Hudbay Minerals Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the HUD-Bay third quarter 2025 results conference call. At this time, all participants are in listen-only mode, and 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 reach an operator by pressing star, then 0. I would like to remind everyone that this conference call is being recorded today, November the 12th at 11 a.m. Eastern Time. I would now like to turn the conference over to Candice Brule, Senior Vice President, Capital Markets and Corporate Affairs. Please go ahead.

Thank you, Operator. Good morning and welcome to HUD-based 2025 Third 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 Kokilski, HUD-BAY's 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 Lozon, 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 Kokilski.

Thank you, Candace. Good morning, everyone, and thank you for joining us for today's call. The third quarter was a quarter of resilience for HUD-BAY as we demonstrated the company's strong operating capabilities and the benefits of our diversified operating platform as we faced mandatory wildfire evacuations in Manitoba, and temporary operational interruptions in Peru. The agility of our teams and continued dedication to driving efficiencies and reliable performance helped to minimize the impact to our operations due to these external events. This has allowed us to maintain the low end of our consolidated copper and gold production guidance ranges for 2025, and we have been able to significantly improve our consolidated cost guidance for the second time this year, which is truly remarkable given the circumstances. We continue to take steps to reduce long-term debt while reinvesting in high return growth initiatives across the organization. We are delighted to have secured Mitsubishi as a premier long-term partner for our Copper World project this quarter, enabling us to unlock significant value in our copper growth pipeline. This transaction further solidifies our financial strength and significantly reduces our share of future equity contributions for the development of Copper World. We look forward to continuing to work with Mitsubishi under this strategic partnership as we advance Copper World towards a sanctioned decision in 2026 and first production in 2029. HudBay's unique diversification in copper and gold, coupled with our relentless commitment to cost control, enables us to maintain industry-leading margins and deliver strong and stable cash flows. Slide three provides an overview of our third quarter operational and financial performance. Our operations in Manitoba showed remarkable resilience against unprecedented wildfires, prioritizing the safety of our people and communities. In Peru, the team navigated regional social unrest and temporary interruptions to deliver gold productions far exceeding quarterly cadence expectations. And in British Columbia, our team made progress with the SAG mill conversion project called the SAG2 project to enhance mill throughput and drive future cash flow generation. In light of temporary operational interruptions and production deferrals, our diversified asset portfolio delivered consolidated copper production of 24,000 tons and consolidated gold production of 54,000 ounces in the third quarter. Consolidated copper and gold production was lower than the second quarter, primarily due to the impact of the wildfire disruptions that persisted in northern Manitoba for a majority of the third quarter, as well as the temporary production interruption in Peru for nine days during the quarter. In addition, mill maintenance and increased processing of lower grade stockpiles at Copper Mountain contributed to low quarter over quarter production. Consolidated silver production was 730,000 ounces and zinc production was 548 tons in the quarter. Adjusted EBITDA was $143 million in the third quarter, a decrease compared to the second quarter primarily due to the temporary operational interruptions I mentioned as well as lower sales volumes as a result of a delayed 20,000 dry metric ton copper concentrate shipment in Peru with high gold content valued at approximately $60 million. This shipment was expected to be sold at the end of September, but ocean swells at the port prevented it from being loaded and shipped until early October. Cash generated from operating activities was $114 million in the third quarter, and operating cash flow before change in non-cash working capital was $70 million. Adjusted net earnings were $0.03 per share in the third quarter after adjusting for various non-cash items on a pre-tax basis, including a $322 million impairment reversal related to Copperworld, a $15 million contingent payment received from a non-core asset sale, and various mark-to-market adjustments. During the third quarter, we continued to demonstrate industry-leading cost performance with consolidated cash costs of 42 cents per pound and consolidated sustaining cash costs of $2.09. These costs increased compared to the prior quarter, primarily as a result of lower gold byproduct credits in Manitoba, partially offset by strong gold production in Peru. While we have reaffirmed our consolidated full-year production guidance for all primary metals, and we are anticipating strong production in the fourth quarter, we now expect consolidated full-year copper and gold production to be near the low end of the guidance ranges. We believe our ability to maintain our initial production guidance in the face of the recent operational interruptions is remarkable, and I am extremely proud of the team. With the strong cost performance at all our operations year to date and increased exposure to gold byproduct credits, We have further improved our full-year consolidated cash cost guidance to a range of 15 cents to 35 cents per pound of copper from the previously reduced range of 65 cents to 85 cents per pound. We are also improving our consolidated sustaining cash cost guidance range to $1.85 to $2.25 per pound of copper from the original guidance range of $2.25 to $2.65 per pound. Along with these operating cost improvements, we are also expecting total capital expenditures to be $35 million lower than the original guidance, primarily due to deferring certain expenditures to 2026. This includes $15 million in reduced sustaining capital expenditures as a result of the temporary operational interruptions and $20 million in lower growth capital expenditures that have been deferred to 2026. Turning to slide four, we continue to further reduce debt during the quarter despite lower consolidated free cash flows. Our Peru and Manitoba operations generated positive free cash flow in the quarter despite the temporary production interruptions. This was offset by our continued investment in optimizing our British Columbia operations with the planned stripping activities. Consolidated free cash flow would have been positive if the excess copper concentrate inventory in Peru was sold at the end of September. To continue our prudent balance sheet management, we repurchased and retired $13.2 million of senior unsecured notes through open market purchases at a discounted power during the third quarter. Following the quarter end, we repurchased and retired an additional $20 million in senior unsecured notes reducing our total principal debt levels to $1 billion. Since the beginning of 2024, we have reduced total debt and gold prepay liabilities by approximately $330 million. We ended the quarter with total liquidity of $1.04 billion, including $611 million in cash and cash equivalents and undrawn availability of $425 million under the revolving credit facilities. As of September the 30th, our net debt to EBITDA ratio was 0.5 times. We expect liquidity to be further enhanced upon closing of the Copperwell joint venture transaction, which is anticipated to close in late 2025 or early 2026. Our strengthened balance sheet will allow us to continue to prudently reinvest in our portfolio of attractive high return brownfield and greenfield opportunities to drive production growth and long-term value creation. Taking a look at our Peru operations on slide five, we delivered steady operating performance despite facing temporary interruptions due to social unrest. The operations produced 18,000 tons of copper and 26,000 ounces of gold during the third quarter, as well as 577,000 ounces of silver and 195 tons of molybdenum. Countrywide protests that began early in the third quarter temporarily impacted the transportation routes, leading to limitations of supplies and concentrate transportation. To manage through these limitations, we adjusted mine sequencing to prioritize Pampacuncha mining activities and blend stockpile ore in the mill feed. In late September, the social unrest escalated across Peru, and along with other mines in the southern mining corridor, Our Constantia mine was impacted by local protests and illegal blockades. The safety of all our personnel is our top priority, so we suspended operations on September 22nd as a precaution. During the temporary downtime, the team performed preventative maintenance at the mill and on certain mining equipment. Since the restart of mining activities on October 3rd and milling activities on October 5th, the Constantia operations have normalized. I am extremely proud of our resilient team in Peru and the way they continue to navigate the dynamic environment. Portally, copper production was lower than the prior quarter, primarily due to lower ore milled as a result of this temporary operational shutdown, while gold production was higher due to stronger head grades from a larger contribution of the mill feed coming from Pampacantia. The fourth quarter is expected to be the strongest copper and gold production quarter this year in Peru. Production in the month of October totaled approximately 9,000 tons of copper and 17,000 ounces of gold, reflecting optimal mill ore feed with continued strong ore contribution from Pampa Cancha and lower stockpiled ore being processed. We remain on track to achieve full year copper production guidance in Peru, while gold production is now expected to be above the top end of the 2025 guidance range. Mill throughput averaged approximately 76,000 tons per day in the third quarter, lower than the second quarter due to low ore mined and the temporary operational shutdown. Mill's copper grades decreased by 9% compared to the second quarter as a result of the stockpiled ore feed, partially offset by higher grades from Pampacantia. Milled gold grades significantly increased with a higher portion of ore feed from Pampacantia, where the gold grades are meaningfully higher than in the other ore sources. Mill recoveries of copper were impacted by the nature of stockpile feed, while gold and silver recoveries were in line with metallurgical models. The road blockades along the transportation route reopened midway through the quarter, allowing us to reduce site concentrate inventory levels and replenish supplies. As I mentioned earlier, ocean swells at the port later in the quarter impacted sales volumes with a 20,000 ton copper concentrate shipment being deferred to early October. Cash costs were $1.30 per pound during the third quarter, decreasing from the prior quarter with higher gold byproduct credits and lower plant maintenance costs as planned. With cash costs continuing to outperform the low end of the cash cost guidance range, we are reaffirming our full-year cash cost guidance in Peru. Moving to our Manitoba operations on slide six, I want to first thank the regional operating team for all their efforts in safeguarding the company's assets and completing an efficient orderly resumption of operations. I can't imagine what our employees and their families had to endure during these unprecedented wildfires. and we will continue to do our part to support the rebuilding efforts in the communities and the provinces. And I will say again how proud I am of the continued resilience demonstrated by our Manitoba team and the successful restart of operations in late August following the lifting of mandatory evacuation orders. The operations produced 22,000 ounces of gold, 800 tons of copper, 500 tons of zinc, and 102,000 ounces of silver in the third quarter, lower than the second quarter due to the two-month wildfire evacuation that deferred gold production. A business interruption insurance claim has been submitted to compensate for a portion of the wildfire-related downtime. Total ore mined at Lalor reduced by over 50% during the quarter due to the temporary operational interruption. Gold grades increased by 9% compared to the second quarter, while copper, zinc, and silver grades were in line with the mine plan expectations. Consistent with our strategy of allocating more LALA ore feed to New Britannia to maximize gold recoveries, the New Britannia mill achieved average throughput of approximately 2,300 tons per day over the operating period in the quarter, and gold recoveries were a record 92% reflecting the increase in gold grades. The Stahl Mill experienced a greater throughput impact from the wildfire shutdown as the Lalor Mine prioritized mining from the gold zones over base pedal zones to ensure a consistent feed to the New Britannia Mill. The team focused on process optimization and enhanced gold recovery initiatives, enabling record gold recoveries of 73% at Stahl in the third quarter. Gold cash costs for the third quarter were $379 per ounce, decreasing compared to the second quarter primarily due to the higher byproduct credits and the recovery of secondary gold products as a result of mill tank cleanouts. While the Manitoba operations were previously tracking within the 2025 guidance ranges despite the significant impacts from wildfire evacuations, we are now expecting to be slightly below the low end of the gold productions guidance range as a result of a week-long power outage in October from severe winter storms that further deferred gold production. With year-to-date cash costs continuing to outperform the low end of the cash cost guidance range, we are reaffirming our full-year 2025 cash cost guidance range in Manitoba. Given the strong cash cost performance to date in Manitoba, HUD-B will continue to prioritize primary gold production over byproduct zinc production in 2025 and full-year zinc production is now expected to be below the low end of the guidance range. Looking at our British Columbia operations on slide seven, we continue to focus on advancing our optimization plans at the Copper Mountain Mine. This includes the ramp-up of mining activities to optimize ore feed to the plant and implementing site improvement initiatives that mirror HUD-BAY's best-in-class operating practices. In the third quarter, the British Columbia operations produced 5.2 thousand tons of copper, 4.8 thousand ounces of gold, and 51 thousand ounces of silver. Production decreased compared to the prior quarter primarily because of restricted mining efficiencies and lower grades as higher waste stripping continued. The waste stripping activities are part of the continued execution of the accelerated stripping program intended to bring higher grade ore into the mine plan in 2027. During the third quarter, we made significant progress on the key mill improvement project, completing the initial phase of the SAG2 mill conversion in July. The subsequent ramp-up demonstrated positive contribution from SAG2 during the quarter, with several days achieving 50,000 tons per day of mill throughput in September. The team continues to optimize the circuit as planned through the remainder of 2025, with the final phase of the project involving the conversion of an interim feed arrangement to a permanent configuration. Construction remains on target for completion in December 2025. In late September, the primary sag mill, which I will refer to as Sag 1, required unplanned maintenance due to localized damage to the feed head. After completing the repairs in mid-October, Sag 1 restarted at a reduced rate. Under enhanced monitoring controls, SAG 1 throughput will continue to ramp up over the course of the fourth quarter. Together with the completion of the final phase of the SAG 2 project, HUD-BAY expects mill throughput to ramp up towards 50,000 tons per day by mid-2026. Total ore processed in the third quarter was 6% higher than the second quarter, reflecting the completion of the first phase of the SAG 2 project, partially offset by planned and unplanned maintenance. During the third quarter, copper recoveries were 77% and gold recoveries were 59%, both lower than the prior quarter due to the processing of lower grade stockpile material. British Columbia cash costs were $3.21 per pound in the quarter, higher than the prior quarter largely due to lower copper production and lower byproduct credits. Fourth quarter production is expected to be impacted by a lower mill throughput from reduced levels at SAG 1 in October, which together with a higher portion of ore milled from low-grade stockpiles this year is expected to result in full-year copper production in British Columbia to be below the low end of the guidance range. Cash costs continue to track well versus the guidance range, and therefore we are reaffirming full-year cash cost guidance in British Columbia. Turning to slide eight. As I mentioned briefly in my opening remarks, our Copper World project in Arizona achieved a significant milestone this quarter with the announcement of our 30% strategic joint venture with Mitsubishi. We welcome Mitsubishi's world-class expertise as we work together to advance this high-quality copper project and unlock significant value for all our stakeholders. This strategic partnership validates the attractive long-term value of Copper World as a top-tier copper asset and endorses the strong technical capabilities of HUD-BAE. Mitsubishi is acquiring its 30% stake for an initial contribution of $600 million. This deal will provide $420 million in cash once it closes and $180 million within 18 months of its closing. These proceeds will be used to fund the remaining feasibility study and pre-sanction costs in addition to initial project development costs for Copper World. Mitsubishi will also fund its pro-rater 30% share of future capital contributions. This valuation is highly attractive to HUD-Bay as it implies a significant premium to consensus net asset value for Copperworld. As a result of the JV proceeds and future capital contributions, HUD-Bay's estimated share of the remaining capital contributions have been reduced to approximately $200 million based on pre-feasibility study estimates. It also defers our first capital contribution to 2028 at the earliest and significantly increases the levered IRR to HUD-B to approximately 90%. With recent achievement of our stated balance sheet targets, we have successfully completed the key elements of our prudent financing strategy as part of our 3P plan. We are very well positioned to build one of the next major copper mines in the United States while continuing to maintain a strong balance sheet to reinvest in other growth opportunities across our portfolio while continuing to deliver. Upper world feasibility activities are underway, and we are on track for the completion of a definitive feasibility study in mid-2026. We have accelerated detailed engineering, certain long lead items, and other de-risking activities with the additional $20 million in growth capital expenditures announced in August. We continue to expect to make a copper world sanctioned decision in 2026. As part of our long-term growth pipeline, slide 9 summarizes the threefold strategy we are executing in Snow Lake as part of the largest exploration program in the company's history in Manitoba. The first objective is to execute near mine exploration at the LALOR and 1901 deposits to enhance near-term production and further extend mine life. We completed the development of the initial exploration drift at 1901 earlier this year, and the development of the haulage drift is underway. Positive initial step-out drilling from the exploration drift was achieved earlier this year, and during the third quarter, some additional zinc development ore was delivered for processing at stall. Activities at 1901 over the next two years will focus on exploration, definition drilling, ore body access, and establishing critical infrastructure for full production in 2027. Exploration activities will also target additional step-out drilling to potentially extend the ore body as well as complete infill drilling to convert inferred mineral resources in the Gold Lenses to mineral reserves. The second strategic focus area is on testing regional satellite deposits within trucking distance of the Snow Lake processing infrastructure to identify potential additional ore feed fully utilize the available processing capacity. 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. The most advanced of these satellites is the Talbot deposit, which I'll discuss further on the next slide. And the third strategic focus is on exploring our large land package for a new potential 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 geophysics survey. In July, we commenced exploration drilling at the Talbot Copper Zinc Gold Deposit. Talbot is located within tracking distance of the Snow Lake processing facilities making it an ideal deposit to potentially provide supplemental feeds to our stall mill. The current phase of the drilling program includes four drill rigs intended to complete 10 holes by the end of the year. After completion of the initial three holes, we are pleased to see that the core logging has confirmed the continuity of the Talbot copper-gold mineralization at depth and look forward to receiving the full assay results later this year. This drilling will determine the future scope requirements for a pre-feasibility study, which we intend to initiate in 2026. In January 2026, we expect to kick off phase two of the Talbot drilling program focused on infill drilling to support the pre-feasibility study. Concluding on slide 11, this quarter demonstrated the benefits of HUD-based diversified operating base, our unique copper and gold exposure, and our resilient operating capabilities. Our continued focus on cost control enables us to maintain industry-leading margins and deliver strong and stable cash flows. 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. Hut Bay's existing strong operating platform in tier one mining jurisdictions and resilient balance sheet offers significant upside potential for further value creation at higher copper and gold prices. We will be able to prudently advance copper world while also being able to invest in 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.