Hudbay Minerals Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hub Day Minerals, Inc. Second 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 a 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 August 13, 2025, at 11 a.m. Eastern Time. I would now like to turn the conference over to Candice Brule, Vice President, Investor Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to HUD-Base 2025 Second Quarter Results Conference Call. HUD-Base 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-based 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 Kakilski.

Thank you, Candice. Good morning, everyone, and thank you for joining us for today's presentation. Once again, we delivered another quarter of significant free cash flow generation driven by continued industry-leading cost margins and diversified exposure to copper and gold. This strong financial performance enabled us to further reduce long-term debt, invest in our many high-return growth projects, and further strengthen our balance sheet to its best position in well over a decade. We are also very pleased to announce a minority joint venture agreement with Mitsubishi Corporation at our Copper World project in Arizona, which further solidifies our financial strength and significantly reduces our funding requirement to develop this attractive project. We have secured the premier joint venture partner at an attractive valuation to develop our world-class Copper World project and establish a long-term strategic partnership that will unlock significant value in our copper growth pipeline. Through a highly accretive joint venture, an enhanced precious metal streaming deal, and the achievement of our financial targets, we have successfully realized the key elements of our prudent 3P financial plan and significantly de-risked the Copper World project as we advanced towards a sanctioned decision in 2026. I will touch on the JV transaction in more detail in a moment, but first I'll discuss our second quarter results starting on slide three. The strong financial results in the second quarter were driven by steady copper production, complementary gold production, and continued cost control across the business. Our operations in Manitoba showed remarkable resilience against unprecedented wildfires, prioritizing the safety of our people and communities while still delivering strong gold production. In Peru, our steady operating performance delivered production and cost in line with our expectations. And in British Columbia, we made excellent progress on our optimization plans with the sag mill conversion project. Consolidated copper production in the second quarter was 30,000 tons, and consolidated gold production was 56,000 ounces. Consolidated copper production was relatively in line with the first quarter as higher production in Peru offset lower production in Manitoba from a suspension of operations in June due to mandatory wildfire evacuation orders. Consolidated gold production was lower than the first quarter because of the wildfire impacts in Manitoba. Consolidated silver production was 815,000 ounces and zinc production was 5,000 tons in the second quarter. We had another quarter of industry-leading cost performance with consolidated cash costs of negative 2 cents per pound and sustaining cash costs of $1.65 per pound. The increase compared to the first quarter was due to lower byproduct credits combined with planned higher sustaining capital expenditures, but both metrics are well below the low end of the cost guidance ranges. With the strong performance in the first half of the year, we are reaffirming our full-year consolidated production guidance for all metals. We are favorably tracking well below our full-year consolidated cost guidance for 2025, which has resulted in an improved cost guidance range of 65 cents to 85 cents, a decrease from our original cost guidance range of 80 cents to $1 per pound. In the second quarter, we achieved adjusted EBITDA of $245 million, resulting in record annual trailing 12-month adjusted EBITDA of $996 million as of June 30th. Net earnings were 30 cents per share, and adjusted net earnings were 19 cents per share in the second quarter after adjusting for non-cash gains from foreign exchange, revaluation from environmental reclamation provisions, mark-to-market investment revaluation, and flow-through share expenditures. Cash generated from operating activities of $260 million increased compared to the first quarter as a result of higher gross margins driven by stable copper production, higher realized prices, and positive working capital management. Similarly, operating cash flow before change in non-cash working capital was $194 million, a $30 million increase from the first quarter as a result of lower cash taxes offset by lower gold and copper sales volumes in Manitoba. The strong financial performance during the second quarter marked the eighth consecutive quarter of meaningful free cash flow generation, as shown on slide four. We generated $88 million of free cash flow in the quarter, and over the last 12 months, we have generated more than $400 million in free cash flow as a result of steady operating performance expanding margins from strong copper and gold exposure, and a focus on cost control across the business. As a result of the continued free cash flow generation and prudent balance sheet management, we repurchased and retired $50 million of senior unsecured notes at a discount to par during the quarter. This has resulted in approximately $295 million in total debt repayments and gold prepayment liability reductions since the beginning of 2024, including $133 million in total bond buybacks, $100 million of revolver repayments, and $62 million to fully repay the gold prepay facility completed in August 2024. We ended the quarter with $626 million in cash and cash equivalents and our net debt reduced to $434 million. This has further improved our leverage ratio to 0.4 times as of June the 30th, the lowest in more than a decade. While the majority of revenues continue to be derived from copper production, gold continues to represent more than 36% of total revenues in the second quarter. our unique copper and gold diversification continues to provide significant leverage to both higher copper and gold prices. A 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. Turning to slide five, Our Peru operations produced 22,000 tons of copper in the second quarter in line with quarterly cadence expectations. Copper production increased compared to the first quarter as milled copper grades exceeded first quarter levels. Constantia also produced 7,000 ounces of gold, 552,000 ounces of silver, and 375 tons of . During the quarter, the last major stripping program at Pampa Concha was completed. which included higher amounts of waste stripping than originally planned. As a result, we replaced higher grade Pumpercuncher ore with higher grade Constantia ore in the quarter, and Pumpercuncher is now expected to be depleted in the first quarter of 2026 rather than in late 2025. Protests that started early in the third quarter temporarily impacted the transportation of supplies and concentrate and has affected mine sequencing. The Constancia mill has continued to operate during this period, and the road blockades along the concentrate transportation route have since reopened, allowing us to reduce site concentrate inventory levels and replenish supplies. Despite these short-term mine plan changes, we remain on track to achieve our full-year production guidance for all metals in Peru. Mill throughput in the quarter was impacted by the planned semi-annual mill maintenance shutdown, and therefore was lower than the first quarter. milled copper grades increased by 13% relative to the first quarter due to higher grades in the Constantia pit, while milled gold grades remained consistent with the prior quarter as pumpercuncher stripping activities were underway in both quarters. Milled recoveries for all metals remained in line with our metallurgical models for the ore type that was being processed. The operations delivered strong cost performance in the quarter with cash costs of $1.45 per pound despite higher maintenance costs associated with the planned mill maintenance program and lower byproduct credits. We remain well positioned to achieve the full year cash cost guidance in Peru. Moving to our Manitoba operations on slide six, I personally want to thank the dedicated on-site team who demonstrated tremendous effort and unwavering commitment during the unprecedented wildfire situation in both Flin Flon and Snow Lake during the quarter. The team tirelessly safeguarded our assets and collaborated closely with local communities and provincial authorities, providing essential support to emergency response efforts. These efforts resulted in no damage to HUD-based infrastructure and facilities. In addition, we committed over two million Canadian dollars in funding support to our evacuated employees, including 1.6 million in direct financial support and $500,000 in a donation to the Canadian Red Cross to support wildfire emergency relief and rebuilding efforts in northern Manitoba. Despite disruptions from the mandatory evacuation orders in May and June, the Manitoba operations showed remarkable resilience and achieved several key milestones in the second quarter. The operations produced 43,000 ounces of gold, 1.6,000 tons of copper, 5.1,000 tons of zinc and 198,000 ounces of silver in the second quarter. These were lower than the first quarter, primarily due to lower production in June associated with the 13-day temporary suspension of operations from the wildfire evacuation shutdown. The Lalor mine managed through a period of reduced workforce prior to and after the temporary suspension of operations. Despite these challenges, the mine averaged 3,300 tons per day in the second quarter, strategically prioritizing mining from gold zones to ensure a consistent feed for the New Britannia Mill. Gold grades were in line with mine plan expectations, while being lower than the exceptional gold grade mined in the first quarter of 2025. Continuous improvement efforts at Lalor focused on ore quality and advancing stope modifications to enhance mucking productivity. Capital development continued, aiming to secure high-grade copper-gold mineralization from Zone 27 and prepare Zone 17 for the next copper-gold mining front. The new Britannia mill achieved record monthly production levels in April, exceeding 2,300 tons per day. This significant milestone is a testament to ongoing low-capital projects and recent piping improvements that boosted throughput and maintained strong gold recoveries. New Britannia's mill throughput averaged approximately 1,800 tons per day during the second quarter, reflecting the record levels achieved in April, offset by lower throughput levels in June, associated with the wildfire evacuation shutdown. New Britannia gold recoveries of 89% were consistent with the first quarter. The stall mill continues to process less ore compared to prior periods, which is aligned with our strategy of allocating more lalor ore feed to New Britannia to maximize gold recoveries. The storm mill achieved gold recoveries of 68% in the quarter, reflecting benefits from recent recovery improvement programs. Gold cash costs for the second quarter were $710 per ounce, impacted by lower gold production, as previously mentioned, but were within the guidance range. On July 10, a second mandatory wildfire evacuation notice was issued for the town of Snow Lake. and we suspended the Snow Lake operations in a controlled, safe, and orderly manner. All of our employees remain safe, and there has been no structural damage to HUD Bay's on-site surface infrastructure and facilities. With a strong start to the year, we continue to expect to achieve our 2025 production guidance in Manitoba. And with cash costs in the first half of the year outperforming the low end of the cost guidance range, we are still well positioned to achieve the 2025 cash cost guidance range in Manitoba. At our third operating business unit, British Columbia, which is discussed on slide seven, we continue to focus on advancing our optimization plans. Copper Mountain produced 6.6 thousand tons of copper, 5.7 thousand ounces of gold, and 65 thousand ounces of silver. Production of gold was higher than the first quarter due largely to higher recoveries while copper and silver were lower primarily as a result of lower head grades from the use of stockpiled ore in the second quarter. We remain on track to achieve our 2025 production guidance for all metals in British Columbia and continue to expect higher production in the second half of the year as the mill improvement project takes effect. Mining activities in the quarter continue to focus on execution of the three-year accelerated stripping program intended to bring higher grade ore into the mine plan. Total material moved in the quarter increased with the effective usage of the mining fleet and continued focus on mining efficiencies, including improvements with blasted muck inventories and operator recruitment. Total material moved is expected to continue to increase quarter over quarter as per the mine plan. Mill throughput in the second quarter was limited by both planned and unplanned maintenance and area constraints related to the completion of the sag conversion project. We made significant progress in this project which entails converting the third ball mill to a second sag mill. On July 10th we successfully completed the initial phase of the project on time and on budget. The next phase of the project involves converting an interim feed arrangement to a permanent configuration which remains on target for completion in the second half of the year. This is anticipated to enable mill throughput to ramp up throughout the second half of the year and increase the nominal plant capacity to its permitted level of 50,000 tons per day in 2026. During the second quarter, copper recoveries were 81% and gold recoveries were 68%, both higher than the first quarter despite lower head grades. Similar to our other operations, British Columbia achieved strong cost performance this quarter. Cash costs were $2.39 per pound in the quarter, an improvement over the first quarter as a result of higher byproduct credits and the realized benefits from ongoing optimization efforts. With cash costs in the low end of the 2025 guidance range for the first half of the year, we are well on track to achieve our 2025 cash cost guidance range in British Columbia. We also achieved a significant permitting milestone for our new Ingebel growth project at Copper Mountain during the quarter. On May 12th, after more than a year of detailed preparation, our permitting application was successfully accepted into review by the BC Major Mines Office and is now advancing through a mine review committee process. Our team continues ongoing engagement with the local First Nations and other stakeholder groups as part of our commitment to cultivating transparency and mutually beneficial relationships. At our Copper World project in Arizona, we are very pleased to be welcoming Mitsubishi Corporation as our 30% strategic partner, representing an important milestone as we advance this high-quality copper project towards sanctioning and unlock significant value in our copper growth portfolio. Slide eight discusses the details of the transaction. Under the joint venture transaction, Mitsubishi will acquire a 30% minority equity interest in Copper World for an initial contribution of $600 million. This comprises $420 million in cash contribution at closing and $180 million within 18 months of closing. Mitsubishi will also fund its pro-rater 30% share of future capital contributions. This valuation is highly attractive to HudBay as it implies a significant premium to consensus net asset value for CoffeeWorld. As a result of the JV proceeds and future capital contributions, the levered project IRR to HudBay significantly increases to approximately 90%. I have a long history of involvement with joint ventures over my career, including developing and operating Antamina with Mitsubishi back in the 1990s and 2000s and I've seen how strategic joint ventures have built some of the best mines in the world. After a highly robust and competitive process, we have selected the premier partner of choice in Mitsubishi. As noted on slide nine, Mitsubishi is one of the largest of the Japanese trading houses and is a globally integrated minerals trading and investment company. Mitsubishi currently has investments in five of the top 20 copper mines in the world and is looking to continue to add to that world-class pipeline. They have a significant United States business that has over 50 subsidiaries and affiliates across various business sectors and manages $9 billion in total assets in North America. This strategic partnership validates the attractive long-term value of Copperworld as a world-class copper asset and endorses the strong technical capabilities of HUD-BAE. We've also amended the Wheaton precious metal stream at Copper World as summarized on slide 10. This enhanced stream provides an additional contingent payment of up to $70 million on future potential mill expansion milestones and recognizes the long-term potential at Copper World. We have also modernized the ongoing payments for gold and silver from fixed pricing to 15% of spot prices to provide upside exposure to higher precious metals prices. The JV transaction initial cash contributions plus future pro rata equity capital contributions from Mitsubishi provide significant financial flexibility for HUD-BAY by reducing our estimated share of the remaining capital contributions to approximately $200 million based on PFS estimates. It also defers our first capital contribution to 2028 at the earliest. Slide 11 highlights our 3P plan that we implemented in late 2022 to guide investment and value creation at Copperworld. The announcements of the Mitsubishi joint venture and the enhanced Wheaton stream, together with the recent achievement of our stated balance sheet targets, has successfully completed the key elements of our 3P plan. Since 2022, we have secured all required permits for Copper World Phase 1. Definitive feasibility studies are well underway and on track for completion by mid-2026 as we advance the project towards a sanction decision. With the financial results we announced today, we completed all of the key elements of our prudent financing strategy. We are well positioned to build one of the next major copper mines in the United States while continuing to maintain a strong balance sheet throughout the build. Copperworld will support the United States government's foreign investment and national security objectives with direct $1.5 billion of investment into the U.S. critical mineral supply chain, which also represents one of the largest investments in southern Arizona's history. HudBay is the fourth largest copper company listed on the New York Stock Exchange, and with the majority of our shareholders domiciled in the United States, we are pleased to advance America's next major copper mine. Copper World is a critical minerals project that underpins the United States as a global leader in copper production. We are supported by a partner with a large operational footprint in the United States, deep ties to the domestic economy, and the history of significant investment into the United States. The fully permitted initial phase of the Copper World project is located on private land owned by Hud Bay. The mine is expected to produce 85,000 tons of copper per year over an initial 20-year mine life, with an average of 92,000 tons per year expected over the first 10 years. During the three-year construction period, Copper World is expected to create more than 1,000 jobs and will engage union labor for project construction with letters of commitments currently in place with seven U.S. labor unions. Copper World is also expected to contribute over $850 million in U.S. taxes and create more than 400 direct jobs and 3,000 indirect jobs in Arizona once in production. Our Made in America copper production will contribute to the domestic U.S. copper supply chain and strengthen manufacturing capacity, national security, and energy independence. Turning to slide 13. Copperworld is the most advanced greenfield project in our portfolio and offers significant copper exposure and highly attractive project economics. With this successful JV milestone at Copperworld, we will continue to de-risk the project by accelerating detailed engineering, some key long lead items, and other de-risking activities this year, resulting in an additional $20 million in growth capital expenditures that have been advanced to 2025 from future years. As a result, total 2025 Arizona growth spending guidance has increased to $110 million from $90 million on a 100% basis. Copper World 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, Copper World is expected to be one of the largest copper producers in the United States. Concluding on slide 14, HudBay currently produces 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 cash flow resiliency in volatile pricing environments. In our pipeline of near-term and long-term copper growth, CopperWorld positions us well to benefit from strong long-term copper market fundamentals. Once CopperWorld is in production, We expect our annual copper production to grow by more than 50% from current levels. This will reinforce our position as one of the largest Americas-focused pure play copper producers with a well-balanced and geographically diversified portfolio of assets. Our expected production will be weighted approximately one-third in each of Canada, the United States, and Peru. And the significant increase in copper production from Copper World will further enhance HUD-based exposure to copper with more than 70% of consolidated production and revenue expected to be derived from copper. HUD-BAY's existing strong operating platform in Tier 1 mining jurisdictions and resilient balance sheet offers significant upside potential for further value creation at higher copper and gold prices. Through our new JV partnership, we will leverage our complementary strengths to deliver CopperWorld produce domestic copper in the United States for the domestic critical mineral supply chain, and unlock significant value in our long-term copper growth pipeline. At the same time, we continue to advance our many other high return growth opportunities to unlock value across the portfolio and create meaningful value for all our stakeholders. And with that, we are pleased to take your questions.