Hudbay Minerals Inc. (“Hudbay” or the “company”)
(TSX, NYSE: HBM) today announced that the
company has entered into a gold forward sale and prepay arrangement
(“Gold Prepay”) with a syndicate of its existing lenders whereby
the company will receive an upfront payment of US$115 million in
exchange for delivering a total of 79,954 gold ounces in 2022 and
2023 based on gold forward curve prices averaging approximately
US$1,682 per ounce. The upfront payment is not subject to any
conditions and will be paid on May 11, 2020.
“We are pleased to bolster our liquidity
position and prefund the entire capital budget for the New
Britannia gold mill refurbishment, which is a low-risk,
high-return investment with a short payback that is expected to
more than double our gold production in Snow Lake to over 150,000
ounces per year by 2022,” said Peter Kukielski, Hudbay’s President
and Chief Executive Officer. “This transaction allows us to take
advantage of the strong gold price environment at a forward price
that is significantly higher than our internal gold price forecasts
used for reserve calculations and budgeting.”
The Gold Prepay was executed by National
Bank Financial, as lead arranger, and includes Bank of Montreal,
ING Capital Markets LLC and Canadian Imperial Bank of Commerce as
counterparties. The highlights of the Gold Prepay are as
follows:
- Upfront proceeds of US$115 million
to fund 100% of the New Britannia gold mill refurbishment budget
over the course of the next 18 months, which is expected to
increase Lalor’s annual gold production to over 150,000 ounces
commencing 2022.
- Delivery of 3,331 gold ounces on a
monthly basis for a total of 79,954 ounces over a 24-month period
from January 2022 to December 2023.
- Delivery represents approximately
25% of Lalor’s forecasted annual gold production in each of 2022
and 2023 and approximately 3.6% of total Snow Lake gold reserves,
though delivery can be satisfied by gold production from any of
Hudbay’s mines.
- Average forward price of US$1,682
per ounce based on the gold forward curve at the monthly delivery
schedule.
- An attractive cost of capital of
approximately 5.95% per annum using the average forward price of
US$1,682 per ounce, or an implied cost of capital of approximately
2.7% using current consensus gold prices for 2022 and
2023i.
- The Gold Prepay is not subject to
financial covenants. Under the revolving credit facilities and note
indenture, the Gold Prepay will be treated as deferred revenue and
will not be considered as debt. As a result, the Gold Prepay adds
to Hudbay’s cash balance and will be accretive to the company’s
credit facility availability under the recently renegotiated net
debt to EBITDA covenants.
“We are very pleased to receive additional
credit support from our lenders and achieve this low cost of
capital, non-dilutive financing, particularly in this challenging
credit environment,” said Eugene Lei, Hudbay’s Senior Vice
President, Corporate Development & Strategy and Interim Chief
Financial Officer. “This uniquely structured transaction allows us
to prudently fund our Snow Lake gold growth initiatives 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. Further,
this transaction is a low-risk way to facilitate our significant
near-term gold growth, which provides an attractive countercyclical
hedge to our base metals business in these volatile markets while
retaining the extensive upside in Snow Lake Gold’s 18-year mineral
reserves.”
On March 30, 2020, Hudbay announced its annual
reserve and resource update, which included a 35% increase in Snow
Lake gold reserves to 2.2 million ounces and extended the mine life
to 18 years. The company also released an updated mine plan for its
Lalor mine that increased life-of-mine gold production by 41%
compared to the previous mine plan, and more than doubled the
average annual gold production to more than 150,000 ounces over the
first eight years after the New Britannia mill is refurbished.
Lalor’s gold and copper-gold zones are expected to be processed at
the nearby New Britannia gold mill in Snow Lake, which capitalizes
on existing infrastructure, and the US$115 million refurbishment
cost is a short-payback, high-return investment opportunity. The
New Britannia gold mill is expected to achieve gold recoveries of
approximately 93% compared to current gold recoveries of
approximately 53% at the Stall mill, which enables increased
reserves and increases the potential for future conversion of
resources to reserves due to the significantly higher gold
recoveries and increased value per tonne of ore. Based on the
updated reserve, Lalor will remain a low-cost gold mine with cash
costs and sustaining cash costs, net of by-product credits, of
approximately US$480 and US$655 per ounce, respectively, over the
first eight years once New Britannia is in production, positioning
Lalor in the lowest quartile on the global cost curvesii.
The updated resource model at Lalor includes 4.4
million tonnes of inferred mineral resources, which have the
potential to further extend the Lalor mine life. In addition, the
gold and copper-gold rich lenses remain open down plunge and offer
opportunities to expand Lalor’s resource base once suitable
underground drilling platforms have been established over the next
two years. The mineral resources at Hudbay’s satellite gold
deposits in the Snow Lake region have the potential to provide
additional feed for the New Britannia processing facilities and
further extend the mine life.
Qualified Person
The scientific and technical information
contained in this news release related to the Lalor mine and the
Snow Lake properties has been approved by Olivier Tavchandjian, P.
Geo, Hudbay’s Vice-President, Exploration and Geology. Mr.
Tavchandjian is a qualified person pursuant to NI 43-101. For a
description of the key assumptions, parameters and methods used to
estimate mineral reserves and resources at Hudbay’s material
properties, as well as data verification procedures and a general
discussion of the extent to which the estimates of scientific and
technical information may be affected by any known environmental,
permitting, legal title, taxation, sociopolitical, marketing or
other relevant factors, please see the technical reports for the
company’s material properties as filed by Hudbay on SEDAR at
www.sedar.com.
Forward-Looking Information
This news release contains forward-looking
information within the meaning of applicable Canadian and United
States securities legislation. Forward-looking information
includes, but is not limited to, expectations regarding the
completion of the Gold Prepay transaction and its impact on the
company’s liquidity position and financing plans for the New
Britannia project, expectations regarding the Lalor gold strategy,
including the cost and schedule for the refurbishment of the New
Britannia mill, and the possibility of optimizing the value of the
gold resources in Manitoba, the future potential of the Snow Lake
satellite deposits, including the possibility of identifying
additional gold resources, the possibility of converting inferred
mineral resource estimates to higher confidence categories,
anticipated project schedules, mine plans and metals prices and
forecasted production and costs. Forward-looking information is
not, and cannot be, a guarantee of future results or events.
Forward-looking information is based on, among other things,
opinions, assumptions, estimates and analyses that, while
considered reasonable by the company at the date the
forward-looking information is provided, inherently are subject to
significant risks, uncertainties, contingencies and other factors
that may cause actual results and events to be materially different
from those expressed or implied by the forward-looking
information.
The material factors or assumptions that Hudbay
identified and were applied by the company in drawing conclusions
or making forecasts or projections set out in the forward-looking
information include, but are not limited to, the successful
completion of the New Britannia project on budget and on schedule
and no significant interruptions to the company's operations in
Manitoba or significant delays to its development projects in
Manitoba due to the COVID-19 pandemic.
The risks, uncertainties, contingencies and
other factors that may cause actual results to differ materially
from those expressed or implied by the forward-looking information
may include, but are not limited to, risks generally associated
with the mining industry, such as economic factors (including
future commodity prices, currency fluctuations, energy prices and
general cost escalation), risks related to the new Lalor mine plan,
including the schedule and cost for the refurbishment of the New
Britannia mill and the ability to convert inferred mineral resource
estimates to higher confidence categories, risks associated with
the COVID 19 coronavirus and its effect on our operations,
projects, financial condition and prospects (including the
company’s ability to restart operations in Peru), the company’s
ability to abide by the covenants in its debt instruments, as well
as the risks discussed under the heading “Risk Factors” in Hudbay’s
most recent Annual Information Form.
Should one or more risk, uncertainty,
contingency or other factor materialize or should any factor or
assumption prove incorrect, actual results could vary materially
from those expressed or implied in the forward-looking information.
Accordingly, you should not place undue reliance on forward-looking
information. Hudbay does not assume any obligation to update or
revise any forward-looking information after the date of this news
release or to explain any material difference between subsequent
actual events and any forward-looking information, except as
required by applicable law.
About Hudbay
Hudbay (TSX, NYSE: HBM) is a diversified mining
company primarily producing copper concentrate (containing copper,
gold and silver) and zinc metal. Directly and through its
subsidiaries, Hudbay owns three polymetallic mines, four ore
concentrators and a zinc production facility in northern Manitoba
and Saskatchewan (Canada) and Cusco (Peru), and copper projects in
Arizona and Nevada (United States). The company’s growth strategy
is focused on the exploration, development, operation and
optimization of properties it already controls, as well as other
mineral assets it may acquire that fit its strategic criteria.
Hudbay’s vision is to be a responsible, top-tier operator of
long-life, low-cost mines in the Americas. Hudbay’s mission is to
create sustainable value through the acquisition, development and
operation of high-quality, long-life deposits with exploration
potential in jurisdictions that support responsible mining, and to
see the regions and communities in which the company operates
benefit from its presence. The company is governed by the Canada
Business Corporations Act and its shares are listed under the
symbol "HBM" on the Toronto Stock Exchange, New York Stock Exchange
and Bolsa de Valores de Lima. Further information about Hudbay can
be found on www.hudbay.com.
For further information, please contact:
Candace BrûléDirector, Investor Relations(416)
814-4387candace.brule@hudbay.com
i Assuming consensus gold prices of US$1,550 per ounce in 2022
and US$1,540 per ounce in 2023.ii Based on S&P Global's 2020 C1
cash cost and all-in sustaining cost curves.
HudBay Minerals (NYSE:HBM)
Historical Stock Chart
From Mar 2024 to Apr 2024
HudBay Minerals (NYSE:HBM)
Historical Stock Chart
From Apr 2023 to Apr 2024