Hudbay to release more realistic Copper Mountain plan

Hudbay Minerals (TSX: HBM; NYSE: HB) plans to publish a new technical report and mine plan for its recently acquired Copper Mountain mine in B.C. that will pull back overly optimistic plans drawn up by the operation’s previous owner.

The report, to be released by year-end, will address what Hudbay’s president and CEO Peter Kukielski described as “very optimistic assumptions on all aspects of the 2022 life of mine plan,” which he says the company never endorsed.

Hudbay closed the US$439-million purchase of Copper Mountain and its mine of the same name in June. The 2022 reserves update was prepared internally by former Copper Mountain’s senior vice president for exploration and geoscience, Patrick Redmond, which showed a 57% increase in the overall reserves, setting the stage for an optimistic 65,000 tonnes per day scenario from 2028.

Dalton Baretto, a Canaccord Genuity Capital Markets mining analyst, expects a significant downward revision in reserves, resources, and the overall mine plan detailed in the 2022 report. “We are not surprised, as we always expected this technical report to be a ‘kitchen-sink’ update, given the aggressive estimates by the previous owner,” he said.

The analyst said in a note to clients that despite better-than-expected production in the mine’s first full quarter under Hudbay’s management, Hudbay had recently started to temper expectations in anticipation of the updated report’s release.

The new plan is expected to forego Copper Mountain’s proposed expansion, focusing instead on an aggressive short-term stripping campaign to reach higher-grade pit areas. This strategy points towards a more conservative operational plan for Copper Mountain, just three hours east of Vancouver.

Addressing investor concerns during a company call, Kukielski clarified that Hudbay’s acquisition was grounded in an internally developed plan by Hudbay using the Copper Mountain data room that is more consistent with actual reserves and mill throughput data from reports predating 2020, rather than the 2022 mine plan.

Andre Lauzon, Hudbay’s chief operating officer, said that the company’s proven resource modelling techniques applied at their Peru operations at Constancia were also used to recalibrate Copper Mountain’s model.

“This rigorous approach has led to the development of a model that reconciles well with the mill output,” he said on the call.

Hudbay also intends to align the upcoming technical report with the more conservative 2019 model, focusing on a realistic 45,000-tonne-per-day plan. The miner is looking to boost efficiency as part of its strategy to stabilize and improve Copper Mountain’s performance ahead of approving a comprehensive turnaround strategy to follow later next year. This strategy includes enhanced maintenance management systems to increase mill availability and improve economic performance.

Kukielski also emphasized Hudbay’s strategic focus on exploration and development, particularly advancing the Copper World project in Arizona. The company delivered a pre-feasibility study in September.

Q3 performance

Hudbay reported solid third-quarter results, with revenues reaching US$480.5 million, fuelled by its highest copper production at nearly 42,000 tonnes and a record gold output of over 101,000 ounces.

The performance reflects strong production from Pampacancha in Peru and Lalor in Canada. It includes contributions from Copper Mountain, raising operating cash flow to US$182 million and lifting adjusted EBITDA to US$190.7 million, a 135% increase from the previous quarter.

Headline earnings rose to 7¢ per share from 5¢ a year earlier.

The company also strengthened its financial position, increasing liquidity to US$539.6 million and reducing net debt to US$1.1 billion, aided by renegotiated credit agreements.

Kukielski confirmed Hudbay will meet its 2023 guidance of 100,000-128,000 tonnes copper, 258,000-313,000 oz. gold, 28,000-36,000 tonnes zinc, 3-3.65 million oz. silver and 1,300-1,600 tonnes of molybdenum.

At $5.62 per share at close in Toronto Thursday, Hudbay shares were 3.1% lower, taking the 12-month trend down to more than 17%. It has a market capitalization of $2 billion.