TORONTO, May 14, 2020 (GLOBE NEWSWIRE) -- Hudbay Minerals Inc. (“Hudbay” or the “company”) (TSX, NYSE:HBM) today released its first quarter 2020 financial results. All amounts are in U.S. dollars, unless otherwise noted.
First Quarter Operating and Financial Results
Delivered a solid operating quarter in Manitoba, which included record mine production at Lalor and record throughput at the Stall concentrator.
Lalor ore mined and Stall concentrator throughput increased by 8% and 19%, respectively, in the first quarter of 2020 compared to the fourth quarter of 2019.
Constancia achieved target mill throughput and operating unit costs during the quarter prior to its temporary shutdown.
Net loss of $76.1 million or $0.29 per share for the first quarter of 2020 reflects lower realized base metal prices, lower Constancia grades in line with the mine plan and higher cost of sales in Peru as a result of the temporary suspension of Constancia and certain inventory valuation adjustments versus the previous quarter.
Cash generated from operating activities decreased to $9.1 million in the first quarter of 2020 from $98.7 million in the fourth quarter of 2019, while operating cash flow before change in non-cash working capital decreased to $42.0 million in the first quarter from $69.1 million in the previous quarter due to lower realized base metal prices and lower Constancia grades.
Cash and cash equivalents of $306.0 million as at March 31, 2020 continued to provide the company with financial flexibility during the temporary production disruption at Constancia and the current low base metal price environment and have since been bolstered by the gold prepay proceeds described below.
COVID-19 and Annual Guidance
The COVID-19 global pandemic has had a significant impact on Hudbay and the prices of the products it produces. The company experienced operational and supply chain disruptions, including a temporary suspension of operations at Constancia for a period of approximately eight weeks as a result of a government declared state of emergency in March. Operations continued in Manitoba without any impact to production or the ability to ship concentrate and zinc metal.
Hudbay is affirming 2020 Manitoba production, operating cost and capital expenditure guidance. Peru guidance has been suspended due to the ongoing uncertainty surrounding COVID-19 and the recent temporary Constancia mine shutdown.
On May 14, Constancia received recognition and approval from Peru's Ministry of Energy and Mines for its restart protocols and is planning to ramp up operations over the next week. Hudbay expects to provide an update to its Peru guidance with second quarter results.
Hudbay has been prudently managing the business and the impact of the pandemic. This has resulted in approximately $150 million in incremental liquidity this year, including $115 million in cash proceeds received from a gold forward sale and prepay transaction, an approximate $25 million deferral in Peru’s 2020 sustaining capital and company-wide discretionary and input cost reductions of approximately $10 million. In addition, Hudbay’s 2020 forecasted cash flows are expected to benefit from the Canadian dollar cost structure of the Manitoba operations and the anticipated increase in cash flows from Lalor due to higher precious metals production expected this year and the prevailing commodity prices and foreign exchange rates.
Received $115 million from a gold forward sale and prepay transaction completed in early May 2020, which prefunds the entire capital budget for the low-risk, high-return New Britannia gold mill refurbishment at attractive terms and low cost of capital.
In February, prior to the COVID-19 pandemic, Hudbay re-negotiated the covenants of its revolving credit facilities which resulted in an increase of $443 million in liquidity available as at March 31, 2020, providing additional financial flexibility to execute its growth initiatives.
Executed amendment with Wheaton Precious Metals extending the target date for mining four million tonnes of ore from Pampacancha by six months to June 30, 2021.
March 2020 update to reserves and resources increased Lalor's life-of-mine gold production by 41% from the previous mine plan and expected annual gold production to over 150,000 ounces by 2022, while total Snow Lake gold reserves increased by 35% to 2.2 million ounces, which supports an expanded 18-year mine life for the Snow Lake operations.
The New Britannia gold mill refurbishment is on track to be completed before the end of 2021 with orders placed for long-lead items and early works construction underway.
“The COVID-19 pandemic has been an unprecedented challenge for our business, but with the help of extensive scenario planning, we have proactively implemented measures to mitigate the impact to our operations, our employees and our communities. Our focus on prudently managing the business has resulted in a significant improvement in our liquidity, and we remain well-positioned to fund our future growth initiatives while remaining vigilant in this ever-changing environment,” said Peter Kukielski, President and Chief Executive Officer. “While we have suspended our Peru guidance due to the temporary shutdown of Constancia during the pandemic, we are affirming our Manitoba guidance after a strong operating quarter. Lalor and the Stall mill achieved record production levels and the New Britannia gold mill refurbishment, which will enable an increase in Lalor’s annual gold production to over 150,000 ounces, is on track for completion by the end of 2021.”
“We are very pleased with the work we’ve done this year to protect our balance sheet and improve our liquidity position,” said Eugene Lei, Hudbay’s Senior Vice President, Corporate Development & Strategy and Interim Chief Financial Officer. “We started the year by proactively amending our covenants under the revolving credit facilities to provide us with more flexibility in this volatile market. The recent gold prepay transaction provides a non-dilutive, low cost of capital financing, enabling us to fund our Snow Lake gold growth initiatives in a prudent manner by utilizing a fraction of New Britannia’s first two years of gold production, while protecting our balance sheet, preserving our existing cash and improving our total available liquidity. Incorporating the expected sustaining capital deferrals in Peru and the company-wide cost savings this year, we have secured an incremental $150 million in liquidity.”
Summary of First Quarter Results
Consolidated copper production in the first quarter of 2020 was 24,635 tonnes, a 24% decrease from the fourth quarter of 2019 primarily as a result of planned lower copper grades at Constancia, in line with the mine plan, and lower ore production from Constancia due to the temporary suspension of operations in March 2020 following a government declared state of emergency in Peru due to COVID-19. Consolidated zinc production in the first quarter of 2020 was in line with the fourth quarter of 2019 due to record production from the Lalor mine and the Stall mill, offset by lower production from the Flin Flon mill.
In the first quarter of 2020, consolidated cash cost per pound of copper produced, net of by-product creditsi, was $1.21, a slight improvement over the fourth quarter of 2019 as lower copper production was more than offset by lower Peru costs. Incorporating sustaining capital, capitalized exploration, royalties, selling, administrative and regional costs, consolidated all-in sustaining cash cost per pound of copper produced, net of by-product creditsi, in the first quarter of 2020 was $2.40, which decreased from $2.55 in the fourth quarter of 2019, driven mainly by lower sustaining capital expenditures and capitalized exploration, and the same factors noted above affecting consolidated cash costs.
Cash generated from operating activities in the first quarter of 2020 decreased substantially to $9.1 million compared to $98.7 million in the fourth quarter of 2019. Operating cash flow before change in non-cash working capital was $42.0 million during the first quarter of 2020, reflecting a decrease of $27.1 million compared to the fourth quarter of 2019. The decrease in operating cash flow is primarily the result of the significant negative impact of COVID-19 on realized base metal prices as well as lower sales volumes compared to the previous quarter.
Net loss and loss per share in the first quarter of 2020 were $76.1 million and $0.29, respectively, compared to a net loss and loss per share of $1.5 million and $0.01, respectively, in the fourth quarter of 2019. The decrease in earnings was caused by declining base metal prices, lower Constancia grades in line with the mine plan, and lower sales volumes due to the temporary suspension of Constancia in March. In addition, the temporary suspension of mining operations at Constancia required a portion of overhead costs to be directly charged to cost of sales and lower metal prices led to the write-down of certain inventories in Peru, as further described below.
Net loss and loss per share in the first quarter of 2020 were affected by, among other things, the following items:
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