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Hudbay

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September 16, 2024 at 9:30 AM (MDT)|Broadmoor Hotel & Resort

Eugene Lei

Chief Financial Officer

EUGENE LEI
Chief Financial Officer

Eugene was appointed Chief Financial Officer in October 2022, providing strategic financial and capital markets leadership at Hudbay. His responsibilities include financial reporting, investor relations, financial planning and treasury. Since joining Hudbay in 2012, Eugene has progressed through several senior management roles and executive responsibilities, and was most recently Senior Vice President, Corporate Development & Strategy. Eugene has over 20 years of global mining investment banking, finance and corporate development experience. Prior to joining Hudbay, Eugene was Managing Director, Mining at Macquarie Capital Markets, acting as an advisor on numerous global mining transactions and structuring equity and debt capital markets financings. Eugene holds a Bachelors of Commerce (Honours) degree from Queen’s University. In 2015, Eugene received the Canadian Institute of Mining, Metallurgy and Petroleum’s CIM-Bedford Canadian Young (under 40) Mining Leaders Award.

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Thank you, Steven and thank you for attending the Hudbay session. All right, good morning. So Hud Bay is a diverse, a diversified mid-tier copper producer. And today we have a strong operating platform of multiple assets three, specifically in tier one mining jurisdictions with significant New York term growth in production and free cash flow. We have leading copper exposure with complementary gold and that offers revenue diversification. So this is our third year here at the Denver Gold Show. And I think we have, we're the actually the only copper company here this year. Today, 20 to 30% of our revenues are in gold. And you know, you get the benefits of diversification of, of having, you know, a strong outlook for copper in the long term coupled with a very strong leverage to gold in the in, in the, in the short term. We have the highest leverage to copper as I'll show later, the long term copper price given our excellent development pipeline. And today, I, I look at this as a unique copper and gold production,, free cash flow leverage today, trading at below five times. IB A so over the past year, we've, performed very strongly, operationally and financially,,, $824 million in last drilling 12 months. Epi A that's a 50% increase from the six months prior and a 100% increase from a year ago., we reaffirmed our full year guidance, a few weeks ago in our second quarter earnings call and we actually improved our cash cost guidance by about 15 cents a pound down to 90 cents to $1.10 per pound of consolidated copper production. And that's a, a result of strong production as well as the diversification provided by the the, the strong gold that we produce and the credits at today's gold prices, the strong operating performance and the the successful equity raise earliest year has led us to accelerate our deleveraging. And we transformed our, our balance sheet 12 months ago from one of the highest levered to now one of the lowest levered balance sheets and, and we've reduced debt by over $560 million over the last 12 months. So pretty proud of that. And we're well on our way to our deleveraging our, our balance sheet target for sanctioning copper world, which will certainly unlock that project and we're really pleased with the progress to date getting into the assets. We have three operating assets. I, as I, as I mentioned, Constancy is our flagship asset and copper and gold producer in, in Peru. We have our Copper Mountain asset that we acquired last year which produces copper and gold in British Columbia. And then we have our Snow Lake assets the Lawlor Mine which produces gold with both copper and zinc by-product credits. Today we are the fourth largest nyse listed copper company. And I define that as a co a company that has greater than 50% of its revenues in copper. that's by market cap, but that we're the fourth largest and over the past year, over 50% of our trading volumes now on the New York Stock Exchange. So we certainly transitioned our, our shareholder base in our trading and liquidity to the New York Stock Exchange over the past year after having listed on the New York Stock Exchange over 11 years ago. In addition to that, we have a world class pipeline of development assets headlined by our copper World Copper Development project in in, in Arizona. and, and supplemented by our mason deposit in in Nevada, as well as exploration opportunities around our conso project in Peru, more specifically as, as some of you will know, Constantia is a long life low-cost mine that's been in production since 2014. This is a Hud Bay successfully permitted, financed and, and, and built project. It's been offering for 10 years. Last year, 23 was record production of over 100,000 tons of copper and over 100 and 15,000 ounces of gold. We're proud of the team's success in Peru. We've we've formed aligned relationships with our communities and not had a single day of production interruption. Since we've been operating in, in Peru, since in, in 2014, Peru remain that wine has 18 years of mine life left and remains a li a reliable and stable source of copper production and, and, and free cash flow. We're really proud of, of our operating excellence there. We built this mine 10 years ago at 70 you know, with the mill capacity of 76,000 tons per day, We've been operating steadily at 90,000 tons per day for the last last five years. And we recently the Peru government recently allowed, has allowed companies to go 10% above permitted throughput capacity. So we see a potential to, to increase that. And we think that that's something that will supplement the production in 2026. Onward, after the high grade Papa Conscious Satellite pit declines the mill has consistent, consistently operate above the design capacity, as I mentioned. And our mill site costs, our mine sites costs are the lowest in South America at $11.60 per ton milled. Really proud of that. That's what led us to sort of want to take that excellence and, and, and apply it to a mine that was built in the same in, in the same timeline in Copper Mountain. And so, that was one of the things that we, we thought we could transition some of that operating prowess. We've been operating in, in Manitoba for well, over 100 years today, we have a gold centric operation that produces approximately 200,000 ounces of gold per year at $700 C one cash costs and $1100 per ounce all in cost. It's one of the best low, lowest cost mines in, in Canada. It's got greater than 10 years of mine life left. It's as a, as a result of our goal, our Snow Lake strategy from five years ago, we acquired that new Britannia mill and refurbished it for 100 and $15 million. We, we actually sanctioned this in the middle of COVID in 2019. It was a, it was designed for 1500 tons per day mill throughput and gold was at $1500 an ounce at that point and that sanction decision was based on a 25% irr hurdle rate. Pleased to say that we have operated well above name cap nameplate capacity in our first two years of operation. We're now at 2000 tons per day through the new Britannia mill, that's 25% above nameplate capacity. And you know, achieving 90% recoveries on this gold and in Lawler versus the 60% that we would have achieved at the base metals mill. And now we have exposure to that to, to, to today's gold price. And so that's certainly been been, been an outstanding achievement for the company and a real generator of free cash flow at Lawler, we have 2 million ounces of gold still in reserve and another 1.4 million ounces in inferred and, and that's developed in sts. And so, you know, there's the, this, this investment will pay off in many years to come, switching to Copper Mountain, our most rec recent acquisition, this provided us our third operating mine. And you know, we're executing our stabilization plans at Copper Mountain leveraging our efficient operating practices and, and, and strategies from Peru, as well as you know, knowing how to operate in small town Canadian environments having done it for 100 years in, in Flint lawn and, and, and, and snow lake. And so we're pleased to, to, to bring that to Princeton. We have we have had the mine in operation under our leadership for the past year. And the stabilization is well on track. We have realized our $10 million in corporate synergies already on an annual basis. And with the mill reliability, the material moved and and recoveries. We have already, we're on track to achieving our $20 million of operating efficiency, oo operating efficiency. So we've seen strong improvement in a copper mountain year over year quarter, over quarter. This is still a work in progress. This was a 2 to 3 year stabilization and optimization. We expect this mine to produce, to produce copper and gold through the end of the decade and supplement our, our cash flow as we build our copper world project in the United States moving on to why we're here and talking about copper and, and, and, and, and you know, the hud base sort of strategy. We believe copper is, has offers the best long term supply and demand fundamentals among all the metals. And you know, we, you can, it, our, our, our belief is based on from a supply basis. I know people love talking about demand and, and, and electrification and EVs and A I and those things, if we could just keep this demand line flat and not have it increase and we know there's a supply gap and, and our conviction is, is underlined is, is from that supply gap. because we know how long it takes to get a mine into production. We know it takes three years to build a mine of 100,000 tons capacity. We know it takes 3 to 10 years to permit a mine and, and, and take it through fei final feasibility study. We've seen copper well through $3 over the last three years and no, no significant asset has been greenlighted to supplement this, this this pipeline. So if you think about trying to get copper in for 26 27 28 if it hasn't been green light, it hasn't been financed yet. It's, it's, it's, it's impossible to, to arrest this significant supply gap that conviction around copper. and gold ha has, you know, provides an interesting opportunity where the current production of 100 and 50,000. So 100 and 50,000 tons of copper per annum and 300,000 ounces of gold per annum provides very strong leverage to what we see is increasing both copper and gold prices. So for every 25 cent increase in annual copper price, we have a $75 million in additional E IDA and free cash flow to the company for every $100 change in gold. It's a $25 million increase in the company's annual free cash flow and, and and bottom line. So it's very strong leverage. That's in the near term, over long term, over longer term. I've been here, I've had actually, I think yesterday was my 12th year anniversary at had Bay. And we've built a pipeline with, with increasing exposure. So we've doubled our copper per copper resources per share over the last 10 years. And that's on a per share basis. And we have the highest sensitivity to higher copper prices. And that's due to the pipeline of projects we have. So we have a unique combination of highest sensitivity to copper on the upside. If, if long term copper prices were to go higher than 44 $55 we also have the most defensive copper. We're also the most defensive copper stock because we have the near term gold exposure where gold represents 25 to 35% of our, of our annual revenues. So moving something that's near and dear to my heart, the capital location and, and the balance sheet as I took over a CFO just under two years ago was it was a priority for us to, to bring in a thought to, to deleverage. And one of the ways to do that was to bring in a third operating mine at, at a lower cost than, than it would take and faster than it would take to, to build a new mine. And so the copper mound acquisition at $12,000 a ton of annual production. So that is the $580 million acquisition cost we spent on it at 40,000 tons of annual copper production is significantly lower. It's actually lower than what it cost us to build Constantia 10 years ago in Peru at $20,000 a ton. As you've seen recent builds at QB two K Beco and what's projected at Baghdad and, and, and and Las VMS expansions, you know that the the capital intensity per pound of a production is well through $30,000 a ton. That puts our next development project cop world in really good light at $16,000 a ton. So we know we bought Copper Mountain, we're going, we're going to generate free cash flow it and reinvest it in the next generation of, of low capital intensity copper at copper at copper world at $16,000 a ton. And you'll ask why is copper world so low capital intensity? Well, it's because it's the highest grade at 0.56 copper undeveloped copper deposit in the Americas at the reserve stage that you know, we we've seen slides today that talk about, you know, 0.3 copper, 0.4 copper, this is 0.56 copper and reserves. 20 years mine life all on private land. and to, to, to, to produce annual copper production of 90,000 tons a day. And so we are this is a Multiphase project that's, that's all on private land and we've just received the second of three permits we need to move forward with this project. So, really excited with that, there's a larger opportunity over longer term to expand this onto federal land. And there's a, the opportunity would be to either increase mine life by double or increase throughput by double. So you can see the optionality in this great project we have at Copper World. I mentioned, I mentioned the three P plan earlier today. You know, we are, we are well progressed 1.5 year in on a three year plan. We have a pfs that we released last year that that, that outlined a $1.3 billion capital project for a 19% return at 375 copper. If copper was $4 that return goes to 24%. So you can see the leverage deposit of leverage to, to that. As I mentioned, we just received the second of three permits. And these permits would would allow us to, to begin construction and, and, and operation and substantially reduced the leverage in our company to position ourselves to reinvest in the company. And, and, and this project moving elsewhere in terms of the growth at Hud Bay. There's incredible growth opportunities at our existing assets at Constantia. We have the satellite deposits, Maria Rena and Kai Ito with with incredible district potential. So these represent opportunities from a two pronged effort. It, it provides near term. There we go. Sorry, I moved the slides too quickly. It provides a near term higher grade or for the Constantia infrastructure in the form of Caito. something that, you know, the US GS resource would outline is double the size and three times the grade of the current Papa Concha pit. And we have the Maria Rena project which offers district potential for a major discovery of, of, of, of, of significance. And so these are all within truck, trucking distance of of Constantia about 12 kilometers. And we have and, and we've worked with the communities through a long process to get exploration and exploitation permits. So we recently received EIAS for exploration for both of these projects and we're working through the final permitting hurdles for, for drilling. And we expect that sometime mid next year in, in Manitoba, we are undergoing the most aggressive exploration program we've had in our history. We are exploring the down dip of, of, of Lawlor for life beyond the, the the 12 years in in reserves we have today. And it looks like there's potential for another two kilometers down plunge. In addition, we have opportunities in and around Lawler, both Lawler Northwest and the 1901 zones that will, that have potential to increase production at Lawler in, in, in, in the medium term between we'll call it 27 and 2020 27 and 2030. more regionally. We acquired the Rockcliffe Prop, the Cook Lake properties from Glencore last year. And the, and through the acquisition of Rock Cliff, we've tripled our landholdings in in, in, in the Snow Lake region. And we've just run the biggest Geophysics program and have a number of targets outlined. So an exciting time for us to look for both regional satellite deposits to supplement the the current feed from Lawler Mine as I mentioned, you know, the, the success at New Brit in terms of the mill has allowed us to, has has freed up capacity in our stall mill. And so, we have opportunities to bring in more throughput and, and, and generate more cash flow from our snow lake properties in the medium term, maybe to wrap up. You know, we have an exciting pipeline of catalysts across all of our operating assets and development assets. Copper World. We expect to, to, to receive the remaining permits and, and do in, in short order and, and begin the feasibility study and, and JB process. and we think that, that that will be a key deris and catalytic for the company at in Manitoba. As I mentioned, further optimization of New Britannia, the more or we send to New Britt, the more gold we make the more money. we like more cash we generate and, and, and advance some of the exploration assets and in Peru, you know, the, the opportunity to drill once in a lifetime targets in and around Constantia remains you know, one of the highest priorities for the company as well as stabilizing and, and generating free cash flow from the Copper Mountain acquisition that we made last year. Excellent. Thank you. And with that, we'll open it up to the floor for any questions. Thanks Eugene, the joint Venture Pro process for Copper World. Where are you seeing or where do you expect to see the strongest interest from? We're seeing a lot of interest across the board. I, I would say that it is, it is a prime project, given its location and characteristics for a traditional minority partner. We've seen a lot of interest from, from many of these partners, you know, trying to get ahead of the process and we said just, we're just telling them to hang on and we'll launch it post receipt of permits so that we get the highest competitive tension and, and, and generate the most interest. But I'd say the traditional minority partner, there's there's a lineup of, of, of parties. In addition, we've seen interest from both strategics and Oes looking for made in the USA copper. And this, this, this project is would be the third largest copper C producer in the United States. So, you know, as we look toward the end of the decade and regardless of which political stripe you're, you're, you're, you're, you're in favor of in, in terms of the upcoming election. We know that domestic supply of, of copper and copper cathode will be, will be key to the, this country's energy and, and industrial security. Excellent. And with that, we're actually gonna wrap up this session. If you have any further questions for Eugene, please find him outside. Thank you very much.


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