% increase compared to the strong adjusted EBITDA generated in the fourth quarter. Adjusted net earnings per share was 24 cents in the first quarter, representing a sharp increase from the fourth quarter as a result of higher gross margins from strong revenue growth on the back of higher realized copper and gold prices and strong unit cost control. We ended the quarter with $583 million in cash and cash equivalents, including short-term investments. Our net debt was $526 million, maintaining our leverage ratio of 0.6 times at the end of the first quarter, in line with the last quarter. HUD-BAY has successfully delivered seven consecutive quarters of meaningful free cash flow generation, as shown in slide four. This is a result of the benefits from recent Brownfields investments, continuous operational improvement efforts, and steady cost control across the business. Over the last 12 months, we have generated more than $350 million in free cash flow and nearly $900 million in adjusted EBITDA. While the majority of revenues continue to be derived from copper, gold represented a higher portion of total revenues at 38% in the first quarter compared to 35% in the fourth quarter of 2024. Our unique copper and gold diversification provides significant leverage to higher copper and gold prices. For every 10% increase in annual copper price, operating cash flows are expected to increase by an additional $100 million. and a similar 10% increase in annual gold price adds $56 million to operating cash flows. The unique copper and gold diversification, together with strong operating cost performance at all operations, continues to position HUD-Bay as the lowest cost copper producer among our peers. Our fortified balance sheet and robust free cash flow generation will allow us to continue to prudently reinvest in our portfolio of attractive high return brownfield and greenfield opportunities to drive near-term and long-term production growth. Now turning to our operating assets, starting on slide five, Peru's first quarter production was in line with quarterly cadence expectations as we are completing the final stripping phase at Pampa Concha. Constantia produced 20,000 tons of copper, 8,000 ounces of gold, 550,000 ounces of silver, and approximately 400 tons of molybdenum. We are on track to achieve our 2025 production guidance for all metals in Peru. The Constantia mill achieved an average of approximately 90,000 tons per day in the first quarter, consistent with recent quarters and far exceeding original design capacity. Mill recoveries for all metals remained in line with our metallurgical models for the ore type that was being processed. The operations delivered better than expected cost performance in the first quarter. Combined unit operating costs were $11.09 per ton at 27% improvement over the fourth quarter as we experienced lower overall on-site costs and the previous quarter was impacted by a planned plant shutdown. Our unit operating cost performance continues to position Constantia as one of the lowest cost open pit copper mines in South America. Cash costs in the first quarter were $1.11 per pound, which outperformed our quarterly cadence expectations as a result of strong operating cost performance and higher byproduct prices. Cash costs outperformed the low end of the 2025 guidance range, positioning us well to achieve the full year cash cost guidance in Peru. Looking forward, we are advancing engineering studies for the construction of a pebble crusher at Constantia commencing in late 2025. This is expected to further increase throughput levels starting in the second half of 2026. In Manitoba, we achieved impressive metal production and cost performance in the quarter as shown on slide six. This resulted in gold production and cash costs significantly exceeding our budgeted targets for the quarter. The operations produced 60,000 ounces of gold, a meaningful 17% increase compared to the fourth quarter due to higher grades. The operations also produced 3.5 thousand tons of copper, 6.3 thousand tons of zinc, and 286 thousand ounces of silver in the first quarter. We saw significant improvements in ore quality at Lalor, which aligns with the improvements in mining techniques we have been implementing, including long-haul muck fragmentation and anticipated higher-grade precious metal sequences. Recent enhancements at both the New Britannia and Storr mills have been contributing to the strong performance in Snow Lake. New Britannia achieved an average throughput of 2,100 tons per day in the first quarter with the installation of new elongated cyclones. This upgrade mirrors successful upgrades previously completed at Storr as we continue to look for low capital projects to boost throughput while maintaining strong gold recoveries. New Britannia gold recoveries of 90% were consistent with the fourth quarter. At the stall mill, a slight quarter over quarter reduction in throughput occurred as we were able to divert more ore to New Britannia. The mill achieved gold recoveries of 70% in the quarter, realizing the efforts of our recent recovery improvement programs. The Manitoba operations continue to drive operating efficiencies, resulting in improved cost performance on both a unit operating basis and on a cash cost basis. Gold cash costs were $376 per ounce, a 38% decrease compared to the fourth quarter as a result of higher gold production, lower mining and milling costs, and favorable exchange rates. We are well on track to achieve our production guidance for all metals and cash cost guidance in Manitoba in 2025. Moving to our third operating business unit on slide seven, our British Columbia operations benefited from ongoing optimization efforts in the first quarter. We continue to focus on advancing our optimization plans for Copper Mountain, including opening up the mine and optimizing the mine ore feed for the plant, as well as implementing plant improvement initiatives. This has resulted in increased total tons moved and improved mill reliability. The operations produced 7,000 tons of copper, 5.6,000 ounces of gold, and approximately 80,000 ounces of silver. Production of all metals increased compared to the fourth quarter, largely due to higher grades. We are on track to achieve our 2025 production guidance for all metals in British Columbia, and we continue to expect higher production levels in the second half of the year associated with the completion of mill improvement projects. On the mining side, we continue to execute the three-year accelerated stripping program to bring higher grade ore into the mine plan. The focus in the quarter was on mining efficiencies and operator recruitment to effectively utilize the available haul truck fleet. As a result, total material moved is expected to continue to increase quarter over quarter in 2025 as per the mine plan. Mill throughput in the first quarter was similar to the fourth quarter, and a number of initiatives were implemented to increase throughput later this year. Additionally, with the planned conversion of the third ball mill to a second sag mill in the second half of 2025, mill throughput is anticipated to ramp up towards 50,000 times per day in 2026. The accelerated stripping efforts unlocked a higher grade mining sequence during the first quarter, which reduced the use of stockpiles for ore feed and enabled higher milled copper and gold grades in the quarter compared to last quarter. Copper recoveries were 78% and gold recoveries were 63% in the quarter. Similar to our other operations, British Columbia achieved strong cost performance. Cash costs were $2.44 per pound in the quarter, an improvement over the fourth quarter as a result of higher byproduct credits and the realized benefits from ongoing optimization efforts. We are on track to achieve our 2025 cash cost guidance range in British Columbia. At the end of March, we announced the acquisition of Mitsubishi Materials' 25% minority interest in Coffin Mountain. The transaction closed at the end of April and resulted in HudBay consolidating 100% interest in the Copper Mountain mine. This highly accretive transaction increases our exposure to a long-life, high-quality copper asset in a Tier 1 mining jurisdiction and demonstrates our conviction in the long-term benefits from our optimization efforts. It also reinforces HudBay's position as the second-largest copper producer in Canada. At the end of March, we released our three-year production outlook with our annual reserve and resource update as summarized on slide eight. In Peru, annual production is expected to average approximately 88,000 tons of copper and 31,000 ounces of gold over the next three years. This reflects steady copper production levels as higher mill throughput is expected to offset lower grades starting in 2026 after the depletion of Pampa Cancha in late 2025. In Manitoba, the life of mine production schedule has been optimized for higher mill throughput rates at New Britannia, maximizing gold production and cash flows. Snow Lake annual gold production is expected to average more than 193,000 ounces over the next three years. We increased the gold production guidance in all three years compared to prior guidance and the most recent technical report as a result of the continued impressive operating performance. In British Columbia, annual production is expected to average approximately 44,000 tons of copper and 28.6,000 ounces of gold over the next three years. Upon completion of HUD-Base optimization activities, 2027 copper production is expected to be 60,000 tons, representing a 127% increase from 2024. The 2027 copper production guidance is 20% higher than the contemplated production in the most recent technical report as a result of the deferral of higher grades from 2026 to 2027 with the current accelerated stripping schedule. Consolidated copper production over the next three years is expected to average 144,000 tons, representing a 4% increase from 2024. This increase is driven by higher copper production in British Columbia, which more than offsets the depletion of the Pampa Cancha deposit in Peru at the end of 2025. Consolidated gold production over the next three years is expected to average 253,000 ounces with higher gold production levels in Manitoba compared to prior guidance. These steady copper and gold production levels over the next three years will allow us to continue to generate meaningful cash flow to reinvest in our high return brownfield opportunities and our Copper World growth project. Turning to slide 9, Copper World is the most advanced greenfield project in our portfolio and offers significant copper exposure and highly attractive project economics. Copper World is a fully permitted project on private land and is expected to produce 85,000 tons of copper per year over the initial 20-year mine life in the first phase. The project generates an NPV of $1.1 billion and an after-tax IRR of 19% at a copper price of $3.75 per pound. CopperWorld is one of the highest grade open-pit copper projects in the Americas with mineral reserves of 385 million tons at 0.54% copper. Once in production, CopperWorld is expected to be the fourth largest copper producer in the United States and will increase our consolidated copper production by more than 50% from current levels, as mentioned earlier. Copperworld will be a meaningful copper producer in the U.S. domestic supply chain, producing made-in-America copper cathode to be sold to domestic U.S. customers. In January of 2025, we received the final major permit required for the development and operation of Copperworld. Since then, we have commenced the minority joint venture partnership process and have been focused on advancing feasibility studies to progress the project towards a potential sanctioned decision in 2026. We have several exploration opportunities as part of our long-term growth pipeline, including many promising targets in Snow Lake. Slide 10 summarizes the threefold strategy we are executing with the largest exploration program currently underway in Snow Lake. The first goal is to focus on near-mine exploration at Lalor in 1901 to enhance near-term production and extend mine life. At Lalor Northwest, follow-up drilling continued to intersect copper-gold mineralization, including 16.4 grams per ton gold over 3.7 meters, as well as 2.6% copper over 3.5 meters. Our plans for 2025 include continued surface drilling at both Lalor Northwest and Lalor Down Plunge to test the extent of the mineralization. Additionally, we released positive step-out drilling results at 1901 in March that intersected significant copper-gold mineralization, including 14.3% copper over 2.5 meters and 8.3 grams per ton gold over 3.2 meters. Further exploration at 1901 is planned for 2025, targeting additional step-out drill holes to potentially extend the ore body and infill drilling to convert inferred mineral resources in the gold lenses to mineral reserves. The second strategic goal is to test regional satellite deposits for potential ore feed to utilize the available processing capacity at our stall mill and further increase production. With our significant Snow Lake land package, we have an attractive portfolio of regional deposits including the Talbot, Rail, Pen2, Watts, Three Zone and Wim deposits. And finally, the third and probably the most exciting goal is to explore our large land package for a new anchor deposit to significantly extend the mine life of our Snow Lake operations. We are conducting the largest geophysics program in our history in Snow Lake, consisting of 800 kilometers of ground electromagnetic surveys and an extensive airborne geophysical survey. Turning to slide 11, an important part of how we operate is in our commitment to earning trust and building transparency with communities near our operations. In Manitoba, our indigenous relations strategy has been effective in guiding positive relationships with First Nations communities and advancing shared opportunities. As part of this strategy, we are very pleased to have signed two exploration agreements over the first quarter. Our first ever exploration agreement in Manitoba was signed with the Kichiwapa Cree Nation in February reflecting our commitment to meaningful collaboration as we explore for new mineral resources in Snow Lake and Flin Flon. In April, we signed an exploration agreement with the Musakahigan Cree Nation, marking a significant step towards building positive relationships on our projects in the Moose Lake region, including the Talbot copper-zinc gold deposit. We expect to commence a summer drill program at Talbot to potentially upgrade the existing mineral resource estimate. Additionally, in Flunflon, we continue to advance tailings reprocessing studies to recover critical minerals and precious metals while creating environmental and social benefits for the region. An early economic study on the zinc plant tailings reprocessing opportunity has confirmed the potential for a technically viable reprocessing alternative, and we are progressing with further engineering work. In Peru, the drill permits for the highly prospective Maria Arena and Caballito properties near Constancia continue to proceed through the regulatory process. The drill permit environmental impact assessments were approved by the government last year. The government is carrying out the remaining steps in the regulatory process and is targeting completion in 2025. Once we receive the drill permits, we plan to initiate an extensive 18-month drill program to test the potential of these properties that are located within trucking distance of the Constantia processing facility and provide significant growth potential for our Peru business. As part of our long-term pipeline of high-quality growth opportunities, we also have the Mason Copper Project in Nevada. Mason is one of the largest undeveloped copper porphyry deposits in North America, and has the potential to be the third largest copper mine in the United States once in operation. The mine plan contemplates a 27-year mine life with an average annual copper production of roughly 140,000 tons over the first 10 years. We continue to advance our local stakeholder engagement as we advance additional metallurgical studies. While Mason is not as advanced as Copper World, Mason represents a significant opportunity to unlock value in a high-quality copper asset located in the United States. Concluding on slide 12, HUD-Bay's leading copper development and exploration pipeline at low-cost, stable operating platform in Tier 1 jurisdictions offers investors meaningful copper exposure, complementary gold exposure, and strong near-term cash flow generation. We currently produce more than 130,000 tons of copper per year, which is further augmented by more than 250,000 ounces of gold per year, offering commodity diversification and cashflow resiliency in volatile pricing environments. We believe that copper has the best long-term supply and demand fundamentals in the sector as global copper mine supply will be unable to meet demand from the global energy transition and AI technology needs. HUD-based strong operating platform and resilient balance sheet offers significant upside potential for further value creation at higher copper and gold prices, and as we prudently advance our many high-return copper growth opportunities. And with that, we are pleased to take your questions.