HudBay Minerals Inc. (TSX:HBM) ("HudBay" or "the Company") today released its
unaudited third quarter 2008 results. Net earnings in the third quarter were
$2.8 million compared with $66.5 million in the third quarter of 2007. The lower
earnings primarily reflect a lower average realized price for zinc and $27.2
million in asset impairment losses related to closure of the Company's Balmat
mine. Operationally, HudBay had another strong quarter, delivering $54.5 million
in operating cash flow(1), completing a National Instrument 43-101 compliant
mineral resource estimate for its Lalor deposit, and closing the Skye Resources
acquisition.
"Our third quarter 2008 results demonstrate that we continue to execute on our
production, exploration and strategic objectives," said Allen J. Palmiere,
HudBay's chief executive officer. "However, these results also reflect changing
market conditions, as well as some of the difficult decisions we have made to
respond to these conditions. While the current economic and metals pricing
environment will pose challenges for all mining industry participants, HudBay is
uniquely positioned to weather this storm through our operational, management
and financial strength. We intend to utilize these strengths to respond to
challenges that are likely to be presented in this environment and emerge in the
eventual recovery stronger than before."
FINANCIAL HIGHLIGHTS
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($000s except Three Months Ended Nine Months Ended
per share amounts) Sept. 30 Sept. 30
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2008 2007 2008 2007
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Revenue 247,441 319,805 803,113 1,027,245
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Earnings before tax 33,898 94,266 145,037 333,734
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Net earnings 2,780 66,465 57,534 198,680
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EBITDA(3) 88,633 118,414 245,949 411,052
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Operating cash flow(1) 54,484 113,921 195,856 394,081
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Basic EPS(4) 0.02 0.52 0.44 1.57
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Cash, cash equivalents and
short-term investments 844,384 702,883 844,384 702,883
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Total assets 1,912,731 1,502,107 1,912,731 1,502,107
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(1) Operating cash flow before changes in non-cash working capital.
(2) Skye Resources changed its name to HMI Nickel Inc. on October 6, 2008,
and is listed on SEDAR as HMI Nickel Inc.
(3) EBITDA represents earnings before interest, taxes, depreciation and
amortization, (loss) gain on derivative instruments, exploration,
interest and other income, asset impairment losses and share of losses
of equity investee.
(4) Earnings per share at September 30.
FENIX PROJECT UPDATE
HudBay has chosen to delay construction of the Fenix nickel project in Guatemala
in light of the significant deterioration in metals prices and recent global
economic uncertainty. The Company remains convinced that Fenix is an outstanding
asset, and is committed to developing the project once market conditions
warrant. In the meantime, HudBay will continue to advance key components of
Fenix. This includes upgrading the road from Rio Dulce to El Estor and
maintaining health care and educational initiatives in the local community. The
Company will also use this opportunity to further develop its power strategy to
ensure the long-term cost competitiveness of Fenix once the Company brings it
into production.
EXPLORATION UPDATE
HudBay is advancing one of the most aggressive exploration programs in Canada
and plans to spend approximately $43 million on exploration in 2008, which
follows the Company's $41 million expenditure in 2007. Total exploration
spending was $13.0 million in the quarter and $34.5 million during the first
nine months of 2008. Exploration activities in the first nine months of the year
focused primarily on HudBay's exploration territories in the prolific Flin Flon
Greenstone Belt, including the Company's Lalor zinc discovery. Capitalized
exploration on the Lalor property was $4.3 million in the quarter.
FINANCIAL AND OPERATING RESULTS
Net Earnings
For the third quarter, net earnings were $2.8 million, reflecting a $63.7
million decrease from the third quarter of 2007. Significant variances affecting
net earnings for the quarter were:
- Lower revenues decreased earnings before tax by $72.4 million;
- Lower operating costs increased earnings before tax by $34.0 million;
- Decreases in other expenses increased earnings before tax by $11.6 million,
largely due to foreign exchange gains and losses, which improved by $10.9
million as a result of Canadian dollar depreciation during the quarter;
- Asset impairment losses related to closure of the Company's Balmat mine
decreased earnings before tax by $27.2 million;
- As a result of equity accounting arising from HudBay's pre-acquisition
ownership, the Company's share of losses incurred by Skye Resources during the
period prior to acquisition decreased earnings before tax by $3.9 million;
- Other items decreased earnings before tax by $2.4 million, largely due to
increased losses on derivative instruments; and
- Higher tax expenses reduced net earnings by $3.4 million despite lower
earnings before tax. Income tax expenses in the third quarter of 2008 reflect an
unusually high effective tax rate, largely related to losses recorded at the
Company's Balmat operation, the tax benefit of which was not recorded for
accounting purposes. Current tax expense in the third quarter of 2007 benefited
from the utilization of previously unrecognized income tax losses and mining
investment tax credits; this also contributed to higher tax expense variance in
the third quarter of 2008.
Year-to-date 2008 net earnings of $57.5 million reflected a $141.2 million
decrease from year-to-date 2007. Significant variances were:
- Lower revenues decreased earnings before tax by $224.1 million;
- Lower operating costs increased earnings before tax by $40.6 million;
- Decreases in other expenses increased earnings before tax by $19.5 million,
largely due to foreign exchange gains and losses, which improved by $27.6
million, offset in part by increases in general and administrative costs due
mainly to executive retirement and severance costs of $6.0 million;
- Asset impairment losses related to closure of the Company's Balmat mine
decreased earnings before tax by $27.2 million;
- As a result of equity accounting arising from HudBay's pre-acquisition
ownership, the Company's share of losses incurred by Skye Resources during the
period prior to acquisition decreased earnings before tax by $3.9 million;
- Other items increased earnings before tax by $6.4 million, largely due to
decreases in exploration expenses of $6.9 million following the decision to
capitalize Lalor exploration costs; and
- Lower tax expenses increased net earnings by $47.5 million and resulted mainly
from lower year-to-date earnings before tax in 2008 but were also affected by
other items, as described above.
Production
HudBay's production in the third quarter of 2008 remains on track to meet the
Company's expectations for its overall 2008 production targets. Despite a 6%
increase in zinc metal produced at Hudson Bay Mining and Smelting, total zinc
production decreased by 5% compared to the third quarter of 2007 due to the
Balmat operation being put on care and maintenance. Non-recycled copper
production was lower by 14% due to HudBay's previously announced reduction of
purchased copper concentrates treated in 2008, which is necessary to meet the
Government of Canada's 2008 air release limit targets for sulphur dioxide. Gold
production increased by 10% as higher amounts of domestic copper were treated
and silver production increased by 73%, primarily from a specific purchased
concentrate source.
For the quarter, HudBay's cash cost of zinc sold, net of by-product credits from
copper, precious metals, zinc oxide and other associated revenue, was negative
US$0.32/lb. (Please refer to "Non-GAAP Performance Measures" on page 35 of
HudBay's third quarter MD&A.)
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Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
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2008 2007 2008 2007
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Production
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Zinc(1) tonnes 30,998 32,673 99,380 94,886
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Copper(2) tonnes 19,167 22,325 55,823 66,801
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Gold(2) troy oz. 26,920 24,535 78,425 76,365
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Silver(2) troy oz. 630,168 364,994 1,591,689 1,061,040
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Metal Sold
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Zinc(3) tonnes 32,647 33,703 100,365 98,681
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Copper tonnes 19,190 21,218 58,749 68,445
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Gold troy oz. 20,632 24,755 70,751 78,167
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Silver troy oz. 364,944 329,318 1,203,144 1,023,714
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(1) Production includes Balmat payable metal in concentrate shipped.
(2) Production in 2008 excludes recycled spent anode and represents
non-recycled anode production only.
(3) Zinc sales include sales to HudBay's Zochem facility and the Balmat
payable metal in concentrate shipped (including to HBMS).
Revenue
Total revenue for Q3 2008 was $247.4 million, compared to $319.8 million in
2007. Revenues in the third quarter reflect a lower average realized zinc price
(US $0.87/lb compared with US $1.56/lb in Q3 2007), and a lower average realized
copper price (US $3.38/lb compared with US $3.55/lb in Q3 2007). Higher gold and
silver prices and silver volumes sold were partially offset by lower gold
volumes sold.
Total year-to-date revenue was $803.1 million, down from $1,027.2 million in
2007. Year-to-date revenues reflect a lower average realized zinc price (US
$1.02/lb compared with US $1.66/lb in 2007 YTD), lower copper sales volumes due
to recycling of spent anode and reduced purchased concentrate production, and
appreciation of the Canadian dollar compared to 2007. Partially offsetting these
factors was a higher average realized copper price (US$3.55/lb compared with
US$3.28/lb in 2007 YTD), as well as higher average realized gold and silver
prices.
Realized Metal Prices(1) and Exchange Rate
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HudBay HudBay
Realized Prices(1) Realized Prices(1)
Three Months Ended Nine Months Ended
Q3 2008 ---------------------------------------
Average Sep 30 Sep 30 Sep 30 Sep 30
Prices(2) 2008 2007 2008 2007
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Prices in US$
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Zinc US$/lb. 0.80 0.87 1.56 1.02 1.66
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Copper US$/lb. 3.48 3.38 3.55 3.55 3.28
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Gold US$/troy oz. 870 862 680 883 664
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Silver US$/troy oz. 15.03 13.36 13.04 15.93 13.28
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Prices in C$
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Zinc C$/lb. 0.84 0.91 1.63 1.04 1.83
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Copper C$/lb. 3.63 3.51 3.72 3.61 3.62
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Gold C$/troy oz. 906 892 706 897 732
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Silver C$/troy oz. 15.66 13.70 13.52 16.15 14.64
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Exchange rate US$1 to C$ 1.04 1.04 1.05 1.02 1.10
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(1) Realized prices are before refining and treatment charges and only on
the sale of finished metal, excluding metal in concentrates.
(2) London Metals Exchange ("LME") average for zinc, copper and gold prices,
London Spot US equivalent for silver prices. HudBay's copper sales
contracts are primarily based on Comex copper prices.
Operating Expenses
Operating expenses were $154.8 million in Q3 2008 ($188.8 million in Q3 2007)
and $530.0 million year-to-date ($570.7 YTD in 2007). The lower expenses in the
third quarter reflect lower sales volumes caused mainly by lower volumes of
purchased concentrates, decreasing copper prices resulting in gains on
provisional pricing adjustments on purchased concentrate, and lower profit
sharing expenses. These reductions were partially offset by higher processing
costs, higher net profits interest expenses associated with the Callinan
agreement, and costs to put the Balmat mine on care and maintenance.
Year to date, lower expenses were due to lower sales volumes related to reduced
purchased concentrate volumes, the appreciation of the Canadian dollar, which
reduced US dollar denominated operating costs, and lower profit sharing
expenses. These were partially offset by higher costs of purchased copper
concentrates, higher mining and processing costs, higher net profits interest
expenses associated with the Callinan agreement, and costs to put the Balmat
mine on care and maintenance.
Tax Expense
Tax expense in Q3 2008 was $31.1 million ($27.8 million in Q3 2007). The
effective tax rate was unusually high in Q3 2008, as a result of provisions
taken against the future income tax asset associated with the Balmat writedown,
as well as non-deductible equity losses in the quarter arising from HudBay's
pre-acquisition investment in Skye Resources. In addition, current tax expense
in the third quarter of 2007 benefited from the utilization of previously
unrecognized income tax losses and mining investment tax credits.
Year-to-date tax expense was $87.5 million ($135.1 million YTD in 2007). The
decrease reflects lower taxable income year-to-date versus 2007, and is
partially offset by a higher effective tax rate due to the factors noted above.
CONFERENCE CALL
Allen Palmiere, Chief Executive Officer, together with David Bryson,
Vice-President and Chief Financial Officer, will host a conference call to
discuss HudBay's third quarter 2008 results on November 5, 2008. The details are
as follows:
Date: November 5, 2008
Time: 10:00 am (Eastern Time)
Webcast: www.hudbayminerals.com
Dial in: 416-644-3425 or 800-594-3615
Replay: 416-640-1917 or 877-289-8525
Replay Passcode: 21286286#
WEBSITE LINKS
HudBay Minerals Inc. www.hudbayminerals.com
Management's Discussion and Analysis:
http://media3.marketwire.com/docs/hbmmdaQ308.pdf
Financial Statements: http://media3.marketwire.com/docs/hbmifsQ308.pdf
ABOUT HUDBAY MINERALS INC.
HudBay is a leading base metals mining company with assets in North and Central
America. The company is investing for the future in one of the most ambitious
exploration programs in Canada, targeting its 400,000 hectare exploration
territory in the Flin Flon Greenstone Belt. An integrated mining company, HudBay
operates zinc and copper mines, concentrators and metal production facilities in
northern Manitoba and Saskatchewan, a zinc oxide production facility in Ontario,
the White Pine Copper Refinery in Michigan, and owns the Fenix nickel project in
Guatemala. In addition to its primary products, the Company also produces gold,
silver and zinc oxide. HudBay is a member of the S&P/TSX Composite Index and the
S&P/TSX Global Mining Index.
QUALIFIED PERSON
The technical data contained in this news release was prepared under the
supervision of Kelly Gilmore, B.Sc. P. Geo., chief exploration geologist with
HudBay's subsidiary, Hudson Bay Exploration and Development Company Limited, who
is a Qualified Person within the meaning of National Instrument 43-101, with the
ability and authority to verify the authenticity and validity of the data.
FORWARD-LOOKING INFORMATION
This news release contains "forward-looking information" within the meaning of
applicable Canadian securities legislation. Forward-looking information
includes, but is not limited to, information concerning HudBay's potential plans
for Lalor and the Fenix nickel project as well as HudBay's exploration and
development plans, production targets and its strategies and future prospects.
Generally, forward-looking information can be identified by the use of
forward-looking terminology such as "plans", "expects", or "does not expect",
"is expected", "budget", "scheduled", "estimates", "forecasts", "intends",
"anticipates", or "does not anticipate", or "believes" or variations of such
words and phrases or statements that certain actions, events or results "may",
"could", "would", "might", "will" or "will be taken", "occur", or "be achieved".
Forward-looking information is based on the opinions and estimates of management
at the date the information is made, and is based on a number of assumptions and
subject to a variety of risks and uncertainties and other factors that could
cause actual events or results to differ materially from those projected in the
forward-looking information. Many of these assumptions are based on factors and
events that are not within the control of HudBay and there is no assurance they
will prove to be correct.
Factors that could cause actual results to vary materially from results
anticipated by such forward-looking information include changes in market
conditions, variations in ore grade or recovery rates, risks relating to
international operations, fluctuating metal prices and currency exchange rates,
economic factors, government regulation and approvals, environmental and
reclamation risks, costs, timing and amount of future production, capital
expenditures and requirements for additional capital, changes in project
parameters, the possibility of project cost overruns or unanticipated costs and
expenses, permitting timelines, labour disputes and the availability of skilled
labour, results of exploration and other risks of the mining industry, failure
of plant, equipment or processes to operate as anticipated, as well as those
risk factors discussed in the Annual Information Form for the year ended
December 31, 2007 for each of HudBay and its subsidiary, HMI Nickel Inc.,
available at www.sedar.com. Although HudBay has attempted to identify important
factors that could cause actual actions, events or results to differ materially
from those described in forward-looking information, there may be other factors
that cause actions, events or results not to be anticipated, estimated or
intended. There can be no assurance that forward-looking information will prove
to be accurate, as actual results and future events could differ materially from
those anticipated in such information. HudBay undertake no obligation to update
forward-looking information if circumstances or management's estimates or
opinions should change except as required by applicable securities laws. The
reader is cautioned not to place undue reliance on forward-looking information.
This press release contains non-GAAP performance measures. Readers are referred
to page 35 of HudBay's MD&A for further disclosure on these matters.
(HBM-F)
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