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Hudbay Minerals (HBM) Releases CapEx, Production Guidance for FY15

January 16, 2015 6:18 AM EST

Hudbay Minerals (NYSE: HBM)

Summary

--  Initial concentrate production achieved from now constructed Constancia
project in fourth quarter of 2014. Commercial production still projected
for second quarter of 2015 and full capacity thereafter.
-- 2014 copper production in Manitoba within guidance ranges; zinc and
precious metals below guidance due to mine sequencing and previously
disclosed shaft shutdown.
-- Greater than 270% increase in copper production over 2014 levels
expected due to planned production from all three new mines, Constancia,
Lalor and Reed.
-- Capital expenditure budget of approximately C$425 million in 2015, down
approximately 60% from 2014. Budget includes approximately C$320 million
of sustaining capital expenditures at Hudbay's four mines and related
facilities, plus planned expenditures for permitting and engineering
work at Rosemont, and capitalized exploration.

HudBay Minerals released its production guidance along with its capital and exploration expenditure forecasts for 2015.

Contained Metal in          2015 Guidance   2014 Production  2014 Guidance
Concentrate(1)

Manitoba(2)
Copper Tonnes 40,000 - 50,000 37,644 36,000 - 45,000
Zinc Tonnes 95,000 - 120,000 82,542 87,000 - 105,000
Precious Metals(3) Ounces 85,000 - 105,000 85,703 99,000 - 120,000

Peru
Copper Tonnes 100,000 - 125,000 See note 4 5,000 - 10,000
Precious Metals(3) Ounces 50,000 - 65,000 See note 4 2,000 - 3,000

Total
Copper Tonnes 140,000 - 175,000 37,644 41,000 - 55,000
Zinc Tonnes 95,000 - 120,000 82,542 87,000 - 105,000
Precious Metals(3) Ounces 135,000 - 170,000 85,703 101,000 - 123,000

(1) Metal reported in concentrate is prior to refining losses or deductions
associated with smelter terms. Amounts for 2014 and 2015 include pre-
commercial production volumes for Constancia, Lalor and Reed where
applicable.
(2) Includes 100% of Reed mine production.
(3) Precious metals production includes gold and silver production. Silver
converted to gold at a ratio of 60:1 for 2015 guidance and 50:1 for 2014
guidance. For 2014 production, silver converted to gold at 60.5:1, based on
estimated 2014 realized sales prices.
(4) Constancia produced 571 tonnes of copper concentrate prior to December
31, 2014.

Copper production in 2014 at Hudbay's Manitoba operations was within guidance, while zinc and precious metal production was lower than expected primarily as a result of lower grades at the 777 mine due to the sequencing of stopes, along with the impact of an unscheduled two-week shutdown of the 777 shaft in October 2014. Total copper production was below 2014 guidance as a result of only nominal copper concentrate production at Constancia in late 2014.

Production across all key metals in 2015 is expected to benefit from the first full year of production at the Constancia and Lalor mines, and improved equipment availability and ground support conditions at the 777 mine.

Constancia Update

Production from Hudbay's 100% owned Constancia project in Peru began as expected during the fourth quarter of 2014. Commercial production remains on track for the second quarter of 2015. Safety remains a primary focus at the operation with the project achieving 21 million hours worked and only one lost time injury during 2014.

Ore commissioning began in the fourth quarter of 2014 on the first of two grinding lines, resulting in first copper concentrate production in late 2014. There are currently approximately 900,000 tonnes of ore on the run-of-mine pad and an additional 1.2 million tonnes of broken ore in the Constancia pit. The commissioning process is currently testing plant capacity and performance, including planned shutdown periods for retorquing, repairing and inspecting the plant equipment.

Physical construction is essentially complete with minimal project capital expenditures remaining. Demobilization of construction crews is ongoing as the transition from the project to operating team is underway. The plant is performing as expected with key performance areas achieving designed throughput capacities in grinding and crushing the initial softer supergene ore. The operations team is focusing on optimizing the beneficiation process. The water management, tailings pipeline, and tailings pumping and deposition facilities are performing as designed and mining and civil earthworks activities are continuing as expected.

Capital Expenditure Budget

2015 Capital Expenditure Guidance(1)                             C$ Millions

Sustaining Capital
Manitoba 140
Peru 180
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Total Sustaining Capital 320

Growth Capital
Arizona 60
Peru 10
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Total Growth Capital 70
Capitalized Exploration 35
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Total Capital Expenditure 425

(1) Excludes pre-production revenue, capitalized interest and capitalized
withholding taxes.

Peru's budgeted sustaining capital expenditures include approximately C$30 million of deferred stripping costs which relate to stripping costs projected for 2015. These costs will be capitalized rather than recorded in unit operating costs. Prior guidance for Constancia sustaining capital and operating costs in the feasibility study did not reflect potential capitalization of deferred stripping costs. The other major component of Peru sustaining capital expenditures relates to tailings management facility costs, where construction is most intense in the first two years of production.

Manitoba's budgeted sustaining capital expenditures have increased over prior year levels primarily due to planned investments in new mine equipment for Lalor and 777 following restraints on discretionary spending in 2013 and 2014.

Exploration Budget

Exploration activities in Manitoba will focus on targets in Flin Flon and Snow Lake. This includes testing the down plunge exploration potential of the gold and copper-gold zones at Lalor from the 955-1025 metre level exploration ramp. In accordance with a recently entered into option agreement with Callinan Royalties Corporation, underground exploration drilling at Callinan's War Baby claim is also planned in 2015 with the objective of extending the mine life of 777 beyond 2020.

Hudbay expects to conduct mapping and geochemical sampling on recently staked claims located near Constancia, along with drilling in the second half of 2015 on greenfield targets in Peru. In Arizona, an additional drilling program is planned for 2015 focusing on continuing to improve our understanding of the initial years of mining as well as plant site geotechnical work.

A further C$20 million has been reserved to follow up potential exploration successes at our in-mine drilling programs and other strategic opportunities.

2015 Exploration Guidance                                       C$ Millions
Manitoba 20
Peru 5
Arizona 10
Generative and Other 20
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Total Exploration Expenditures 55
Capitalized Spending(1) (35)
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Total Exploration Expense 20
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(1) Assumes $20 million allocated to "Generative and Other" will be
capitalized.

2015 Production and Manitoba Peru Operations Total
Unit Cost Operations Constancia
Guidance By Business 777, Lalor
Unit and Reed(2)

Contained Metal in
Concentrate
Produced(1)
Copper (tonnes) 40,000 - 50,000 100,000 - 125,000 140,000 - 175,000
Zinc (tonnes) 95,000 - 120,000 95,000 - 120,000
Precious Metals 85,000 - 105,000 50,000 - 65,000 135,000 - 170,000
(ounces)(3)

Combined Mine and Mill 73 - 88 9.0 - 10.9
Unit Operating Costs
($/tonne ore
processed)(4,5)
(1) Metal reported in concentrate is prior to refining losses or deductions
associated with smelter terms. Production volumes include anticipated pre-
commercial production from Constancia.
(2) Includes 100% of Reed mine production.
(3) Precious metals production includes gold and silver production. Silver
converted to gold at a ratio of 60:1 for 2015 guidance.
(4) Reflects combined mine and mill costs per tonne of milled ore. Excludes
mine and mill costs and tonnes associated with pre-commercial production
mine output from Constancia in 2015.
(5) Peru operations combined mine and mill unit costs are presented in USD,
include G&A costs and reflect the deduction of expected deferred stripping
costs. Manitoba costs are presented in CAD and are calculated on a basis
consistent with prior reporting.

Metal production in any particular quarter may vary from the annual guidance rate based on variations in grades and recoveries due to the areas mined in that quarter and other factors. Mining and processing costs in any particular quarter can also vary from the annual guidance rate above based on a variety of factors including the scheduling of maintenance events and seasonal heating requirements. Metal production and costs will also vary from quarter to quarter due to the ramp up of operations at the company's new mines. As in past years, costs in the first and fourth quarters are expected to be higher at the company's Manitoba operations due to additional heating and other seasonal costs.

2015 Production and Unit Cost Guidance
Flin Flon Zinc Plant

Zinc Concentrate Treated 190,000 - 235,000 tonnes
Zinc Metal Produced 95,000 - 120,000 tonnes

Unit Operating Costs(1) C$0.31 - $0.38/lb

(1) Forecast unit operating costs are calculated on the same basis as
reported unit operating costs in Hudbay's quarterly and annual management's
discussion and analysis.

Hudbay's planned higher Manitoba domestic zinc concentrate production in 2015 is expected to result in zinc plant production levels above 2014 results, notwithstanding an expected zinc plant maintenance shutdown during the third quarter. Unit operating costs at the zinc plant in 2015 are expected to be comparable to 2014 levels.



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