Hudbay Minerals Inc.: Form 40-F - Filed by newsfilecorp.com
0001322422 FY false

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 40-F

[Check one]

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022 Commission File Number 001-34244

HUDBAY MINERALS INC.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant's name into English (if applicable))

Canada

(Province or other jurisdiction of incorporation or organization)

1000

(Primary Standard Industrial Classification Code Number (if applicable))

98-0485558

(I.R.S. Employer Identification Number (if applicable))

25 York Street

Suite 800

Toronto, Ontario

M5J 2V5, Canada

416 362-8181

(Address and telephone number of Registrant's principal executive offices)

Corporation Service Company

2711 Centerville Road, Suite 400

Wilmington, DE 19808

302 636-5401

(Name, address (including zip code) and telephone number (including area code) of agent for service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act. 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, no par value

HBM

The New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

N/A

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

N/A

(Title of Class)

For annual reports, indicate by check mark the information filed with this form:

☒ Annual Information Form ☒ Audited Annual Financial Statements

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: As at December 31, 2022, 262,019,857 common shares were outstanding.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13(d) or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2)has been subject to such filing requirements in the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit).

Yes ☒ No ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

Emerging growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

† The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

EXPLANATORY NOTE

Hudbay Minerals Inc. (the "Registrant") is a Canadian issuer eligible to file its annual report ("Annual Report") pursuant to Section 13(a) of the Exchange Act, on Form 40-F pursuant to the multi-jurisdictional disclosure system under the Exchange Act. The Registrant is a "foreign private issuer" as defined in Rule 405 under the Securities Act of 1933, as amended (the "Securities Act"), and Rule 3b-4 under the Exchange Act. The equity securities of the Registrant are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3 under the Exchange Act.

The Registrant is permitted, under the multi-jurisdictional disclosure system adopted by the United States and Canada, to prepare this Annual Report on Form 40-F in accordance with Canadian disclosure requirements, which are different from those of the United States.

This Annual Report contains references to both United States dollars and Canadian dollars. All dollar amounts referenced, unless otherwise indicated, are expressed in United States dollars, and Canadian dollars are referred to as "Canadian dollars" or "C$".

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant's Annual Information Form ("AIF") for the fiscal year ended December 31, 2022 is incorporated herein by reference as Exhibit 99.1.

The audited consolidated financial statements (the "Audited Annual Financial Statements") of the Registrant for the years ended December 31, 2022 and 2021, including the reports of the Independent Registered Public Accounting Firm with respect thereto, are incorporated herein by reference as Exhibit 99.2. The Audited Annual Financial Statements have been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board.

The Registrant's Management's Discussion & Analysis for the year ended December 31, 2022 is incorporated herein by reference as Exhibit 99.3.

The Registrant's Disclosure Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act is incorporated herein by reference as Exhibit 99.4.

DISCLOSURE CONTROLS AND PROCEDURES

As of the end of the period covered by this Annual Report for the Registrant's fiscal year ended December 31, 2022, an evaluation of the effectiveness of the Registrant's "disclosure controls and procedures" (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) was carried out by the Registrant's management with the participation and supervision of the principal executive officer and principal financial officer. Based upon that evaluation, the Registrant's principal executive officer and principal financial officer have concluded that as of December 31, 2022, the Registrant's disclosure controls and procedures are effective to ensure that information required to be disclosed by the Registrant in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in Commission rules and forms and (ii) accumulated and communicated to the Registrant's management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

INTERNAL CONTROL OVER FINANCIAL REPORTING

The disclosure provided under the heading "Disclosure Controls and Procedures and Internal Control Over Financial Reporting" on page 68 of Exhibit 99.3, Management's Discussion & Analysis for the Year Ended December 31, 2022, is incorporated by reference herein. The Registrant did not make any changes to its "internal control over financial reporting" (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the year ended December 31, 2022 that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Management's report dated February 23, 2023 on the Registrant's internal control over financial reporting contained in Exhibit 99.2, Audited Annual Financial Statements, is incorporated by reference herein.

The Registrant's internal control over financial reporting as of December 31, 2022 has been audited by Deloitte LLP ("Deloitte"), Independent Registered Public Accounting Firm who also audited the Registrant's Consolidated Financial Statements for the years ended December 31, 2022 and 2021. Deloitte expressed an unqualified opinion on the effectiveness of the Registrant's internal control over financial reporting.

All internal control systems, no matter how well designed, have inherent limitations. As a result, even systems determined to be effective may not prevent or detect misstatements on a timely basis, as systems can provide only reasonable assurance that the objectives of the control system are met. In addition, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may change.

ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM

The disclosure provided in the two reports of Deloitte titled "Report of Independent Registered Public Accounting Firm" contained in Exhibit 99.2, Audited Annual Financial Statements for the years ended December 31, 2022 and 2021, are incorporated herein by reference.

BLACKOUT PERIODS

There were no "blackout periods", as defined under Rule 100(b) of Regulation BTR, requiring notice pursuant to Rule 104 of Regulation BTR during the fiscal year ended December 31, 2022.

AUDIT COMMITTEE IDENTIFICATION AND FINANCIAL EXPERT

As at December 31, 2022, the Registrant's audit committee consisted of Carol T. Banducci, Daniel Muñiz Quintanilla and David S. Smith. The Registrant's board of directors has determined that each of Ms. Banducci, Mr. Muñiz Quintanilla and Mr. Smith is an "audit committee financial expert" within the meaning of the Commission's rules. Each of Ms. Banducci, Mr. Muñiz Quintanilla and Mr. Smith is also "independent" under the criteria of Rule 10A-3 of the Exchange Act as required by the New York Stock Exchange (the "NYSE"). The Commission has indicated that the designation of Ms. Banducci, Mr. Muñiz Quintanilla and Mr. Smith as audit committee financial experts does not make any of them an "expert" for any purpose or impose any duties, obligations or liability on Ms. Banducci, Mr. Muñiz Quintanilla and Mr. Smith that are greater than those imposed on members of the audit committee and board of directors who do not carry this designation. The audit committee's charter sets out its responsibilities and duties, qualifications for membership, procedures for committee appointment and reporting to the Registrant's board of directors. A copy of the current charter is attached to the AIF as Schedule C thereto and is available on the Registrant's website at www.hudbayminerals.com/about-us/governance/default.aspx.

CODE OF ETHICS

The Registrant has adopted a Code of Business Conduct and Ethics (the "Code of Ethics") that applies to its principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions. A copy of the Code of Ethics is available on the Registrant's website at www.hudbayminerals.com/about-us/governance/default.aspx. The Registrant undertakes to provide to any person, without charge, upon request, a copy of the Code of Ethics. Requests for copies of the Code of Ethics should be made by contacting the Registrant's Senior Vice President, Legal and Organizational Effectiveness at 416 362-8181. No waivers of the Registrant's Code of Ethics were granted to any principal officer of the Registrant or any person performing similar functions during the fiscal year ended December 31, 2022.

During the fiscal year ended December 31, 2022, the Registrant amended its Code of Ethics to, among other things, (i) enhance its anti-bribery and corruption and record keeping standards in accordance with leading compliance practices; and (ii) communicate its anti-money laundering and sanctions policies. All amendments to the Code of Ethics, and all waivers of the Code of Ethics with respect to any of the officers covered by it, will be posted on the Registrant's website at www.hudbayminerals.com/about-us/governance/default.aspx. 

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information about aggregate fees billed to us by our principal accountant, Deloitte LLP (PCAOB ID No. 1208) provided under the heading "Audit Committee Disclosure – Remuneration of Auditor" on page 55 of the AIF is incorporated by reference herein. All audit services, audit-related services, tax services, and other services provided for the fiscal year ended December 31, 2022 were pre-approved by the audit committee in accordance with the Registrant's pre-approval policy as described under the heading "Audit Committee Disclosure - Policy Regarding Non-Audit Services Rendered by Auditors" on page 55 of the AIF.

OFF-BALANCE SHEET ARRANGEMENTS

The Registrant has no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Registrant's financial condition, changes in financial condition, revenues or expenses, results of operation, liquidity, capital expenditures or capital resources that is material to investors.

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The disclosure provided under the heading "Contractual Obligations" on page 48 of Exhibit 99.3, Management's Discussion & Analysis for the Year Ended December 31, 2022, is incorporated by reference herein.

COMPARISON WITH NEW YORK STOCK EXCHANGE GOVERNANCE RULES

The NYSE requires that each listed company meet certain corporate governance standards.  These standards supplement the corporate governance reforms adopted by the United States Securities and Exchange Commission pursuant to the Sarbanes-Oxley Act of 2002.

Under the NYSE's Listed Company Manual, a "foreign private issuer", such as the Registrant, is not required to comply with most of the NYSE corporate governance standards.  However, foreign private issuers are required to disclose any significant ways in which their corporate governance practices differ from those followed by U.S. companies under the NYSE corporate governance standards.

The Registrant is subject to the listing standards of the Toronto Stock Exchange (the "TSX") and the corporate governance rules of Canadian Securities Administrators.  These listing standards and corporate governance rules are substantially similar to the NYSE listing standards.  The Registrant complies with these TSX listing standards and Canadian corporate governance rules.

The following are the significant ways in which the Registrant's governance practices differ from those followed by domestic companies under the NYSE corporate governance standards:

Director Independence 

The Registrant determines independence of its directors under the policies of the Canadian Securities Administrators.  For a director to be considered independent under the policies of the Canadian Securities Administrators, he or she must have no direct or indirect material relationship with us, being a relationship that could, in the view of the board of directors reasonably be expected to interfere with the exercise of his or her independent judgment, and must not be in any relationship deemed to be not independent pursuant to such policies.  To assist in determining the independence of directors for purposes that include compliance with applicable legal and regulatory requirements and policies, the board of directors has adopted certain categorical standards, which are part of our Corporate Governance Guidelines.  The Registrant's board of directors also determines whether each member of the Registrant's audit committee is independent pursuant to National Instrument 52-110 Audit Committees and Rule 10A-3 of the Exchange Act.  The Registrant's board of directors has not adopted the director independence standards contained in Section 303A.02 of the NYSE's Listed Company Manual.

Approval of Equity Compensation Plans

Section 303A.08 of the NYSE's Listed Company Manual requires shareholder approval of all equity compensation plans and material revisions to such plans.  The definition of "equity compensation plans" covers plans that provide for the delivery of both newly issued and treasury securities, as well as plans that rely on securities re-acquired in the open market by the issuing company for the purpose of redistribution to employers and directors. The TSX rules only require that shareholders approve the adoption of equity compensation plans that provide for new issuances of securities.  Any amendments to such plans are subject to shareholder approval unless the specific equity compensation plan contains detailed provisions, approved by the shareholders, which specify those amendments requiring shareholder approval and those amendments which can be made without shareholder approval.  The Registrant follows the TSX rules with respect to the requirements for shareholder approval of equity compensation plans and revisions to such plans.

Shareholder Approval Requirement

In lieu of Section 312 of the NYSE's Listed Company Manual, the Registrant will follow the TSX rules for shareholder approval of new issuances of its common shares.  Following the TSX rules, shareholder approval is required for certain issuances of shares that (i) materially affect control of the Registrant or (ii) provide consideration to insiders in aggregate of 10% or greater of the market capitalization of the listed issuer and have not been negotiated at arm's length.  Shareholder approval is also required, pursuant to the TSX rules, in the case of private placements (x) for an aggregate number of listed securities issuable greater than 25% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis, prior to the date of closing of the transaction if the price per security is less than the market price or (y) that during any six month period are to insiders for listed securities or options, rights or other entitlements to listed securities greater than 10% of the number of securities of the listed issuer which are outstanding, on a non-diluted basis, prior to the date of the closing of the first private placement to an insider during the six month period.

INTERACTIVE DATA FILE

The required disclosure for the fiscal year ended December 31, 2022 is filed as Exhibit 101 to this Annual Report on Form 40-F.

MINE SAFETY DISCLOSURE

Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine are required to disclose in their periodic reports filed with the Commission information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. For information regarding the Registrant's mine safety disclosures, see "Disclosure Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act" filed as Exhibit 99.4 to this Annual Report on Form 40-F.

FORWARD-LOOKING STATEMENTS

Certain statements in this Annual Report on Form 40-F are forward-looking statements within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. Please see "Forward Looking Information" in the AIF for a discussion of risks, uncertainties, and assumptions that could cause actual results to vary from those forward-looking statements.

UNDERTAKING

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the Commission staff, and to furnish promptly, when requested to do so by the Commission staff, information relating to: the securities registered pursuant to Form 40-F; the securities in relation to which the obligation to file an annual report on Form 40-F arises; or transactions in said securities.

CONSENT TO SERVICE OF PROCESS

The Registrant has previously filed with the Commission a written consent to service of process and power of attorney on Form F-X. Any change to the name or address of the Registrant's agent for service shall be communicated promptly to the Commission by amendment to the Form F-X referencing the file number of the Registrant.

* * *

SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized.

  HUDBAY MINERALS INC.
   
     
  By: /s/ Patrick Donnelly
  Name: Patrick Donnelly
  Title: Senior Vice President,
Legal and Organizational Effectiveness
  Date: March 30, 2023

EXHIBIT INDEX

Exhibit Description and Date of Document

Annual Information Form; Audited Financial Statements; Management's Discussion and Analysis; Mine Safety Disclosure
   
99.1 Annual Information Form for the Year Ended December 31, 2022
   
99.2 Audited Annual Financial Statements for the Years Ended December 31, 2022 and 2021
   
99.3 Management's Discussion & Analysis for the Year Ended December 31, 2022
   
99.4 Disclosure Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act
   
Certifications
   
99.5 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
99.6 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
99.7 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
99.8 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
   
Consents
   
99.9 Consent of Olivier Tavchandjian, P.Geo., dated March 30, 2023
   
99.10 Consent of Deloitte LLP, dated March 30, 2023
   
Interactive Data Files
   
101 Inline Interactive Data File
   
101.INS Inline XBRL Instance Document–the instance document does not appear in the Interactive Data File as its XBRL tags are embedded within the Inline XBRL document
   
101.SCH Inline XBRL Taxonomy Extension Schema Document
   
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
   
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
 

Exhibit 99.1

 

TABLE OF CONTENTS


CAUTION REGARDING FORWARD-LOOKING INFORMATION 1
NOTE TO UNITED STATES INVESTORS 3
OTHER IMPORTANT INFORMATION 3
CURRENCY AND EXCHANGE RATES 4
NON-IFRS FINANCIAL PERFORMANCE MEASURES 4
CORPORATE STRUCTURE 4
INCORPORATION AND REGISTERED OFFICE 4
INTERCORPORATE RELATIONSHIPS 5
DEVELOPMENT OF OUR BUSINESS 5
STRATEGY 5
THREE YEAR HISTORY 6
DESCRIPTION OF OUR BUSINESS 10
GENERAL 10
MATERIAL MINERAL PROJECTS 11
OTHER ASSETS 20
OTHER INFORMATION 28
SUSTAINABILITY 31
HEALTH, SAFETY AND ENVIRONMENTAL POLICIES 31
GHG REDUCTION ROADMAP 32
HUMAN RIGHTS POLICY 32
SUSTAINABILITY REPORTING 32
RISK FACTORS 33
DESCRIPTION OF CAPITAL STRUCTURE 45
COMMON SHARES 45
PREFERENCE SHARES 45
SENIOR UNSECURED NOTES 46
CREDIT RATINGS 46
DIVIDENDS 49
MARKET FOR SECURITIES 49
PRICE RANGE AND TRADING VOLUME 49
DIRECTORS AND OFFICERS 51
BOARD OF DIRECTORS 51
EXECUTIVE OFFICERS 52
CORPORATE CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES AND SANCTIONS 54
CONFLICTS OF INTEREST 54
AUDIT COMMITTEE DISCLOSURE 55
COMPOSITION 55
POLICY REGARDING NON-AUDIT SERVICES RENDERED BY AUDITORS 56
REMUNERATION OF AUDITOR 56
LEGAL PROCEEDINGS AND REGULATORY ACTIONS 56
LEGAL PROCEEDINGS 56
REGULATORY ACTIONS 57
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS 57
TRANSFER AGENT AND REGISTRAR 57
MATERIAL CONTRACTS 57
QUALIFIED PERSONS 58
INTERESTS OF EXPERTS 58
ADDITIONAL INFORMATION 58
SCHEDULE A: GLOSSARY OF MINING TERMS A-1
SCHEDULE B: MATERIAL MINERAL PROJECTS B-1
CONSTANCIA MINE B-1
LALOR AND OTHER SNOW LAKE ASSETS B-8
COPPER WORLD B-20
SCHEDULE C: AUDIT COMMITTEE CHARTER C-1

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CAUTION REGARDING FORWARD-LOOKING INFORMATION

This annual information form ("AIF") contains "forward-looking information" within the meaning of applicable Canadian securities laws and "forward looking statements" within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. We refer to such forward-looking statements and forward-looking information together in this AIF as forward-looking information. All information contained in this AIF, other than statements of current and historical fact, is forward-looking information. Often, but not always, forward-looking information can be identified by the use of words such as "plans", "expects", "budget", "guidance", "scheduled", "estimates", "forecasts", "strategy", "target", "intends", "objective", "goal", "understands", "anticipates" and "believes" (and variations of these or similar words) and statements that certain actions, events or results "may", "could", "would", "should", "might" "occur" or "be achieved" or "will be taken" (and variations of these or similar expressions). All of the forward-looking information in this AIF is qualified by this cautionary note.

Forward-looking information includes, but is not limited to, statements regarding our production, cost and capital and exploration expenditure guidance, expectations regarding reductions in discretionary spending, capital expenditures and net debt, expectations regarding our exploration program and anticipated results therefrom, expectations regarding the impact of inflationary pressures on our cost of operations, financial condition and prospects, expectations regarding our cash balance and liquidity for 2023, expectations regarding the Copper World project, including with respect to our plans for a pre-feasibility study and the estimated timelines and pre-requisites for sanctioning the project, expectations regarding the permitting requirements for the Copper World project and permitting related litigation, our ability to continue to increase production at Lalor and throughput at the New Britannia mill, the anticipated timing and benefits of completing the Stall recovery improvement program, expectations regarding the ability to conduct exploration work on the Maria Reyna and Caballito properties and to advance related drill plans and to submit related drill permit applications, expectations regarding the duration and potential impact of short-term mine plan changes implemented at Constancia, expectations regarding the ability for the company to reduce greenhouse gas emissions, the company's evaluation of opportunities to reprocess tailings, expectations regarding the prospective nature of the Maria Reyna and Caballito properties, the anticipated impact of brownfield growth projects on our performance, anticipated expansion opportunities in Snow Lake, anticipated drill programs, anticipated mine plans, anticipated metals prices and the anticipated sensitivity of our financial performance to metals prices, events that may affect our operations and development projects, anticipated cash flows from operations and related liquidity requirements, the anticipated effect of external factors on revenue, such as commodity prices, estimation of mineral reserves and resources, mine life projections, reclamation costs, economic outlook, government regulation of mining operations, and business and acquisition strategies. 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 us 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 we identified and were applied by us in drawing conclusions or making forecasts or projections set out in the forward-looking information include, but are not limited to:

- the ability to achieve production and cost guidance;

- the ability to achieve discretionary spending reductions without impacting operations;

- no significant interruptions to our operations due to social or political unrest in the regions Hudbay operates, including the navigation of the complex environment in Peru;

- no interruptions to our plans for advancing the Copper World project;

- the ability to ramp up exploration in respect of the Maria Reyna and Caballito properties and to advance related drill plans and to submit related drill permit applications;

- the ability to continue to increase production at Lalor and throughput at the New Britannia mill; 

- the success of mining, processing, exploration and development activities;

- the scheduled maintenance and availability of our processing facilities;

- the accuracy of geological, mining and metallurgical estimates; 

2022 ANNUAL INFORMATION FORM  |  1

- anticipated metals prices and the costs of production;

- the supply and demand for metals we produce;

- the supply and availability of all forms of energy and fuels at reasonable prices;

- no significant unanticipated operational or technical difficulties;

- the execution of our business and growth strategies, including the success of our strategic investments and initiatives;

- the availability of additional financing;

- the ability to complete projects on time and on budget and other events that may affect our ability to develop our projects;

- the timing and receipt of various regulatory and governmental approvals;

- the availability of personnel for our exploration, development and operational projects and ongoing employee relations;

- maintaining good relations with the labour unions that represent certain of our employees in Manitoba and Peru;

- maintaining good relations with the communities in which we operate, including the neighbouring Indigenous communities and local governments;

- no significant unanticipated challenges with stakeholders at our various projects;

- no significant unanticipated events or changes relating to regulatory, environmental, health and safety matters;

- no contests over title to our properties, including as a result of rights or claimed rights of Indigenous peoples or challenges to the validity of our unpatented mining claims;

- the timing and possible outcome of pending litigation and no significant unanticipated litigation;

- certain tax matters, including, but not limited to current tax laws and regulations, changes in taxation policies and the refund of certain value added taxes from the Canadian and Peruvian governments; and

- no significant and continuing adverse changes in general economic conditions or conditions in the financial markets (including commodity prices and foreign exchange rates).

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, political and social risks in the regions the company operates, including the uncertainty with respect to the political and social environment in Peru and its potential impact on our mining operations (as further described under the heading "Risk Factors" in this AIF), risks generally associated with the mining industry and the current geopolitical environment, including future commodity prices, currency and interest rate fluctuations, energy and consumable prices, supply chain constraints and general cost escalation in the current inflationary environment, uncertainties related to the development and operation of our projects, risks related to the Copper World project, including in relation to permitting, litigation, project delivery and financing risks, risks related to the Lalor ramp-up strategy, dependence on key personnel and employee and union relations, risks related to political or social instability, unrest or change, risks in respect of Indigenous and community relations, rights and title claims, operational risks and hazards, including the cost of maintaining and upgrading our tailings management facilities and any unanticipated environmental, industrial and geological events and developments and the inability to insure against all risks, failure of plant, equipment, processes, transportation and other infrastructure to operate as anticipated, compliance with government and environmental regulations, including permitting requirements and anti-bribery legislation, depletion of our reserves, volatile financial markets and interest rates that may affect our ability to obtain additional financing on acceptable terms, the failure to obtain required approvals or clearances from government authorities on a timely basis, uncertainties related to the geology, continuity, grade and estimates of mineral reserves and resources, and the potential for variations in grade and recovery rates, uncertain costs of reclamation activities, our ability to comply with our pension and other post-retirement obligations, our ability to abide by the covenants in our debt instruments and other material contracts, tax refunds, hedging transactions, as well as the risks discussed under the heading "Risk Factors" in this AIF.

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. We do not assume any obligation to update or revise any forward-looking information after the date of this AIF or to explain any material difference between subsequent actual events and any forward-looking information, except as required by applicable law.

2022 ANNUAL INFORMATION FORM  |  2

NOTE TO UNITED STATES INVESTORS

This AIF (and documents incorporated by reference herein) has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of the United States Securities and Exchange Commission (the "SEC") and reserve and resource information included herein may not be comparable to similar information disclosed by U.S. companies.

Canadian reporting requirements for disclosure of mineral properties are governed by the Canadian Securities Administrators' National Instrument 43-101 Standards of Disclosure for Mineral Projects ("NI 43-101") and the Canadian Institute of Mining, Metallurgy and Petroleum ("CIM") CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by CIM Council on May 10 2014, as amended (the "CIM Standards"). Further to recent amendments, mineral property disclosure requirements in the United States are governed by subpart 1300 of Regulation S-K of the Securities Act of 1933, as amended (the "U.S. Rules") which differ from the CIM Standards. The definitions used in NI 43-101 are incorporated by reference from the CIM Standards.

As a foreign private issuer that is eligible to file reports with the SEC pursuant to the multi-jurisdictional disclosure system (the "MJDS"), the Company is not required to provide disclosure on its mineral properties under the U.S. Rules and will continue to provide disclosure under NI 43-101 and the CIM Standards. If the Company ceases to be a foreign private issuer or loses its eligibility to file its annual report on Form 40-F pursuant to the MJDS, then the Company will be subject to the U.S. Rules, which differ from the requirements of NI 43-101 and the CIM Standards.

Pursuant to the new U.S. Rules, the SEC recognizes estimates of "measured mineral resources", "indicated mineral resources" and "inferred mineral resources". In addition, the definitions of "proven mineral reserves" and "probable mineral reserves" under the U.S. Rules are now "substantially similar" to the corresponding CIM Standards, incorporated by reference in NI 43-101.

United States investors are cautioned that while the above terms are "substantially similar" under NI 43-101 and the CIM Standards, there are differences in the definitions under the U.S. Rules and the CIM Standards. Accordingly, there is no assurance any mineral reserves or mineral resources that the Company may report as "proven mineral reserves", "probable mineral reserves", "measured mineral resources", "indicated mineral resources" and "inferred mineral resources" under NI 43-101 would be the same had the Company prepared the reserve or resource estimates under the standards adopted under the U.S. Rules.

Mineralization described using these terms has a greater amount of uncertainty as to their existence and feasibility than mineralization that has been characterized as reserves. Accordingly, investors are cautioned not to assume that any "measured mineral resources", "indicated mineral resources", or "inferred mineral resources" that the Company reports are or will be economically or legally mineable.

Further, "inferred mineral resources" have a greater amount of uncertainty as to their existence and as to whether they can be mined legally or economically. In accordance with Canadian rules, estimates of "inferred mineral resources" cannot form the basis of feasibility or other economic studies, except in limited circumstances where permitted under NI 43-101.

OTHER IMPORTANT INFORMATION

Certain scientific and technical terms and abbreviations used in this AIF are defined in the "Glossary of Mining Terms" attached as Schedule A.

Unless the context suggests otherwise, references to "we", "us", "our" and similar terms, as well as references to "Hudbay" and "Company", refer to Hudbay Minerals Inc. and its direct and indirect subsidiaries.

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CURRENCY AND EXCHANGE RATES

This AIF contains references to both United States dollars and Canadian dollars. All dollar amounts referenced, unless otherwise indicated, are expressed in United States dollars, and Canadian dollars are referred to as "Canadian dollars" or "C$". For United States dollars to Canadian dollars, the average exchange rate for 2022 and the closing exchange rate as at December 30, 2022 (being the final trading day of 2022) as reported by the Bank of Canada, were one United States dollar per 1.3013 and 1.3544 Canadian dollars, respectively.

On March 29, 2023 (being the final trading day prior to the date of this AIF), the Bank of Canada daily exchange rate was one United States dollar per 1.3576 Canadian dollars.

NON-IFRS FINANCIAL PERFORMANCE MEASURES

Hudbay uses certain non-IFRS financial performance measures in its financial reports and in this AIF, including adjusted net earnings (loss), adjusted net earnings (loss) per share, adjusted EBITDA, net debt, cash cost, sustaining and all-in sustaining cash cost per pound of copper produced, cash cost and sustaining cash cost per pound of zinc produced, combined unit cost and zinc plant unit cost, cash cost and sustaining cash cost per ounce of gold produced. These measures do not have a meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS and are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently. For a description and reconciliation of each of these measures, please see the Non-IFRS Financial Performance Measures section on pages 54 to 65 of our management's discussion and analysis for the year ended December 31, 2022, a copy of which has been filed on SEDAR at www.sedar.com and EDGAR at www.sec.gov.

CORPORATE STRUCTURE

INCORPORATION AND REGISTERED OFFICE

We were formed by the amalgamation of Pan American Resources Inc. and Marvas Developments Ltd. on January 16, 1996, pursuant to the Business Corporations Act (Ontario) and changed our name to Pan American Resources Inc. On March 12, 2002, we acquired ONTZINC Corporation, a private Ontario corporation, through a reverse takeover and changed our name to ONTZINC Corporation. On December 21, 2004, we acquired Hudson Bay Mining and Smelting Co., Limited ("HBMS") and changed our name to HudBay Minerals Inc. In connection with the acquisition of HBMS, on December 21, 2004, we amended our articles to consolidate our common shares on a 30 to 1 basis. On October 25, 2005, we were continued under the Canada Business Corporations Act ("CBCA"). On August 15, 2011, we completed a vertical short-form amalgamation under the CBCA with our subsidiary, HMI Nickel Inc. On January 1, 2017, we completed a vertical short-form amalgamation under the CBCA with two of our subsidiaries, HBMS and Hudson Bay Exploration and Development Company Limited, and changed our name from HudBay Minerals Inc. to Hudbay Minerals Inc.

Our registered office is located at 333 Bay Street, Suite 3400, Bay Adelaide Centre, Toronto, Ontario M5H 2S7 and our principal executive office is located at 25 York Street, Suite 800, Toronto, Ontario M5J 2V5.

Our common shares are listed on the Toronto Stock Exchange ("TSX"), New York Stock Exchange ("NYSE") and Bolsa de Valores de Lima under the symbol "HBM".

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INTERCORPORATE RELATIONSHIPS

The following chart shows our principal subsidiaries as at December 31, 2022, their jurisdiction of incorporation and the percentage of voting securities we beneficially own or over which we have control or direction.

Notes:

1. Hudbay owns our Canadian mining operations, is the borrower under our Canadian Credit Facility, the issuer of our Senior Unsecured Notes and a guarantor of our Peru Facility.

2. HudBay Peru Inc. owns 99.98% of HudBay Peru S.A.C. ("Hudbay Peru"). The remaining 0.02% is owned by 6502873 Canada Inc., our wholly-owned subsidiary. HudBay Peru Inc. is a guarantor of our Credit Facilities and our Senior Unsecured Notes.

3. Hudbay Peru owns the Constancia mine, is the borrower under our Peru Facility and is a guarantor of our Canadian Credit Facility and our Senior Unsecured Notes.

4. HudBay (BVI) Inc. ("Hudbay BVI") is the party to the precious metals stream agreement in respect of the Constancia mine.

5. HudBay Marketing & Sales Inc. markets and sells certain mineral products and is a guarantor of our Credit Facilities and our Senior Unsecured Notes.

6. Hudbay Arizona Inc., through its subsidiaries, indirectly owns 100% of Copper World, Inc. (formerly known as Rosemont Copper Company) and Mason Resources (US) Inc. ("Mason US").

7. Copper World, Inc. (formerly known as Rosemont Copper Company) owns a 100% interest in the Copper World project.

8. Mason US owns a 100% interest in the Mason project in Nevada as well as certain exploration properties in the surrounding area.

9. HudBay Arizona (Barbados) SRL is the party to the precious metals stream agreement in respect of the Copper World project.

DEVELOPMENT OF OUR BUSINESS

STRATEGY

Our 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 we operate benefit from our presence.

We believe that copper is the commodity with the best long-term supply/demand fundamentals and offers shareholders the greatest opportunity for sustained risk-adjusted returns. Through the discovery and successful development of economic mineral deposits, and through highly efficient low-cost operations to extract the metals, we believe sustainable value will be created for all stakeholders.

Hudbay's successful development, ramp-up and operation of the Constancia open-pit mine in Peru, our long history of underground mining and full life-cycle experience in northern Manitoba, and our track record of reserve expansion through effective exploration, and our organic pipeline of copper development projects including Copper World, Mason and Llaguen, provide us with a competitive advantage relative to other mining companies of similar scale.

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Over the past decade, we have built a world-class asset portfolio by executing a consistent long-term growth strategy focused on copper. We continuously work to generate strong free cash flow and optimize the value of our producing assets through exploration, brownfield expansion projects and efficient and safe operations. Furthermore, we intend to sustainably grow Hudbay through the exploration and development of our robust project pipeline, as well as through the acquisition of other properties that fit our stringent strategic criteria.

To ensure that any investment in our existing assets or acquisition of other mineral assets is consistent with our mission and creates sustainable value for stakeholders, we have established a number of criteria for evaluating these opportunities. The criteria include the following:

- Sustainability: We are focused on jurisdictions that support responsible mining activity. Our current geographic focus is on select investment grade countries in the Americas, with strong rule of law and respect for human rights consistent with our long-standing focus on environmental, social and governance ("ESG") principles;

- Copper Focus: We believe copper is the commodity with the best long-term supply/demand fundamentals. Global copper mine supply is challenged due to declining industry grades, limited exploration success and an insufficient pipeline of development-ready projects while demand will continue to increase through global decarbonization initiatives. We believe this long-term supply/demand gap will create opportunities for increased risk-adjusted returns. While our primary focus is on copper, we recognize the polymetallic nature of copper deposits and, in particular, the counter-cyclical nature of gold in our portfolio;

- Quality: We are focused on investing in long-life, low-cost, expandable, high-quality assets that can capture peak pricing of multiple commodity price cycles and can generate free cash flow through the trough of price cycles;

- Potential: We consider the full spectrum of acquisition and investment opportunities, from early-stage exploration to producing assets, that offer significant incremental potential for exploration, development, expansion and optimization beyond the stated resources and mine plan;

- Process: We develop a clear understanding of how an investment or acquisition can create value through our robust due diligence and capital allocation process that applies our technical, social, operational and project execution expertise;

- Operatorship: We believe value is created through leveraging Hudbay's competitive advantages in safe and efficient operations and effective exploration and project development and community relations. While operatorship is a key criterion, we are open to joint venture and partnerships that de-risk our portfolio and increase risk-adjusted returns; and

- Capital Allocation: We pursue investments and acquisitions that are accretive to Hudbay on a per share basis. Given that our strategic focus includes allocating capital to assets at various stages of development, when evaluating accretion, we will consider measures such as internal rate of return ("IRR"), return on invested capital ("ROIC"), net asset value per share and the contained value of reserves and resources per share.

THREE YEAR HISTORY

Peru Operations

In February 2020, the community of Chilloroya formally approved a surface rights agreement with Hudbay for the Pampacancha satellite deposit located near the Constancia mine in Peru. Throughout the remainder of 2020, we focused on negotiating individual agreements with those members of the Chilloroya community who made use of the Pampacancha lands and advancing the consultation process between the government and the Chilloroya community in accordance with Peru's Consulta Previa law. Despite challenges presented by COVID-19, the Consulta Previa process was completed at the end of 2020, and, in early January 2021, we received the final mining permit for the development and operation of Pampacancha. Pampacancha achieved first production and commercial production in April 2021, following the completion of all land user agreements.

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On March 29, 2021, the Company released an updated mine plan for Constancia that included an increase in copper and gold production between 2022 and 2024 due to the higher grades from the Pampacancha deposit and also included higher-grade reserves from the Constancia Norte pit extension. During 2021, Hudbay also completed an internal scoping study which indicated the potential for economic extraction of an inferred mineral resource of 6.5 million tonnes of 1.2% copper in two high grade skarn lenses located below the open pit in the Constancia Norte area.

In late 2022 and early 2023, regional road blockades limited the ability to transport fuel and concentrate, but the Constancia mill continued to steadily operate as the Company implemented risk mitigation plans with strong support from the local communities. As a result of processing stockpiles to lower fuel consumption in early 2023, Pampacancha's mine life has now been extended into the first half of 2025. Annual production at the Constancia operations is expected to average approximately 110,000 tonnes of copper and 87,000 ounces of gold over the next three years, a respective 23% and 49% increase from 2022 levels.

Hudbay also controls a large, contiguous block of mineral rights with the potential to host mineral deposits within trucking distance of the Constancia processing facility, including the past producing Caballito property and the highly prospective Maria Reyna property. In August 2022, the community of Uchucarcco formally approved a surface rights exploration agreement with Hudbay for the Maria Reyna and Caballito properties. The Company has commenced early exploration activities and ground geophysical surveys at Maria Reyna and Caballito, and surface investigation activities together with baseline environmental and archaeological activities necessary to support drill permit applications have been completed.

Manitoba Operations

In March 2020, we released an integrated revised mine plan for our Snow Lake operations. This mine plan increased the annual gold production at Lalor and incorporated gold-rich regional deposits to support an 18 year operating life, based solely on proven and probable reserves and a production rate of 4,500 tonnes per day at Lalor for the first ten years of the mine plan.

On March 29, 2021, we released an updated mine plan for Snow Lake that increased annual gold production to over 180,000 ounces during the first six years of New Britannia's operation at a cash cost and sustaining cash cost, net of by-product credits, of $412 and $788 per ounce of gold, respectively. This enhanced mine plan incorporated the results from several optimization initiatives, including: increasing the production rate at Lalor; increasing the throughput rate at the Stall mill; incorporating mineral reserves from the 1901 deposit into the mine plan; and implementing a recovery improvement project at the Stall mill to increase copper and precious metal recoveries. These mine plan enhancements optimize the processing capacity of the Snow Lake operations in a manner that maximizes the net present value of the operations.

Refurbishment and commissioning activities at the New Britannia mill were completed in July 2021 and the construction of the new copper flotation facility at New Britannia was completed in October 2021, ahead of the original schedule. Following a brief commissioning period, the New Britannia mill achieved commercial production on November 30, 2021.

The 777 mine was closed on schedule, in June 2022, after 18 years of steady production. The Company's hydrometallurgical zinc facility in Flin Flon was also closed after more than 25 years of successful operations. The Flin Flon concentrator and tailings impoundment area were shifted to care and maintenance, which provides optionality should another mineral discovery lead to a new mine in the Flin Flon area. Hudbay is committed to strong and safe closure practices and has considered stringent and detailed environmental plans to manage water and the remaining infrastructure and processing plants in Flin Flon.

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Arizona Development Strategy

Hudbay has been evaluating alternative options to unlock value from its Arizona mineral assets since the July 2019 ruling from the U.S. District Court to vacate the final record of decision ("FROD") issued by the U.S. Forest Service relating to its Rosemont copper deposit, a decision which was later upheld by the Ninth Circuit Court of Appeal in 2022. The FROD was based upon a standalone development plan for the Rosemont deposit utilizing federal land as set forth in Hudbay's 2017 feasibility study and technical report (the "2017 Feasibility Study").

One such alternative was a private land development plan that included exploring nearby patented mining claims in the historic Helvetia mining district. The Company initiated a drill program in 2020 to confirm historical drilling in this past-producing region, and the drill program was further expanded throughout 2021 after continuing to receive encouraging results. Four deposits were discovered in early 2021 with oxide and sulfide mineralization occurring at shallow depths on Hudbay's wholly-owned patented mining claims. By September 2021, the exploration program had identified seven mineral deposits (referred to at the time as the "Copper World deposits") over a seven-kilometre strike area. An initial mineral resource estimate was declared at the Copper World deposits in December 2021, which was larger and at a higher level of geological confidence than expected.

Following our exploration success on patented mining claims and ongoing litigation uncertainty regarding the project design set forth in the 2017 Feasibility Study, Hudbay began to evaluate alternative design options to unlock value within this prospective district. This included remodeling the 2017 mineral resources, incorporating the new mineral resources from successful exploration results and completing new metallurgical testing work, which led to a comprehensive review of the mine plan, process plant design, tailings deposition strategies and permitting requirements for the new project.

This culminated in the release of a preliminary economic assessment of our 100%-owned Copper World project in July 2022 (the "Copper World PEA"). The Copper World PEA includes the recently discovered Copper World deposits along with the East deposit (which we formerly referred to as the Rosemont deposit). See "Material Mineral Projects - Copper World" for further information.

The Copper World PEA contemplates a two-phased mine plan with the first phase reflecting a standalone operation with processing infrastructure on Hudbay's private land and mining occurring on patented mining claims. Phase I is expected to require only state and local permits and reflects a 16-year mine life. Phase II extends the mine life to 44 years through an expansion onto federal land to mine the entire deposits. Phase II also contemplates an expansion of the processing facilities and would be subject to the federal permitting process.

At a copper price of $3.50 per pound, the after-tax net present value of Phase I using a 10% discount rate is $741 million and the internal rate of return is 17%. With the inclusion of Phase II and assuming a copper price of $3.50 per pound, the after-tax net present value of the total project using a 10% discount rate increases to $1,296 million and the internal rate of return is 18%. The valuation metrics are highly sensitive to the copper price and at a price of $4.00 per pound, the after-tax net present value of Phase I and the total project, using a 10% discount rate, increases to $1,193 million and $1,903 million, respectively, and the internal rate of return in Phase I and the total project increases to 21% and 22%, respectively.

Following the release of the Copper World PEA, we have continued to execute our strategy to de-risk the project. Pre-feasibility activities for Phase I of the Copper World project are well-advanced and are expected to support the conversion of mineral resources to mineral reserves and optimize the layout and sequencing of the mineral processing facilities, in addition to evaluating other upside opportunities. Pre-feasibility level engineering of the main processing facility and geotechnical and hydrogeological site investigation activities were each completed by the end of 2022. In late 2022, Hudbay submitted the applications for an Aquifer Protection Permit and an Air Quality Permit to the Arizona Department of Environmental Quality ("ADEQ"). Hudbay continues to expect to receive these two remaining state permits in 2023. The other key state permit, the Mined Land Reclamation Plan, was received in 2022.

A pre-feasibility study for Phase I of the Copper World project is expected to be released in mid-2023.

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Financing Activities

In May 2020, we entered into a gold forward sale and prepay arrangement ("Gold Prepay") with a syndicate of our existing lenders whereby we received an upfront payment of $115 million in exchange for delivering a total of 79,954 gold ounces in future years on gold forward curve prices averaging approximately $1,682 per ounce. The Gold Prepay was executed to pre-fund substantially all of the expected capital costs to complete the New Britannia project. We repaid approximately 50% of the original Gold Prepay in 2022.

On September 23, 2020, we completed an upsized offering of $600 million aggregate principal amount of 6.125% senior unsecured notes due 2029. The proceeds of this offering were used to redeem $400 million of our then outstanding 7.250% senior unsecured notes due 2023 and for general corporate purposes.

On March 8, 2021, we completed an offering of $600 million aggregate principal amount of 4.50% senior unsecured notes due 2026. The proceeds of this offering were used to redeem $600 million of our then outstanding 7.625% senior unsecured notes due 2025.

On October 26, 2021, we completed an amendment and restatement of our senior secured revolving credit facilities (the "Credit Facilities"). As a result of the amendment, the total available borrowings under the Credit Facilities was increased to $450.0 million from $400.0 million to reflect our anticipated business requirements until October 2025 when the Credit Facilities mature. We also eliminated certain financial covenants while amending others to increase our financial flexibility and reduced the effective interest.

Following these financing transactions, we have an aggregate of $1.2 billion of long-term debt and have pushed out the nearest maturity to 2025. For more information, see "Description of Capital Structure".

COVID-19 and Our Business

Following the onset of the COVID-19 pandemic, the Company's business response planning commenced in January 2020 and company-wide crisis plans were activated in early-March as part of our crisis management protocols. The Board worked with senior management during this time to ensure risks relating to COVID-19 were identified and mitigation plans were put in place. Throughout the rapidly changing environment, we remained focused on the health and safety of our workforce and local communities and we actively engaged with local stakeholders and public health authorities to ensure effective implementation of our business response plans.

In Peru, the government declared a state of emergency on March 15, 2020, requiring non-essential businesses to be shut down. Following this declaration, we commenced the temporary and orderly suspension of operations at Constancia. The shutdown lasted approximately eight weeks, during which a smaller workforce was maintained at the site to oversee critical aspects of the operation and in order to facilitate a quick and efficient restart and ramp up of the mine. Since then, we have maintained continuous operations at Constancia without any further COVID-19 related interruptions.

In Manitoba, other than an unrelated production interruption at 777 during 2020 due to an incident that occurred during routine maintenance of the hoist rope and skip, our mines have continued to operate and ship mineral products, notwithstanding COVID-19 related challenges.

Over the course of the past year, as the day-to-day impact and spread of COVID-19 has subsided, each of our business units has been able to slowly relax site-specific measures used to identify and limit COVID-19 exposure and transmission and maintain a safe environment for our workers and our communities. Site-specific measures included testing of incoming workers prior to their travel to site, pre-screening protocols, quarantine periods for incoming workers, workplace physical distancing protocols, and adjustment of work rotation schedules. The Company will continue to proactively monitor COVID-19 (and any variants thereto) should there be any future outbreaks.

Leadership Transition

In January 2020, Peter Kukielski was appointed Hudbay's President and CEO. Mr. Kukielski has more than 30 years of extensive global experience within the base metals, precious metals and bulk materials sectors. Most recently, he was President and Chief Executive Officer of Nevsun Resources Ltd. until its acquisition in December 2018.

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On January 4, 2022, André Lauzon was appointed Hudbay's Chief Operating Officer, following the resignation of Cashel Meagher. Mr. Lauzon has over 25 years of mining industry experience and previously served as the Vice President of Hudbay's Arizona Business Unit from 2018 to 2021, where he was responsible for Hudbay's strategic initiatives in the U.S. and advancement of the Rosemont and Copper World projects. Prior to that, Mr. Lauzon held strategic and operational leadership roles in Manitoba, where he served as Vice President of the Manitoba Business Unit from 2016 to 2018.

On October 13, 2022, Eugene Lei was appointed as Hudbay's Chief Financial Officer, replacing Steve Douglas. Mr. Lei has over 20 years of global mining investment banking, finance and corporate development experience. Since joining Hudbay in 2012, he has progressed through several senior management roles and executive responsibilities, including leading the corporate development, strategy and investor relations functions. He was interim CFO at Hudbay in 2020 and led the gold prepayment transaction in May 2020 to finance the capital reinvestment program in the New Britannia mill.

DESCRIPTION OF OUR BUSINESS

GENERAL

We are a diversified mining company with long-life assets in North and South America. Our Constancia operations in Cusco (Peru) produce copper with gold, silver and molybdenum by-products. Our Snow Lake operations in Manitoba (Canada) produce gold with copper, zinc and silver by-products. We have an organic pipeline that includes the Copper World project in Arizona and the Mason project in Nevada (United States), and our growth strategy is focused on the exploration, development, operation, and optimization of properties we already control, as well as other mineral assets we may acquire that fit our strategic criteria.

We have three material mineral projects:

1. our 100% owned Constancia mine, an open pit copper mine in Peru, which achieved commercial production in the second quarter of 2015;

2. our 100% owned Lalor mine, an underground gold, zinc and copper mine near Snow Lake, Manitoba, which achieved commercial production in the third quarter of 2014; and

3. our 100% owned Copper World project, a copper development project in Pima County, Arizona.

In addition to our mining properties in northern Manitoba, we own and operate a portfolio of processing facilities, including our Stall concentrator, which produces zinc and copper concentrates, and our recently refurbished New Britannia mill, which produces copper concentrate and gold/silver doré. Our Flin Flon concentrator, which produced zinc and copper concentrates, closed in 2022 and is currently on care and maintenance. We also own a number of properties in the Snow Lake region within trucking distance of the Stall and New Britannia mills that have the potential to provide additional feed for our Snow Lake operations.

In Peru, we own and operate a processing facility at Constancia, which produces copper and molybdenum concentrates from our Constancia and Pampacancha deposits. We also own a large, contiguous block of mineral rights within trucking distance of the Constancia processing facility, including the past producing Caballito property and the highly prospective Maria Reyna property. Following the execution of a surface rights exploration agreement with the community of Uchucarcco in August 2022, we have commenced early exploration activities at the Maria Reyna and Caballito properties. We also own a 100% interest in the Llaguen project, a greenfield project located close to existing infrastructure in Northern Peru for which initial mineral resource estimates were published in 2022.

Additionally, in Nevada, we own a 100% interest in the Mason project, an early-stage copper project with a substantial mineral resource and a robust PEA.

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The following map shows where our primary assets and certain exploration properties are located:

MATERIAL MINERAL PROJECTS

Constancia

Constancia is our 100% owned copper mine in Peru. It is located in the Province of Chumbivilcas in southern Peru and consists of the Constancia and Pampacancha deposits.

The Constancia mine reached commercial production in the second quarter of 2015 and has an expected mine life of 16 years. On February 18, 2020, the community of Chilloroya formally approved a surface rights agreement with Hudbay for the Pampacancha satellite deposit located near the Constancia mine in Peru. Throughout the remainder of 2020, we focused on negotiating individual agreements with those members of the Chilloroya community who made use of the Pampacancha lands and advancing the consultation process between the government and the Chilloroya community as per Peru's Consulta Previa law. The Consulta Previa process was completed at the end of 2020, and in early January 2021, the Peruvian regulators granted us the final mining permit for the development and operation of Pampacancha. Pampacancha achieved first production in April 2021, following the completion of all land user agreements. Due to its short ramp-up period, Pampacancha also achieved commercial production in April 2021.

On March 29, 2021, the Company released an updated mine plan for Constancia that included an increase in copper and gold production between 2022 and 2024 due to the higher grades from the Pampacancha deposit and also included higher-grade reserves from the Constancia Norte pit extension. During 2021, Hudbay also completed an internal scoping study which indicated the potential for economic extraction of an inferred mineral resource of 6.5 million tonnes of 1.2% copper in two high grade skarn lenses located below the open pit in the Constancia Norte area.

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In late 2022 and early 2023, regional road blockades limited the ability to transport fuel and concentrate, but the Constancia mill continued to steadily operate as the Company implemented risk mitigation plans with strong support from the local communities. As a result of processing stockpiles to lower fuel consumption in early 2023, Pampacancha's mine life has now been extended into the first half of 2025. Annual production at the Constancia operations is expected to average approximately 110,000 tonnes of copper and 87,000 ounces of gold over the next three years, a respective 23% and 49% increase from 2022 levels.

We also control a large, contiguous block of mineral rights with the potential to host mineral deposits within trucking distance of the Constancia processing facility, including the past producing Caballito property and the highly prospective Maria Reyna property. We commenced early exploration activities and ground geophysical surveys at the Maria Reyna and Caballito properties after completing a surface rights exploration agreement with the community of Uchucarcco in August 2022. Surface investigation activities together with baseline environmental and archaeological activities necessary to support drill permit applications have been completed. Drill permit applications are expected to be submitted in May 2023. Ground activities and geophysical surveys are underway and field evidence confirms that both Caballito and Maria Reyna host sulfide and oxide rich copper mineralization in skarns, hydrothermal breccias and large porphyry intrusive bodies.

100% of the payable silver and 50% of the payable gold at Constancia is subject to a precious metals stream agreement with Wheaton Precious Metals ("Wheaton"). We receive cash payments equal to the lesser of (i) the market price and (ii) $400 per ounce (for gold) and $5.90 per ounce (for silver), subject to one percent annual escalation, which started in 2019. Gold recovery for purposes of calculating payable gold was originally fixed at 55% for gold mined from Constancia and 70% for gold mined from Pampacancha. On May 10, 2021, an amendment to the Constancia streaming agreement was signed with Wheaton. As part of this amendment, Hudbay agreed to increase the fixed gold recoveries that apply to Constancia ore production from 55% to 70% during the reserve life of Pampacancha, which matches the fixed rate of recovery that applies to Pampacancha production.

On March 29, 2021, we filed a technical report titled "NI 43-101 Technical Report, Constancia Mine, Cuzco, Peru", effective as of January 1, 2021, prepared by Olivier Tavchandjian (our Senior Vice President, Exploration and Technical Services) (the "Constancia Technical Report"), a copy of which is available under our profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. For additional details on our Constancia mine, refer to Schedule B of this AIF.

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Mineral Reserves and Resources

The following table sets forth our estimates of the mineral reserves at the Constancia mine and Pampacancha deposit.

Constancia and Pampacancha Mineral Reserve Estimates - January 1, 2023(1)(2)(3)

 

Tonnes

Cu (%)

Mo (g/t)

Au (g/t)

Ag (g/t)

Constancia

 

 

 

 

 

Proven

411,200,000

0.28

79

0.041

2.85

Probable

46,500,000

0.23

79

0.038

2.84

Total Proven and Probable

457,700,000

0.28

79

0.040

2.85

 

 

 

 

 

 

Pampacancha

 

 

 

 

 

Proven

34,100,000

0.59

153

0.320

4.98

Probable

300,000

0.17

306

0.119

2.29

Total Proven and Probable

34,400,000

0.59

155

0.319

4.96

 




Total Mineral Reserve

492,100,000

0.30

85

0.060

2.99

Notes:

1. Totals may not add up correctly due to rounding.

2. Long term metal prices of $3.60 per pound copper, $12.00 per pound molybdenum, $1,650 per ounce gold and $22.00 per ounce silver were used to confirm the economic viability of the mineral reserve estimates.

3. Mineral reserves are estimated using a minimum NSR cut-off of $6.40 per tonne and assuming metallurgical recoveries (applied by ore type) of 86% for copper on average for the life of mine.

The following table sets forth our estimates of the mineral resources (exclusive of mineral reserves) at the Constancia mine and Pampacancha deposit.

Constancia and Pampacancha Mineral Resource Estimates - January 1, 2023(1)(2)(3)(4)(5)

 

Tonnes

Cu (%)

Mo (g/t)

Au (g/t)

Ag (g/t)

Constancia

 

 

 

 

 

Measured

118,400,000

0.20

62

0.036

1.86

Indicated

140,700,000

0.23

73

0.040

2.20

Inferred - open pit

56,700,000

0.27

82

0.044

1.86

Inferred - underground

6,500,000

1.20

69

0.137

8.62

 

 

 

 

 

 

Pampacancha

 

 

 

 

 

Measured

9,100,000

0.35

103

0.230

6.01

Indicated

300,000

0.16

173

0.173

2.62

Inferred

900,000

0.15

118

0.103

2.86

 

 

 

 

 

 

Total Measured + Indicated

268,500,000

0.22

69

0.045

2.18

 

 

 

 

 

 

Total Inferred

64,100,000

0.36

81

0.054

2.56

Notes:

1. Totals may not add up correctly due to rounding.

2. Mineral resources are exclusive of mineral reserves and do not have demonstrated economic viability.

3. Mineral resource estimates are based on resource pit design and do not include factors for mining recovery or dilution.

4. The open pit resources are using a NSR cut-off of $6.40 per tonne and assuming metallurgical recoveries (applied by ore type) of 86% for copper for the life of mine, while the underground inferred resource of Constancia Norte is based on a 0.65% Cu cut-off grade.

5. Long term metal prices of $3.60 per pound copper, $12.00 per pound molybdenum, $1,650 per ounce gold and $22.00 per ounce silver were used to estimate the mineral resources.

2022 ANNUAL INFORMATION FORM  |  13

The following chart shows Constancia production (tonnes and grade) for the last three years, which includes both the Constancia mine and Pampacancha deposit:

Notes:

1. The Pampacancha deposit achieved commercial production in April 2021 and thus the 2020 production output only includes ore mined at Constancia.

2. Production in 2020 was affected by an eight-week suspension of operations at Constancia following a government declared state of emergency in response to the COVID-19 pandemic.

3. Production in 2022 was affected due, in part, to a short-term change in mine plan in December 2022 where we prioritized the processing of lower grade stockpiles and shorter haulage distance ore from the Constancia pit in order to ration fuel during a period of nation-wide social unrest and road blockades following a change in Peru's political leadership in Q4 2022.

2022 ANNUAL INFORMATION FORM  |  14

Lalor

Our 100% owned Lalor mine is a gold, zinc and copper mine near the town of Snow Lake in the province of Manitoba. Lalor is located approximately 208 kilometres by road east of Flin Flon, Manitoba. The Lalor mine achieved commercial production in 2014 and the production rate has steadily ramped-up since that time.

On March 29, 2021, we released an updated mine plan for Snow Lake that increased annual gold production to over 180,000 ounces during the first six years of New Britannia's operation at a cash cost and sustaining cash cost, net of by-product credits, of $412 and $788 per ounce of gold, respectively. This enhanced mine plan incorporated the results from several optimization initiatives, including: increasing the production rate at Lalor; increasing the throughput rate at the Stall mill; incorporating mineral reserves from the 1901 deposit into the mine plan; and implementing a recovery improvement project at the Stall mill to increase copper and precious metal recoveries.

Refurbishment and commissioning activities at the New Britannia gold mill were completed in July 2021 and the construction of the new copper flotation facility at New Britannia was completed in October 2021, ahead of the original schedule. The copper facility consists of an innovative and first-of-its-kind flotation circuit based entirely on Jameson cells, a modern pneumatic flotation design that offers a compact layout, low-cost process and flexible flowsheet. Following a brief commissioning period, the New Britannia mill achieved commercial production on November 30, 2021. The New Britannia mill consistently achieved its nameplate capacity of 1,500 tonnes per day throughout 2022 and is expected to operate at 1,650 tonnes per day in 2023 with the opportunity to further exceed targeted levels in the future. Annual gold production from Snow Lake is expected to average more than 190,000 ounces over the next three years, which represents an increase of 30% from 2022 levels.

There are several opportunities to enhance the Snow Lake operations through exploration upside and mill processing projects. Additionally, the Lalor mine continues to advance several key initiatives to increase efficiency and support higher production levels beyond the current 4,650 tonnes per day, including building long-hole inventory, improving stope muck fragmentation and optimizing the development drift size. The Company is also focused on maximizing production from the shaft to enable more ore to be hoisted to surface while reducing inefficient trucking of ore via the ramp, which is expected to lower operating costs and greenhouse gas emissions.

Hudbay commenced a winter drill program in January 2023 with four drill rigs testing the down-dip gold and copper extensions of the Lalor deposit, which is the first time we have completed step-out drilling in the deeper zones at Lalor since the initial discovery of the gold and copper-gold zones in 2009 and 2010. One additional drill rig is testing a geophysical anomaly located within 400 metres of existing Lalor underground infrastructure. Four drill holes have been completed during the winter drill program and assay results from base metal and copper-gold mineralized intercepts identified from core logging are pending as of the date hereof. In addition, we continue to compile results from ongoing infill drilling programs at Lalor and 1901.

Drilling in 2022 did not materially impact the mineral resource and mineral reserve estimates at the Lalor mine and 1901 deposit and the 2022 estimates provided below are equivalent to the 2021 estimates after adjusting for the 2022 mining depletion.

On March 29, 2021, we filed an updated NI 43-101 technical report titled "NI 43-101 Technical Report, Lalor and Snow Lake Operations, Manitoba, Canada", effective as of January 1, 2021, prepared by Olivier Tavchandjian (our Senior Vice President, Exploration and Technical Services) (the "Lalor Technical Report"), a copy of which is available under our profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. For additional details on our Lalor mine, refer to Schedule B of this AIF.

2022 ANNUAL INFORMATION FORM  |  15

Mineral Reserves and Resources

The following table sets forth our estimates of the mineral reserves at the Lalor mine and 1901 deposit.

Lalor and 1901 Mineral Reserve Estimates - January 1, 2023 (1)(2)(3)(4)(5)

 

 

 

Tonnes

Cu (%)

Zn (%)

Au (g/t)

Ag (g/t)

Base Metal

Proven

Lalor

5,977,000

0.42

5.17

2.5

28.7

1901

1,278,000

0.30

8.14

2.2

27.4

Subtotal

7,256,000

0.40

5.69

2.5

28.5

Probable

Lalor

522,000

0.36

4.59

2.6

30.3

1901

245,000

0.30

10.70

0.8

25.2

Subtotal

767,000

0.34

6.54

2.0

28.7

Gold

Proven

Lalor

3,345,000

0.54

0.77

5.1

29.2

1901

101,000

1.00

1.32

2.9

19.2

Subtotal

3,446,000

0.56

0.79

5.1

28.9

Probable

Lalor

3,779,000

1.12

0.41

5.5

25.6

1901

54,000

1.82

0.45

1.7

5.6

Subtotal

3,834,000

1.13

0.41

5.4

25.3

Base Metal and Gold

Proven and Probable

Lalor

13,624,000

0.64

2.75

4.0

28.0

1901

1,679,000

0.39

7.85

2.0

25.8

Total

15,303,000

0.61

3.31

3.8

27.8

Notes:

1. Totals may not add up correctly due to rounding.

2. Long term metal prices of $3.60 per pound copper, $1.20 per pound zinc, $1,650 per ounce gold and $22.00 per ounce silver with an exchange rate of 1.33 C$/US$ were used to confirm the economic viability of the mineral reserve estimates.

3. Lalor mineral reserves are estimated using NSR cut-off ranging from C$137 to C$168 per tonne, assuming a long hole mining method and depending on the mill destination.

4. Individual stope gold grades at Lalor were capped at 10 grams per tonne, as a prudent estimate until reserves-to-mill reconciliations can establish support for the recovery of high-grade gold. This capping method resulted in an approximate 3% reduction in the overall gold reserve grade at Lalor.

5. 1901 mineral reserves are estimated using a minimum NSR cut-off of C$166 per tonne, assuming the material is mined via post pillar cut-and-fill methods and is processed at the Stall mill.

2022 ANNUAL INFORMATION FORM  |  16

The following table sets forth our estimates of the mineral resources (exclusive of mineral reserves) at the Lalor mine and 1901 deposit.

Lalor and 1901 Mineral Resource Estimates (Exclusive of Mineral Reserves) - January 1, 2023 (1)(2)(3)(4)(5)(6)(7)

 

 

 

Tonnes

Cu (%)

Zn (%)

Au (g/t)

Ag (g/t)

Base Metal

Inferred

Lalor

1,947,000

0.34

5.56

1.7

32.0

1901

312,000

0.19

5.86

1.5

32.0

Subtotal

2,259,000

0.32

5.60

1.7

32.0

Gold

Inferred

Lalor

3,764,000

1.68

0.27

5.0

26.4

1901

1,599,000

0.85

0.30

5.5

16.5

Subtotal

5,363,000

1.43

0.28

5.1

23.5

Base Metal and Gold

Inferred

Lalor

5,711,000

1.22

2.07

3.9

28.3

1901

1,911,000

0.74

1.21

4.8

19.1

Total

7,622,000

1.10

1.86

4.1

26.0
               

Notes:

1. Totals may not add up correctly due to rounding.

2. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

3. Mineral resources in the above tables do not include mining dilution or recovery factors.

4. Base metal mineral resources are estimated based on the assumption that they would be processed at the Stall concentrator while gold mineral resources are estimated based on the assumption that they would be processed at the New Britannia concentrator.

5. Long term metal prices of $1.20 per pound zinc, $1,650 per ounce gold, $3.60 per pound copper, and $22.00 per ounce silver with an exchange rate of 1.33 C$/US$ were used to estimate mineral resources.

6. Lalor mineral resources are estimated using NSR cut-off ranging from C$137 to C$168 per tonne, assuming a long hole mining method and depending on the mill destination.

7. 1901 mineral resources are estimated using a minimum NSR cut-off of C$166 per tonne, assuming the material is mined via post pillar cut-and-fill methods and is processed at the Stall mill.

2022 ANNUAL INFORMATION FORM  |  17

Production

The following charts show Lalor production (tonnes and grade) for the last three years:

2022 ANNUAL INFORMATION FORM  |  18

Copper World

Our 100% owned Copper World project is a copper development project located in Pima County, Arizona, approximately 50 kilometres southeast of Tucson. The Copper World PEA contemplates four planned open pit mines with anticipated processing infrastructure such as milling, leaching, solvent extraction and electrowinning of both copper sulfide and oxides to produce and sell copper cathodes, molybdenum concentrate, and silver and gold in doré, with sulfuric acid as a by-product.

The Copper World project includes seven new deposits discovered in 2021, together with the East deposit (formerly known as the Rosemont deposit). The new deposits were defined after the completion of an expanded drill program following a successful initial drill program in 2020. A new resource model was completed for the Copper World PEA which included a revised resource model for the East deposit that applied resource classification criteria calibrated on historical performance at Constancia and controlled grade over-smoothing, and incorporated the newly discovered deposits. This resulted in a 17% increase in contained copper in measured and indicated resources and a 328% increase in contained copper in inferred resources, as compared to the mineral resources in the 2017 Feasibility Study.

The Copper World PEA contemplates a two-phased mine plan with the first phase reflecting a standalone operation with processing infrastructure on Hudbay's private land and mining occurring on patented mining claims. Phase I is expected to require only state and local permits and reflects a 16-year mine life. Phase II extends the mine life to 44 years through an expansion onto federal land to mine the entire deposits. Phase II also contemplates an expansion of the processing facilities and would be subject to the federal permitting process.

At a copper price of $3.50 per pound, the after-tax net present value of Phase I using a 10% discount rate is $741 million and the internal rate of return is 17%. With the inclusion of Phase II and assuming a copper price of $3.50 per pound, the after-tax net present value of the total project using a 10% discount rate increases to $1,296 million and the internal rate of return is 18%. The valuation metrics are highly sensitive to the copper price and at a price of $4.00 per pound, the after-tax net present value of Phase I and the total project, using a 10% discount rate, increases to $1,193 million and $1,903 million, respectively, and the internal rate of return in Phase I and the total project increases to 21% and 22%, respectively.

Following the release of the Copper World PEA, we have continued to execute our strategy to de-risk the project. Pre-feasibility activities for Phase I of the Copper World project are well-advanced and are expected to support the conversion of mineral resources to mineral reserves and optimize the layout and sequencing of the mineral processing facilities, in addition to evaluating other upside opportunities. Pre-feasibility level engineering of the main processing facility and geotechnical and hydrogeological site investigation activities were each completed by the end of 2022. In late 2022, Hudbay submitted the applications for an Aquifer Protection Permit and an Air Quality Permit to the ADEQ. Hudbay continues to expect to receive these two remaining state permits in 2023. The other key state permit, the Mined Land Reclamation Plan, was received in 2022. A pre-feasibility study for Phase I of the Copper World project is expected to be released in mid-2023.

Hudbay's ownership in the Copper World project is subject to a precious metals stream agreement with Wheaton Precious Metals. Under such agreement, Hudbay is entitled to receive a deposit payment of $230 million against delivery of 100% of the payable gold and silver that is produced from the Copper World project and sold to third party purchasers, assuming a fixed payable rate of 92.5%. Hudbay and Wheaton Precious Metals have commenced discussions regarding a possible restructuring of the stream agreement based upon the new mine plan and processing plant design.

On July 14, 2022, we filed a technical report for the Copper World project (the Copper World PEA) titled "Preliminary Economic Assessment, Copper World Complex, Pima County, Arizona, USA", dated as of July 14, 2022 and effective as of May 1, 2022, prepared by Olivier Tavchandjian (our Senior Vice President, Exploration and Technical Services), a copy of which is available under our profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. For additional details on our Copper World project, refer to Schedule B of this AIF.

2022 ANNUAL INFORMATION FORM  |  19

The Copper World PEA is preliminary in nature, includes inferred resources that are considered too speculative to have the economic considerations applied to them that would enable them to be categorized as mineral reserves and there is no certainty the preliminary economic assessment will be realized.

The following table sets forth our estimates of the mineral resources (exclusive of mineral reserves) for the Copper World project.

Copper World Mineral Resource Estimates - January 1, 2023(1)(2)(3)(4)(5)(6)(7)

 

Tonnes

Cu (%)

CuSS (%)

Mo (g/t)

Ag (g/t)

Copper World - Flotation

 

 

 

 

 

Measured

687,000,000

0.45

0.05

138

5.1

Indicated

287,000,000

0.36

0.06

134

3.6

Inferred

210,000,000

0.36

0.05

119

3.9

Copper World - Leach

 

 

 

 

 

Measured

105,000,000

0.37

0.26

n/a

n/a

Indicated

94,000,000

0.35

0.26

n/a

n/a

Inferred

52,000,000

0.40

0.29

n/a

n/a

 

 

 

 

 

 

 

 

 

 

 

 

Total Measured + Indicated

1,173,000,000

0.41

0.09

114

3.9

Total Inferred

262,000,000

0.37

0.10

95

3.1

Notes:

1. Totals may not add up correctly due to rounding.

2. CIM definitions were followed for the estimation of mineral resources. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

3. Mineral resources are constrained within a computer-generated pit using the Lerchs-Grossman algorithm.

4. Estimate of the mineral resources is based on the following long-term metals prices: $3.45 per pound of copper; $11.00 per pound of molybdenum; and $20.00 per ounce of silver.

5. Mineral resource estimates were reported using a 0.1% copper cut-off grade and an oxidation ratio lower than 50% for flotation material and a 0.1% soluble copper cut-off grade and an oxidation ratio higher than 50% for leach material.

6. Estimate of the mineral resource does not account for marginal amounts of historical small-scale operations in the area that occurred between 1870 and 1970 and is estimated to have extracted approximately 200,000 tonnes, which is within rounding approximations of the current resource estimates.

7. Based on 100% ownership of Copper World.

OTHER ASSETS

Mason Project

The Mason project is a large greenfield copper deposit located in the historic Yerington District of Nevada and is one of the largest undeveloped copper porphyry deposits in North America. The Mason project's measured and indicated mineral resources are comparable in size to Constancia. We view the Mason project as a long-term future development asset as part of our pipeline of high-quality copper growth opportunities.

Since acquiring Mason, Hudbay has consolidated a prospective package of patented and unpatented mining claims contiguous to the Mason project and has advanced a number of technical studies, including a revised resource model and the completion of the Mason PEA.

The Mason PEA was completed in April 2021 and contemplates a 27-year mine life with average annual copper production of approximately 140,000 tonnes over the first ten years of full production. At a copper price of $3.50 per pound, the after-tax net present value using a 10% discount rate is $1,191 million and the internal rate of return is approximately 18%. The Mason PEA is preliminary in nature, includes inferred resources that are considered too speculative to have the economic considerations applied to them that would enable them to be categorized as mineral reserves and there is no certainty the preliminary economic assessment will be realized.

2022 ANNUAL INFORMATION FORM  |  20

There is opportunity to further enhance the project economics through exploration for higher grade satellite deposits on Hudbay’s prospective land package in Nevada, including Mason Valley. The Mason Valley property hosts several historical underground copper mines that were in production in the early 1900s. Much of the Mason Valley property is located on Hudbay’s wholly owned private lands within 15 kilometers of the planned processing infrastructures for the Mason project and contains highly prospective skarn mineralization. A conductivity-resistivity IP ground survey conducted in the fourth quarter of 2022 was successful in identifying the mineralization associated with the historical mines and confirmed the potential for both high-grade skarn as well as a large porphyry target below the historical mines. These results, in combination with a re-interpretation of geological data from past operating mines and previous exploration data, will be used to finalize a drill plan to test these targets in late 2023.

The following table sets forth the estimates of the mineral resources at the Mason project.

Mason Project Resource Estimates - January 1, 2023(1)(2)(3)(4)(5)(6)

 

Tonnes

Cu (%)

Mo (g/t)

Au (g/t)

Ag (g/t)

Measured

1,417,000,000

0.29

59

0.031

0.66

Indicated

801,000,000

0.30

80

0.025

0.57

Total Measured & Indicated

2,219,000,000

0.29

67

0.029

0.63

Total Inferred

237,000,000

0.24

78

0.033

0.73

Notes:

1. Totals may not add up correctly due to rounding.

2. Mineral resource estimates that are not mineral reserves do not have demonstrated economic viability.

3. Mineral resource estimates do not include factors for mining recovery or dilution.

4. Long term metal prices of $3.10 per pound copper, $11.00 per pound molybdenum, $1,500 per ounce gold and $18.00 per ounce silver were used to estimate mineral resources.

5. Mineral resources are estimated using a minimum NSR cut-off of $6.25 per tonne.

6. Mineral resources are based on resource pit designs containing measured, indicated, and inferred mineral resources.

Llaguen Project

The Llaguen project is 100% owned by Hudbay and is located near the city of Trujillo, the third largest city in Peru. The Llaguen property is at moderate altitude and in close proximity to existing infrastructure, water and power supply, including the port of Salaverry located 62 kilometres away and the Trujillo Nueva electric substation located 40 kilometres away.

The Llaguen copper-molybdenum porphyry deposit is located on the western margin of the Miocene epithermal-porphyry copper-gold belt of northern Peru. Hudbay optioned the Llaguen property from a Vale subsidiary in 2017 and has since completed an exploration agreement with the local community, conducted additional geological mapping and geochemical sampling, and completed a 28-hole confirmatory drill program during 2021 and 2022.

Hudbay's tenement comprises 12 mining concessions totaling 8,900 hectares and the mineralization is fully contained within these 100%-controlled tenements. There are no Indigenous communities in the area, and therefore, community agreements are not subject to Peru's Consulta Previa (prior consultation) process.

After completing an initial mineral resource estimate in November 2022, Hudbay initiated preliminary technical studies at Llaguen, including metallurgical test work as well as geotechnical and hydrogeological studies, which are expected to be incorporated into a preliminary economic assessment for the Llaguen project. Additional exploration drilling is warranted on the Llaguen property to test the areas of the deposit that remain open and the several untested geophysical targets in the area to fully define the regional extent of the mineralization. The current mineral resource estimate is also surrounded by a large halo of low grade hypogene copper mineralization, not currently included in the mineral resource estimate, but for which metallurgical test work could assess the potential for sulfide heap leaching via commercially available technologies.

2022 ANNUAL INFORMATION FORM  |  21

The following table sets forth the estimates of the mineral resources at the Llaguen project.

Llaguen Mineral Resource Estimates - January 1, 2023(1)(2)(3)(4)(5)(6)

 

Tonnes

Cu (%)

Mo (g/t)

Au (g/t)

Ag (g/t)

CuEq (%)

Indicated Global (>= 0.14% Cu)

271,000,000

0.33

218

0.033

2.04

0.42

Including Indicated High-grade (>= 0.30% Cu)

113,000,000

0.49

261

0.046

2.73

0.60

Inferred Global (>= 0.14% Cu)

83,000,000

0.24

127

0.024

1.47

0.30

Including Inferred High-grade (>= 0.30% Cu)

16,000,000

0.45

141

0.038

2.60

0.52

Notes:

1. CIM definitions were followed for the estimation of mineral resources. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

2. Mineral resources are reported within an economic envelope defined by a pit shell optimization algorithm. This pit shell is defined by a revenue factor of 0.33 assuming operating costs adjusted from Hudbay's Constancia open pit operation.

3. Long-term metal prices of $3.60 per pound copper, $11.00 per pound molybdenum, $1,650 per ounce gold and $22.00 per ounce silver were used for the estimation of mineral resources.

4. Metal recovery estimates assume that this mineralization would be processed at a combination of facilities, including copper and molybdenum flotation.

5. Copper-equivalent ("CuEq") grade is calculated assuming 85% copper recovery, 80% molybdenum recovery, 60% gold recovery and 60% silver recovery.

6. Specific gravity measurements were estimated by industry standard laboratory measurements.

Snow Lake Regional Deposits

The mineral reserves and mineral resources estimates at Hudbay's satellite deposits in the Snow Lake region, including the copper-gold WIM deposit, the gold-rich 3 Zone and the zinc-rich Watts, Pen II and Talbot deposits, have the potential to provide future feed for the Stall and New Britannia processing facilities and further extend the life of the Snow Lake operations.

The following table sets forth our estimates of the mineral reserves and resources at the Snow Lake regional deposits (excluding Lalor and 1901).

Snow Lake Regional Gold Deposits Mineral Reserve Estimates - January 1, 2023(1)(2)(3)(4)(5)

 

 

Tonnes

Cu (%)

Zn (%)

Au (g/t)

Ag (g/t)

Gold

Probable

WIM

2,450,000

1.63

0.25

1.6

6.3

3 Zone

660,000

-

-

4.2

-

Subtotal

3,110,000

1.28

0.20

2.2

5.0

Notes:

1. Totals may not add up correctly due to rounding.

2. Long term metal prices of $1.15 per pound zinc, $1,500 per ounce gold, $3.45 per pound copper, and $20.00 per ounce silver with an exchange rate of 1.30 C$/US$ were used to confirm the economic viability of the mineral reserve estimates.

3. WIM mineral reserves are estimated using a minimum NSR cut-off of C$150 per tonne, assuming processing recoveries of 98% for copper, 88% for gold, and 70% for silver based on processing through New Britannia's flotation and tails leach circuits.

4. 3 Zone mineral reserves are estimated using a minimum NSR cut-off of C$150 per tonne, assuming processing recoveries of 85% for gold based on processing through New Britannia's leach circuit.

5. Mineral reserves were initially estimated using metal price assumptions that vary marginally over the assumptions used to estimate mineral reserves at Lalor. In the Qualified Person's opinion, the combined impact of these small variations does not have any impact on the mineral reserve estimates.

2022 ANNUAL INFORMATION FORM  |  22

Snow Lake Mineral Resource Estimates (Exclusive of Mineral Reserves)

- January 1, 2023(1)(2)(3)(4)(5)(6)(7)(8)(9)

 

 

Tonnes

Cu (%)

Zn (%)

Au (g/t)

Ag (g/t)

Gold

Inferred

New Britannia

2,750,000

-

-

4.5

-

Birch

570,000

-

-

4.4

-

Subtotal

3,320,000

-

-

4.5

-

Snow Lake Mineral Resource Estimates (Exclusive of Mineral Reserves)

- January 1, 2023 (1)(2)(3)(4)(5)(6)(7)(8)(9)

 

 

Tonnes

Cu (%)

Zn (%)

Au (g/t)

Ag (g/t)

Base

Metal

 

Indicated

PEN II

470,000

0.49

8.89

0.3

6.8

Talbot

2,190,000

2.33

1.79

2.1

36.0

Subtotal

2,660,000

2.01

3.04

1.8

30.9

Inferred

Watts

3,150,000

2.34

2.58

1.0

31.0

PEN II

130,000

0.37

9.81

0.3

6.8

Talbot

2,450,000

1.13

1.74

1.9

25.8

Subtotal

5,730,000

1.78

2.39

1.3

28.3

Notes:

1. Totals may not add up correctly due to rounding.

2. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

3. Mineral resources in the above tables do not include mining dilution or recovery factors.

4. Base metal mineral resources are estimated based on the assumption that they would be processed at the Stall concentrator while gold mineral resources are estimated based on the assumption that they would be processed at the New Britannia concentrator.

5. New Britannia mineral resource estimates have been reported at a minimum true width of 1.5 metres and with a cut-off grade varying from 2 grams per tonne (at the lower part of New Britannia) to 3.5 grams per tonne (at the upper part of New Britannia).

6. Watts and Pen II mineral resources were initially estimated using metal price assumptions that vary marginally over the assumptions used to estimate mineral resources at Lalor. In the Qualified Person's opinion, the combined impact of these small variations does not have any impact on the mineral resource estimates.

7. Watts mineral resources are estimated using a minimum NSR cut-off of C$150 per tonne, assuming processing recoveries of 90% for copper, 80% for zinc, 70% for gold and 70% for silver.

8. Pen II mineral resources are estimated using a minimum NSR cut-off of C$75 per tonne.

9. The above resource estimates table includes 100% of the Talbot mineral resources reported by Rockcliff Metals Corp. in its 2020 NI 43-101 technical report published on SEDAR. Hudbay currently owns a 51% interest in the Talbot project.

777 mine

On June 17, 2022, mining activities at Hudbay's 777 mine in Flin Flon, Manitoba concluded after the reserves were depleted following 18 years of steady production. The 777 deposit was a large and rich orebody and for many years was the flagship mine of Hudbay's Manitoba operations. The mine commenced production in 2004 with an initial ten-year mine life, operated steadily and successfully expanded reserves by an additional eight years. After extensive drilling in and around the 777 mine in recent years, no new deposits were identified. Closure activities to safely decommission the mine commenced in the second quarter of 2022 and advanced ahead of schedule. As the 777 mining activities wound down, Hudbay employees and equipment transitioned from the 777 mine to Snow Lake to support Lalor's ramp-up strategy.

Pursuant to the precious metals stream agreement we entered into with Wheaton Precious Metals in respect of the 777 mine, we are required to deliver 50% of the payable gold and 100% of the payable silver from the 777 mine and receive fixed payments equal to the lesser of (i) the market price and (ii) $400 per ounce (for gold) and $5.90 per ounce (for silver), subject to one percent annual escalation that started in 2015. As part of such stream agreement, Hudbay is required to repay, with precious metals credits, the stream deposit by August 1, 2052, being the expiry date of the agreement or, if the stream deposit is not fully repaid with precious metals credits, a payment for the remaining amount will be due on such expiry date. As the 777 mine has concluded all mining activities following the depletion of reserves and finalized the sales of produced concentrate, Hudbay has concluded that a portion of the stream deposit will not be repaid by means of precious metals credits from 777 production. As a result, the remaining repayment amount is recorded as a refund liability, payable to Wheaton Precious Metals in 2052. As of December 31, 2022, the present value of such payable amount is approximately US$6.4 million.

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Processing Facilities

Manitoba

The refurbishment of the New Britannia mill, including the addition of a new copper flotation circuit, was completed in October 2021.The New Britannia mill produces gold/silver doré and copper concentrates and achieved commercial production on November 30, 2021, after reaching the required recoveries and production output in the copper and gold circuits. The final tailings from the New Britannia mill are pumped to the Stall mill via a 6.8 kilometre pipeline and are then either pumped to the Lalor paste plant or diverted to the Anderson tailings impoundment area. The New Britannia mill has a nameplate capacity of 1,500 tonnes per day and, with the introduction of process improvements, has demonstrated capacity to achieve higher throughput.

Our Stall concentrator in Snow Lake, Manitoba was re-started in 2009 and a new copper recovery circuit was installed in the third quarter of 2012 to facilitate processing of Lalor ore. In 2014, we refurbished equipment and facilities at the Stall concentrator. The Stall mill has a throughput capacity of approximately 3,800 tonnes per day. Since the Flin Flon zinc plant closed in mid-2022, the zinc concentrate production has been sold to third party customers. The majority of the tailings produced from the Stall mill are pumped to the Lalor paste plant, where it is dewatered, mixed with cement and sent underground as pastefill. If pastefill is not required, the tailings are diverted to the Anderson tailings impoundment area. In 2020, Hudbay completed a feasibility study and a test program exploring various technological upgrades to the flowsheet at the Stall mill. The Stall recovery improvement program is currently well-advanced and remains on track for completion in early 2023 with higher gold and copper recoveries expected to commence in the second quarter of 2023.

In 2022, the New Britannia mill and Stall mill collectively processed 1,510,907 tonnes of ore.

Our Flin Flon concentrator had throughput capacity of approximately 6,000 tonnes of ore per day, and produced zinc and copper concentrates primarily from ore mined at our 777 mine until its closure in mid-2022. The Flin Flon concentrator and tailings impoundment area have been shifted to care and maintenance, which provides optionality should another mineral discovery lead to a new mine in the Flin Flon area.

In 2022, the Flin Flon concentrator processed 497,344 tonnes of ore.

Our zinc plant in Flin Flon produced special high-grade zinc metal and continuous galvanizing grade aluminum alloy zinc metal in three cast shapes from zinc concentrate until its closure in mid-2022.

Peru

Our processing plant at Constancia has a nominal throughput capacity of 90,000 dry metric tonnes per day of ore at 94% plant mechanical availability. We have improved the performance of the plant over time through technology and process improvements and plan to continue to implement such initiatives. The principal product of the concentrator is copper concentrate, although it also produces molybdenum concentrate. The primary crusher, belt conveyors, thickeners, tanks, flotation cells, mills and various other types of equipment are designed and constructed to be open to the environment. The concentrate filtration and storage building is enclosed. The tailings are pumped to the tailings management facility for storage and water is returned via parallel piping to the process plant for reuse.

Production

The following charts show production of contained metal in concentrate (tonnes/ounces) for our Peru and Manitoba concentrators for the last three years.

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Notes:

1. Production in 2020 was affected by an eight-week suspension of operations at Constancia following a government declared state of emergency in response to the COVID-19 pandemic.

2. Production in 2022 was affected due, in part, to a short-term change in mine plan in December 2022 where we prioritized the processing of lower grade stockpiles and shorter haulage distance ore from the Constancia pit in order to ration fuel during a period of nation-wide social unrest and road blockades following a change in Peru's political leadership in Q4 2022.

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Note:

1. The New Britannia mill achieved commercial production on November 30, 2021 and, as such, its production history is limited to a portion of 2021 and 2022.

2. For the years ended December 31, 2021 and 2022, respectively, the gold ounces displayed in the table above include production of gold doré. In the year ended December 31, 2021, we produced 9,002 oz of gold doré, while in the year ended December 31, 2022, we produced 28,707 oz of gold doré.

Tailings Management Facilities

We have four tailings structures and facilities, three (including one inactive) in Manitoba and one at Constancia. The Flin Flon tailings impoundment area ("FFTIA") is the only one with partial construction using the upstream construction design method. More recent dam expansions at the FFTIA have been constructed using the downstream method. Our Anderson tailings management facility in Snow Lake uses subaqueous deposition of tailings. In order to accommodate ongoing production from our Lalor mine, in 2022, we raised the dam around Anderson using the downstream method. Our Constancia tailings facility was constructed utilizing a downstream method which created a solid rockfill platform foundation. This foundation supports ongoing centerline construction which will continue until the end of the operating life of the structure.

We established an Independent Peer Review Board ("IPRB") for our Constancia tailings facility in 2012 and extended this to our Manitoba Business Unit's facilities in 2017. In 2018, we developed a Tailings Governance Charter to further strengthen our internal governance processes related to tailings management. The charter details existing controls, including a Tailings Management System at the site or business unit that supports day-to-day activities such as planning, monitoring, risk identification and reporting. We conduct independent external reviews, which may include Engineer of Record inspections, IPRB reports and compliance audits. The Manitoba Business Unit has most recently attained a "AAA" rating, while the Peru Business Unit has maintained its "AA" rating across all the tailings management indicators in the Mining Association of Canada's Towards Sustainable Mining ("TSM") program. In addition to maintaining a minimum of an "A" rating on all five TSM tailings indicators, we also ensure tailings facilities are constructed following the Canadian Dam Safety Guidelines. We believe following these well-established standards provides effective equivalence to the recently introduced Global Tailings Standard.

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At our Manitoba Business Unit, where some of our tailings storage facilities were built 80 years ago, we have worked with our engineer of record, with input from our IPRB, to identify opportunities to proactively upgrade facilities to increase the factor of safety of the structures over a three year period, particularly in areas previously constructed using the upstream method. In 2022, we spent approximately $18 million to complete planned improvements at Anderson and approximately $20 million to complete planned improvements at the FFTIA, respectively, and increased the safety factor of these tailings facilities.

Tailings Reprocessing

During 2022, we continued to evaluate the economic feasibility of reprocessing the tailings in the FFTIA, which holds more than 100 million tonnes of tailings that have been deposited over approximately 90 years. Recent drilling programs indicate high zinc, copper, and silver grades. Included in our evaluation to move forward with the reprocessing opportunity is the possibility to more efficiently manage the environmental risks associated with the existing tailings in the FFTIA and simplify the closure process.

Additionally, the Anderson tailings impoundment area at our Snow Lake operation also contains significant amounts of gold deposited over many years. Given our enhanced gold processing capacity in Snow Lake, we intend to conduct a similar evaluation of reprocessing the Anderson tailings. We are also exploring opportunities to optimize the capacity of the tailings pond by improving our tailings deposition (e.g., changes to the pipeline, adding more spigots), which decreases the need for future dam raises.

Exploration

As of the date of this AIF, Hudbay has an exploration portfolio of owned or optioned mineral properties which consists of approximately 600,000 hectares across Canada, Peru, the United States and Chile. Exploration expenditures are expected to decline by approximately 61% in 2023 as compared to the previous year as activities are focused on areas with high potential for discovery and mineral reserve and resource expansion.

Peru

Hudbay controls a large, contiguous block of mineral rights with the potential to host mineral deposits within trucking distance of the Constancia processing facility, including the past producing Caballito property and the highly prospective Maria Reyna property. We commenced early exploration activities and ground geophysical surveys at the Maria Reyna and Caballito properties after completing a surface rights exploration agreement with the community of Uchucarcco in August 2022. Surface investigation activities together with baseline environmental and archaeological activities necessary to support drill permit applications have been completed. Drill permit applications are expected to be submitted in May 2023. Ground activities and geophysical surveys are underway and field evidence confirms that both Caballito and Maria Reyna host sulfide and oxide rich copper mineralization in skarns, hydrothermal breccias and large porphyry intrusive bodies.

A drill program is also underway at the Pampacancha deposit to test the potential to add an incremental phase at depth to the reserve pit. The Company is also planning a limited drill program and technical evaluations at the Constancia deposit to confirm the economic viability of adding an additional mining phase to the current mine plan that would convert a portion of the mineral resources to mineral reserves.

Additionally, we released a NI 43-101 initial mineral resource estimate in November 2022 for the Llaguen copper-molybdenum porphyry deposit. Hudbay has initiated preliminary technical studies at Llaguen, including metallurgical test work as well as geotechnical and hydrogeological studies, which are expected to be incorporated into a preliminary economic assessment for the Llaguen project. Additional exploration drilling is warranted on the Llaguen property to test the areas of the deposit that remain open and the several untested geophysical targets in the area to fully define the regional extent of the mineralization. The current mineral resource estimate is also surrounded by a large halo of low grade hypogene copper mineralization, not currently included in the mineral resource estimate, but for which metallurgical test work could assess the potential for sulfide heap leaching via commercially available technologies.

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Manitoba

In Manitoba, Hudbay continues to conduct drilling activities in the Snow Lake area and compile results from ongoing infill drilling at Lalor and 1901. Assay results from recent confirmatory drilling at the tailings facility in Flin Flon indicate higher zinc, copper and silver grades than predicted from historical mill records while confirming the historical gold grade. We also plan to complete metallurgical test work on the Flin Flon tailings to assess the processing viability and evaluate the opportunity to reprocess the tailings at the Anderson facility in Snow Lake given significant amounts of gold have been deposited over many decades.

Hudbay commenced a winter drill program in January 2023 with four drill rigs testing the down-dip gold and copper extensions of the Lalor deposit, which is the first time we have completed step-out drilling in the deeper zones at Lalor since the initial discovery of the gold and copper-gold zones in 2009 and 2010. One additional drill rig is testing a geophysical anomaly located within 400 metres of existing Lalor underground infrastructure. Four drill holes have been completed during the winter drill program and assay results from base metal and copper-gold mineralized intercepts identified from core logging are pending as of the date hereof.

United States

In Arizona, following the substantial completion of infill drilling in 2022 to support the pre-feasibility study for Copper World, we reduced the number of drill rigs at site to three. Recent drilling activities at Copper World have focused on close spaced infill drilling to support potential future bulk sampling programs. This drilling is now completed, and no additional drilling is planned for 2023.

In Nevada, a conductivity-resistivity IP ground survey conducted in the fourth quarter of 2022 was successful in identifying the mineralization associated with the historical mines and confirmed the potential for both high-grade skarn as well as a large porphyry target below the historical mines. These results, in combination with a re-interpretation of geological data from past operating mines and previous exploration data, will be used to finalize a drill plan to test these targets in late 2023.

Strategic Investments

As at December 31, 2022, we held minority equity positions in 9 junior exploration companies (11 as at December 31, 2021), representing investments with a fair market value of approximately C$13 million (approximately C$14 million as at December 31, 2021), as part of our strategy to populate a pipeline of projects with the potential for exploration and development. Our early-stage opportunity pipeline consists of minority interests in junior exploration companies with projects in Canada, the United States and Peru. We are continuing to evaluate new projects and potential investments to add to our portfolio and will seek to dispose of investments when the underlying projects are no longer consistent with our strategy.

Cash and Cash Equivalents

Our cash and cash equivalents as of December 31, 2022 were approximately $225.7 million, and are held in low risk liquid investments and deposit accounts pursuant to our investment policy.

OTHER INFORMATION

Products and Marketing 

Our principal products are copper concentrate, which contains payable copper, gold and silver, zinc concentrate, refined zinc metal, gold and silver doré and molybdenum concentrate.

In 2022, we produced 104,173 tonnes of contained copper in concentrate (89,395 tonnes in Peru and 14,778 tonnes in Manitoba), 219,700 ounces of gold (58,229 ounces in Peru and 161,471 ounces in Manitoba), 3,161,294 ounces of silver (2,309,352 in Peru and 851,942 in Manitoba), 55,381 tonnes of contained zinc in concentrate (all produced in Manitoba), and 1,377 tonnes of contained molybdenum concentrate (all produced in Peru).

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In 2022, copper sales represented approximately 57% (2021 - 58%), gold sales represented approximately 22% (2021 - 17%), and zinc sales represented approximately 15% (2021 - 20%) of our total gross consolidated revenue (which excludes mark-to-market adjustments on provisionally priced sales, realized and unrealized changes to fair value for non-hedge derivative contracts, non-cash streaming agreements, treatment and refining charges, and adjustments to originally invoiced weights and assays).

Our 2022 revenue breakdown by commodity type is illustrated in the chart below:

2022 REVENUE BREAKDOWN

1. Revenue for the full year ended December 31, 2022. Gold and silver revenues include cash payments applicable to precious metals stream sales.

2. This number excludes treatment and refining charges.

3. Revenue from "Other" includes molybdenum and silver.

In 2022, our copper concentrate production was sold through a mix of benchmark related sales, spot sales, and fixed treatment charge sales. Manitoba copper concentrate production is sold for delivery to a smelter in Canada, while Peru copper concentrate production is primarily sold for delivery to smelters in Asia.

Molybdenum concentrate production in 2022 was sold to customers under one-year contracts and was delivered to roasters in South America and North America.

Gold/silver doré production from the New Britannia mill is sent to a refinery in Canada and the outturned precious metals are sold to Canadian financial institutions. In addition, we sell gold and silver equal to the deliverable portion of payable gold and silver produced from our Constancia mine to Wheaton Precious Metals pursuant to the terms of the precious metals stream agreement in respect of our Constancia mine.

For a portion of 2022, we shipped cast zinc metal produced at our Flin Flon zinc plant by rail and truck to customers in North America; however, such shipments ended upon the closure of our Flin Flon operations. Final refined zinc metal sales were completed in August 2022 and the first zinc concentrate sale occurred in July 2022.

Commodity Markets

In addition to our production volumes, our financial performance is directly affected by a number of factors, including metals prices, foreign exchange rates, and input costs, including energy prices. Copper and zinc prices were under pressure in 2022, trending downward during the second half of the year. At the start of 2022, prices for copper and zinc remained well above the 10-year trailing average due to a strong rebound in demand for physical metal and lingering supply issues related to COVID-19. However, in the second half of the year, prices trended downwards amid growing recession fears in many parts of the world driven by central bank rate increases and the war in the Ukraine.

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For additional information refer to our market analysis of copper, zinc and gold prices on pages 31 to 32 of our management's discussion and analysis for the year ended December 31, 2022, a copy of which has been filed on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Specialized Skill and Knowledge

The success of our operations depends in part on our ability to attract and retain geologists, engineers, metallurgists and other personnel with specialized skill and knowledge about the mining and mineral processing industries in the geographic areas in which we operate. For additional information, see "Risk Factors - Recruitment, Retention and Labour Relations".

Competitive Conditions

The mining industry is intensely competitive and we compete with many companies in the search for and acquisition of attractive mineral properties. In addition, we also compete for the technical expertise to find, develop, and operate such properties, the labour to operate the properties, and the capital for the purpose of funding such properties.

Economic Dependence

We do not have any contracts upon which our business is substantially dependent, as our principal products, copper concentrate, zinc concentrate and gold/silver doré are widely traded commodities and we may enter into contracts for the sale of such products with a variety of potential purchasers.

Environmental Protection

Our activities are subject to environmental laws and regulations, and our own internal environmental objectives, and we manage our conformance through certified management systems in place at each operation. Environmental laws and regulations are evolving in a manner that will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. For additional information, see "Risk Factors - Governmental and Environmental Regulation".

Our goal is to continue to improve our environmental performance and we have an environmental management program and systems directed at environmental protection and compliance to achieve our goal and address these regulatory changes. For additional information, see "Tailings Management Facilities" above and "Sustainability" and, in particular, our commitment to follow the TSM program of the Mining Association of Canada at all of our operating locations and our adoption of greenhouse gas emission reduction targets.

Employees

As at December 31, 2022, we had 74 employees at our Toronto-based corporate head office, 1026 employees in Manitoba, 1080 employees in Peru and 61 employees in the United States. As at December 31, 2022, unionized workers represented approximately 68% of our employees in Manitoba and approximately 31% of our employees in Peru.

We have a collective bargaining agreement in place with the union at our Peru operations, which is currently set to expire in the fourth quarter of 2024. We also have collective bargaining agreements in place with all six unions in Manitoba, which are all set to expire on June 30, 2024.

Hudbay maintains a profit sharing plan pursuant to which 10% of the after-tax profit of the Manitoba Business Unit (excluding provisions or recoveries for deferred income and mining tax) for any given year is distributed among eligible employees in Hudbay's Manitoba operations, with the exception of executive officers and key management personnel.

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In accordance with Peruvian law, Hudbay distributes 8% of the after-tax profit of the Peru Business Unit amongst all employees in Peru, including executive officers and key management personnel.

SUSTAINABILITY

At Hudbay, we view responsible corporate behaviour as integral to the successful execution of our business strategy. In particular, we pride ourselves on maintaining a good relationship with our regulators, communities and other stakeholders and being able to bring that good reputation to new communities and jurisdictions when we embark on new projects. Our mission includes that the regions and communities in which we operate benefit from our presence, meaning that we create benefits and opportunities that contribute to their economic and social wellbeing, and that we protect our natural environment. We also commit to our employees to maintain a safe and healthy work environment. As described below, we have adopted a number of voluntary codes and other external instruments that we consider particularly relevant to our business, including Environmental Management System Standard ISO 14001, Occupational Health and Safety Management System Standard ISO 45001, the Voluntary Principles on Security and Human Rights and our commitment to follow the TSM program of the Mining Association of Canada at all of our operating locations. For over a decade we have reported Scope 1 and Scope 2 greenhouse gas ("GHG") emissions across our operations and pursued improvements in our energy efficiency. In 2022, we announced our commitment to achieve net zero GHG emissions by 2050 and the adoption of interim 2030 GHG reduction targets to support this commitment.

HEALTH, SAFETY AND ENVIRONMENTAL POLICIES

Among our core values are protecting the health and welfare of our employees and contractors and reducing the impact of our operations on the environment. All of our producing operations currently have management systems certified to Safety and Environmental Management System Standards ISO 45001 and ISO 14001. The production and supply of our cast zinc products were registered to the ISO 9001 quality standard until this production ended with the closure of our zinc plant in 2022.

We believe that ongoing improvement in the safety of our workplace assists in maintaining healthy labour relations and that our ability to minimize recordable injuries (Medical Aid, Restricted Work and Lost Time injuries) and comply with environmental requirements are significant factors in maintaining social license to operate and realizing opportunities to improve overall operational efficiency. Our safety management systems also focus on identifying and mitigating fatal risks, including implementing critical controls addressing fatal risks and also on thoroughly investigating any incidents that represent a potential fatality regardless of the actual outcome of the incident. We classify injuries across our company using the International Council on Mining and Metals ("ICMM") criteria. Based on the ICMM criteria, in 2022, our recordable injury frequency per 200,000 hours worked was 1.30, which is a year-over-year improvement (1.45 in 2021).

Our environmental management program consists of a corporate environmental policy, and at each site, comprehensive environmental management plans and procedures that are integrated with operating procedures, employee training, regular internal and external audits, and emergency response systems. Appropriate water stewardship plays an important role in the development and operation of our projects, particularly the Copper World project.

Drawing on our long history of Scope 1 and Scope 2 emissions tracking, in 2022 we announced our commitment to achieve net zero GHG emissions by 2050 and achieve a 50% reduction from our 2021 GHG emissions at our existing operations by 2030. We recognize that while our products are vital for the energy transition that will enable global decarbonization goals, we are also expected to take steps to reduce emissions related our activities. With over two-thirds of our energy consumption being electricity supplied via regional grids that are substantially supplied by hydro generated electricity, Hudbay is already a relatively low GHG source of copper. Our mitigation and adaptation approach is discussed further in our Annual Sustainability Report.

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We maintain a company wide information system for recording, managing and tracking environmental, health, safety and community incidents. We did not have any material environmental non-compliances in 2022.

GHG REDUCTION ROADMAP

The Board's EHSS Committee provides oversight of our GHG Reduction Roadmap, and regularly receives reports from management on our progress. In 2021, we undertook to define a pathway for each Hudbay operation to achieve a 2030 GHG emissions target that is consistent with the objective of limiting global warming to well below 2°C (above pre-industrial levels). Drawing on many years of data on our GHG footprint, we began work on a 10-year GHG Reduction Roadmap, to identify our best options for approaching and achieving sustainable GHG emission reductions.

In 2022, we then announced our commitment to a GHG emissions reduction plan that includes the following initiatives:

HUMAN RIGHTS POLICY

Our Human Rights Policy articulates our commitments to human rights and addresses topics such as business and labour practices, community participation and security measures. Our Corporate Standards for Stakeholder Engagement, Community Giving and Investment, Local Procurement and Employment and Security Management provide our business units with additional corporate direction on minimum standards with respect to meeting the commitments we set out in our Human Rights Policy.

The Voluntary Principles on Security and Human Rights provide important guidance for our security and community relations practices in locations with higher potential for social conflict and, in Peru, we regularly audit security policies and practices and conduct gap analyses against the Voluntary Principles.

SUSTAINABILITY REPORTING

Each year we publish an Annual Sustainability Report that presents and discusses our environmental, social, health and safety performance in the context of our overall business performance. This report is prepared pursuant to the Global Reporting Initiative guidelines, the SASB Metals and Mining Standard, and the recommendations of the Task Force on Climate Related Financial Disclosure. We also publicly respond to the CDP climate, water and forests questionnaires. Our 2020 and 2021 Annual Sustainability Reports are available on our website at https://hudbayminerals.com/disclosure-centre/default.aspx. Our 2022 report is expected to be released in the second quarter of 2023.

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RISK FACTORS

An investment in our securities is speculative and involves significant risks that should be carefully considered by investors and prospective investors. In addition to the risk factors described elsewhere in this AIF, the risk factors that impact us and our business include, but are not limited to, those set out below. The risks and uncertainties described below are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem less material may also impair our business operations. Any one or more of these risks could have a material adverse effect on our business, results of operations, financial condition and the value of our securities.

METALS PRICES AND FOREIGN EXCHANGE

Our profit or loss and financial condition depend upon the market prices of the metals we produce, which are cyclical and which can fluctuate widely with demand. The profitability of our current operations is directly related and sensitive to changes in the market price of copper, gold and zinc and, to a lesser extent, that of silver and molybdenum (see "Sensitivity Analysis" on page 33 of our management's discussion and analysis for the year ended December 31, 2022). Market prices of metals can be affected by numerous factors beyond our control, including the overall state of the economy and expectations for economic growth (including as a result of recent geopolitical events), general levels of supply and demand for a broad range of industrial products, the substitution of new or different products in critical applications for existing products, the level of industrial production, expectations with respect to the rate of inflation, foreign exchange rates and the investment demand for commodities, interest rates and speculative activities. Such external economic factors are, in turn, influenced by changes in international investment patterns, monetary systems and political developments. The Chinese market is a significant source of global demand for commodities, including copper and zinc. Chinese demand has been a major driver in global commodities markets for a number of years. A slowing in China's economic growth could result in lower prices and demand for our products and negatively impact our results. We could also experience these adverse effects if demand in China slowed for other reasons, such as market disruption due to geopolitical events leading to conflicts and/or trade disputes, increased self-sufficiency, increased reliance on other suppliers to meet demand or a prolonged market disruption event, including as a result of global conflicts. Prices are also affected by the overall supply of the metals we produce, which can be affected by the start-up of major new mines, production disruptions and closures of existing mines. Depending on hedging practices, future price declines could cause us to reduce output at our operations (including, possibly, closing one or more of our mines or plants). If such price declines were significant, there could be a material and adverse effect on our cash flow from operations and our ability to finance our projects and satisfy our debt service obligations (see "Liquidity, Access to Capital and Indebtedness" below).

In addition to adversely affecting our mineral reserve estimates and the Company's financial condition, declining metals prices can impact operations by requiring an assessment or reassessment of the feasibility of a particular project. We may also curtail or suspend some or all of our exploration and development activities, with the result that our depleted reserves are not replaced.

In addition, since our core operations are located in Canada and Peru, many of our costs are incurred in Canadian dollars and Peruvian soles. However, our revenue is tied to market prices for copper, gold, zinc and other metals we produce, which are typically denominated in United States dollars. If the Canadian dollar or Peruvian sol were to appreciate in value against the United States dollar, our results of operations and financial condition could be materially adversely affected. Although we may use hedging strategies to limit exposure to currency fluctuations, there can be no assurance that such hedging strategies will be successful or that they will mitigate the risk of such fluctuations.

POLITICAL AND SOCIAL RISKS

On December 7, 2022, the former President of Peru, Pedro Castillo, was removed from office and replaced by Peru's former Vice President, Dina Boluarte. Following these political developments, Peru faced increasing tensions, protests, and social unrest. Protests have continued into early 2023, and the civil unrest has caused disruptions to commerce and supply chains. Constancia's milling operations have not been significantly impacted, but our ability to steadily receive fuel and other key inputs and to deliver concentrates to the port has been disrupted. Any prolonged disruption or damage to our mining and mineral processing infrastructure could cause us to temporarily shut down our operations, which could have an adverse effect on our financial results and cash flows. Hudbay continues to monitor the situation and mitigate the risks caused by the challenges with a focus on employee safety and site security. Given the uncertainty and future extent of these protests, our 2023 production and cost guidance are subject to a higher-than-normal degree of uncertainty.

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A change in government, government policy, the declaration of a state of emergency or the implementation of new or the modification of existing laws and regulations affecting our operations and other mineral properties could have a material adverse impact on us and our projects. Such laws or events could involve restrictions on businesses, the expropriation of property, implementation of exchange controls and price controls, increases in production royalties and income and mining taxes, refusal to grant or renew required permits, licenses, leases or other approvals or requiring unfavourable amendments to or revoking current permits and licenses, and enacting environmental or other laws that would make contemplated operations uneconomic or impractical. The risk exists that further government limitations, restrictions or requirements not presently foreseen, will be implemented. In addition, policy changes that alter laws regulating the mining industry could have a material adverse effect on us. We are at a heightened risk of having this occur whenever there is a change in government in the countries or regions in which we operate.

Political or social unrest in Peru or instability could adversely affect our ability to operate the Constancia mine and the Pampacancha satellite deposit and commence exploration activities at Maria Reyna and Caballito. Such adverse effects could result in positions or actions that may be taken by the national government or at the regional, community or local levels by government or non-governmental actors, including demanding payments, encroaching on our land, challenging the boundaries of such land or our rights to possess and operate on such land, protesting against our operation, impeding project activities through roadblocks or other public manifestations and attacking project assets or personnel. During the last several years, certain mining projects in Peru have been the target of political and community protests. While there have been some initiatives in respect of the Constancia mine, including attempts to restrict access and trespassing by workers and members of the surrounding communities, those initiatives have been limited and have not significantly disrupted the project's development or operations. There is the risk that more significant opposition may be mounted that may affect our ability to operate. The risk of disruptions from such opposition tends to increase with national, regional and local elections in Peru and changes to the general political and social climate in the area where we operate. We continue to seek to constructively engage with all our stakeholders in the Constancia region, and we continue to actively monitor Peru's social risks and political landscape.

In addition, while we carry out due diligence on our customers, the majority of our copper concentrate production from Constancia is delivered to smelters in China, and there is a risk that recent geopolitical events could lead to market disruption, trade disputes or government restrictions that could adversely affect our ability to sell our metal production.

ENERGY AND OTHER CONSUMABLE PRICES AND AVAILABILITY

Our mining operations and facilities are intensive users of electrical energy, diesel fuel and other consumables (such as steel and metallurgical reagents) that are essential to our business. The prices and availability of energy and other consumables can be affected by numerous factors beyond our control, including general cost inflation, global and regional supply and demand, political, social and economic conditions (including those relating to the availability of certain consumables due to blockades in Peru), supply chain constraints (including as a result of recent geopolitical events) and applicable regulatory regimes.

The prices of various sources of energy we rely on may increase significantly from current levels due to the current geopolitical environment, and any carbon-based energy we use may become subject to new or increased  carbon taxes; any such significant increase or punitive tax could have an adverse effect on our profitability. As a result of these cost pressures, particularly the current inflationary environment, the operating and capital cost assumptions in our previously published NI 43-101 technical reports may no longer be accurate, which could have an adverse effect on the projected economics of our operations.

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COMMUNITY RELATIONS AND INDIGENOUS RIGHTS

Our relationships and reputation, particularly with the communities in which we operate in Manitoba, Chumbivilcas (Peru), Arizona and Nevada are critical to the success of our existing operations and the construction and development of future projects. There is an increasing level of public attention and advocacy relating to the real and perceived effect of mining activities on the environment and communities impacted by those activities. Publicity adverse to us, our operations, or extractive industries generally, including as a result of anti-mining protests or publications, could have an adverse effect on us and may impact our reputation and relationship with the communities in which we operate, including the communities surrounding our key projects and other stakeholders.

Although we have entered into life of mine agreements with the two local communities directly affected by the Constancia mine and the one local community directly affected by the development of the Pampacancha deposit, and have a number of agreements in place with other local communities and governments in the area, there can be no assurance that disputes will not arise with these local communities or governments or that other communities or governments in the region with whom we do not have an agreement in place will demand an impact benefit or community investment agreement (see "Political and Social Risks" above).

In situations where we have acquired mineral rights, we may be unable to secure the required surface rights. Any inability to secure required surface rights or take possession of areas for which we hold surface rights could render us unable to carry out planned exploration, development and mining activities. Relations with local communities may be strained by real or perceived detrimental effects of our activities or those of other mining companies. Those strains may impact our ability to enforce our existing community agreements or obtain necessary permits and approvals to operate the Constancia mine. Further, communities and other groups in Peru and elsewhere that self-identify as Indigenous people may assert rights to be consulted and a right to free, prior and informed consent over project decisions. In Peru, this requires compliance with the Consulta Previa law.

The reconciliation process with Indigenous peoples in Canada, including the Government of Canada's intention to implement the United Nations Declaration on the Rights of Indigenous Peoples, may result in new such regulations being introduced in Canada. Although we work to engage with and provide opportunities to Indigenous communities near our operations in Manitoba, the asserted rights of Indigenous peoples may adversely affect our ability to operate.

In addition, from time to time, our operations may be adversely affected by protests and social activism broadly related to Indigenous rights and the reconciliation process in Canada.

While we are committed to operating in accordance with applicable laws and in a socially responsible manner, there can be no assurance that our efforts in this respect will fully mitigate this potential risk.

LIQUIDITY, ACCESS TO CAPITAL AND INDEBTEDNESS

As at December 31, 2022, we had cash and cash equivalents of approximately $225.7 million and approximately $354.3 million in undrawn availability under our Credit Facilities. While we expect that our current liquidity and future cashflows will be sufficient to meet our obligations in the coming year, there can be no assurances that this will be the case given the political uncertainty in Peru and our exposure to a potential deterioration in metals prices and other similar risks.

To fund growth, secure our future reclamation obligations, and in difficult economic times, to ensure continued operations, we may need to secure necessary capital through equity, loans or other forms of permanent capital. The availability of this capital is subject to general economic conditions and lender and investor interest in the Company and our projects and, in the case of the Credit Facilities, the financial maintenance covenants contained therein. Financing may not be available when needed or, if available, may not be available on terms acceptable to us. Failure to obtain or maintain any financing necessary for our capital expenditure plans may result in a delay or indefinite postponement of exploration, development or production on any or all of our properties, including our potential plans to develop future growth projects.

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Additionally, to the extent that we incur indebtedness at variable interest rates to fund our growth objectives, we may enter into interest rate hedging arrangements to manage our exposure to short-term interest rates. To the extent that we commit to capital expenditures denominated in foreign currencies, we may enter into foreign exchange forwards or acquire foreign currency outright, which may result in foreign exchange gains or losses in our consolidated income statements.

We have a significant amount of indebtedness. As of December 31, 2022, we have a total long-term debt of approximately $1.2 billion. As a result, we have a substantial annual interest expense on long-term debt, which was approximately $67.7 million in 2022.

Specifically, our substantial level of indebtedness could have significant consequences, including:

• limiting our ability to access capital to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

• requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;

• increasing our vulnerability to general adverse economic and industry conditions;

• exposing the Company to the risk of increased interest rates for those  borrowings that are at variable rates of interest;

• limiting our flexibility in planning for and reacting to changes in the industry in which we compete;

• placing the Company at a disadvantage compared to other less leveraged competitors; and

• increasing our cost of additional borrowings.

Subject to the limits contained in the indentures governing the Senior Unsecured Notes and any limits under our other debt instruments existing from time to time, we may incur additional debt (including under our Facilities) to finance working capital, capital expenditures, investments or acquisitions or for other purposes. If we do so, the risks related to our level of indebtedness could intensify.

Our ability to make scheduled payments on, repay in full or refinance our debt obligations, including the Senior Unsecured Notes, depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control, most importantly, metals prices. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium if any, and interest on our indebtedness, including the Senior Unsecured Notes.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness, including the Senior Unsecured Notes. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternatives may not allow us to meet our scheduled debt service obligations. The indentures governing the Senior Unsecured Notes restrict our ability to dispose of assets and use the proceeds from those dispositions. They may also limit our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.

In addition, the indentures governing the Senior Unsecured Notes contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including limitations on our ability to:

• incur additional indebtedness;

• pay dividends or make other distributions or repurchase or redeem capital stock;

• prepay, redeem or repurchase certain debt;

• make loans and investments;

• sell assets;

• incur liens;

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• enter into transactions with affiliates;

• alter the businesses we conduct;

• enter into agreements restricting our subsidiaries' ability to pay dividends; and

• consolidate, amalgamate, merge or sell all or substantially all of our assets.

If we cannot make scheduled payments on our debt, or we breach any of the covenants under the indentures governing the Senior Unsecured Notes or our other debt instruments, we will be in default and holders of our debt could declare all outstanding principal and interest to be due and payable, causing a cross-acceleration or cross-default under certain of our other debt agreements (including our secured facilities) and our other creditors could foreclose against the collateral securing our obligations and we could be forced into bankruptcy or liquidation.

INFORMATION TECHNOLOGY AND OPERATIONS TECHNOLOGY SYSTEMS

Our operations depend, in part, on information technology ("IT") and operations technology ("OT") systems. While we regularly monitor the security of our IT and OT systems, they remain vulnerable to disruption, damage or failure from a variety of sources, including but not limited to errors by employees or contractors, computer viruses, cable cuts, natural disasters, terrorism, power loss, vandalism, cyber-attacks including phishing, ransomware and similar malware, misappropriation of data by outside parties, and various other threats. Although to date, we have not experienced any material losses relating to IT or OT system disruptions, failure or damage, cyber-attacks or other information security breaches, there can be no assurance that we will not incur such losses in the future.

Any of these and other events could result in IT system or OT system failures, operational delays, production downtimes, security breaches, destruction or corruption of data, and equipment failure that could cause other risks to be realized, such as but not limited to, inaccurate recordkeeping, disclosure of confidential information, or other improper use of our IT and OT systems and networks. Any of these event could have an adverse effect on our reputation, results of operations, financial reporting and financial condition.

While we employ IT and OT governance practices over our information, data and networks, including implementing systems to monitor and detect threats, information security training for employees with access to sensitive information and data, the use of multi-factor encryption on all personal devices, the implementation of a formal cyber security awareness, training and testing online platform, the implementation of a layered approach to protect our industrial control systems and the performance of periodic audits and penetration testing, we cannot be certain that it will be successful in securing our information and data. There may be instances where we are exposed to malware, cyber-attacks or other unauthorized access or use of our information and data. Our exposure to this risk cannot be fully mitigated because of, among other things, the evolving nature of these threats and the effects and consequences of vulnerable third parties. The techniques used to obtain unauthorized access to or sabotage our systems are under continuous and rapid evolution, and as a result, we may be unable to detect efforts to disrupt our data and systems in advance. As such threats continue to evolve, we may be required to expend additional resources to continue to change or improve protective measures and to investigate and remediate any security vulnerabilities.

DEVELOPMENT OF NEW PROJECTS

Our ability to successfully develop future growth projects is subject to many risks and uncertainties, including the ability to generate sufficient free cash flows and secure adequate financing to fund the projects; obtaining and maintaining essential permits and approvals from governmental authorities; successful resolution of administrative and legal challenges against permits that have been issued to us and those permits that may be issued in the future (particularly in the case of the Copper World Project); obtaining surface rights agreements, if needed; construction, commissioning and ramp-up risks; scheduling and cost-overrun risks; developing and maintaining good relationships with neighbouring communities, local governments and other stakeholders; and political and social risk.

Significant amounts of capital will be required to construct and operate a new mine, such as the Copper World project. Our capital and operating cost assumptions may be affected by a variety of factors, including project scope changes, supply chain constraints, and general cost escalation common to mining projects globally. Factors such as changes to technical specifications, failure to enter into agreements with contractors or suppliers in a timely manner, including contracts in respect of project infrastructure, and shortages of capital, may also delay or prevent the completion of construction or commencement of production or require the expenditure of additional funds. Moreover, further delays may be caused by additional administrative and legal challenges to the permits for the Copper World project, which may impact our mine plan and development timelines.

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In addition, once a construction decision is made for a major capital project, construction costs and timelines can be impacted by various factors, many of which are beyond our control. These include, but are not limited to, weather conditions, ground conditions, performance of the mining fleet and availability of appropriate materials required for construction, availability and performance of contractors and suppliers, delivery and installation of equipment, design changes, accuracy of estimates, global capital cost inflation, local in-country inflation and availability of accommodations for the workforce.

Many major mining projects constructed in the last five to ten years have experienced cost overruns that substantially exceeded the capital cost estimated during the basic engineering phase of those projects, sometimes by as much as 50% or more. We have experienced the impacts of inflation on some of our smaller projects, such as the refurbishment of the New Britannia mill. There can be no certainty that there will be sufficient financing or other transactions available on acceptable terms to fund the construction of Copper World.

DEPLETION OF RESERVES

Subject to any future expansion or other development, production from existing operations at our mines will typically decline over the life of the mine and the risk of the extraction of mineral reserves becoming uneconomic increases. Additionally, upon the closure of our 777 mine in 2022, we have become more heavily reliant on a reduced number of operating projects. As a result, our ability to maintain our current production or increase our annual production of base and precious metals and generate revenues therefrom will depend significantly upon our ability to discover or acquire new deposits, bring new mines into production successfully and to expand mineral reserves at existing mines. Exploration and development of mineral properties involve significant financial risk. Very few properties that are explored are later developed into operating mines.

Whether a mineral deposit will be commercially viable depends on a number of factors, including the particular attributes of the deposit, such as size, grade and proximity to infrastructure; current and future expectations for metal prices; political and social stability; the cost of any required surface rights, particularly in the regions where we operate in Peru; obtaining and maintaining a social license to operate; and government regulation, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection, and the cost of any legal or administrative challenges related thereto. Even if we identify and acquire what we believe to be an economically viable ore body, several years may elapse until first production.

During this time, we may incur significant expenses to locate and establish mineral reserves, to develop metallurgical processes and to construct mining and processing facilities. We cannot provide assurance that our exploration or development efforts, including those at our Copper World project and our planned activities at Maria Reyna and Caballito, will result in any new commercial mining operations or yield new mineral reserves to replace or expand current mineral reserves.

PROCESSING, TAILINGS AND INSURANCE

Mining operations, including exploration, development and production of mineral deposits and tailings disposal, generally involve a high degree of risk and are subject to conditions and events beyond our control. Our operations are subject to all of the hazards and risks normally encountered in the mining industry, including adverse environmental conditions; industrial and environmental accidents; metallurgical and other processing problems; unusual or unexpected rock formations; ground or slope failures; structural cave-ins or slides; flooding or fires; seismic activity; rock bursts; equipment failures; and periodic interruptions due to weather conditions, as well as intentional acts by individuals or groups who intend to harm or disrupt our operations. These risks could result in the destruction of mines or processing facilities, the failure of tailings management facilities and damage to infrastructure, causing partial or complete shutdowns, personal injury or death, environmental or other damage to our properties or the properties of others, monetary losses and potential legal liability. Although we conduct extensive maintenance and monitoring and incur significant costs to maintain our mines, equipment and infrastructure, including our tailings management facilities, unanticipated failures or damage may occur that cause injuries, production loss or environmental pollution and resulting legal and economic liability, which may be significant. We may be at a heightened risk of such anticipated failures or damage in Manitoba, where some of our mines, equipment and infrastructure, including our tailings management facilities, were built over 80 years ago and, in the case of FFTIA, were based on the upstream construction design method.

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As part of our risk management process for tailings, Hudbay has established an Independent Peer Review Board and developed a Tailings Governance Charter to oversee the governance and management of our tailings facilities (see "Tailings Management Facilities").

Likewise, as processing facilities age or are re-commissioned, such as our Stall and New Britannia mills, the risk of unexpected shutdowns and reduced availability increases. Any inability to provide adequate feed to our processing facilities or maintain the availability of our processing facilities could adversely impact our profitability and impair the viability of our operations.

Our insurance will not cover all the potential risks associated with our operations. In addition, although certain risks are insurable to an extent, no assurance can be given that such insurance will continue to be available or that we will be able to maintain insurance to cover these risks at economically feasible premiums. Insurance against risks such as non-sudden or non-accidental emissions pollution due to exploration and production is not generally available to us on acceptable terms. Business interruption due to pandemics, strikes, riots or other similar disruptive events is generally not covered by business interruption insurance. Losses from uninsured events may cause us to incur significant costs.

RECLAMATION AND MINE CLOSURE COSTS

The ultimate timing and costs for future removal and site restoration could differ from current estimates. Our estimates for this future liability are subject to change based on updated closure plans, amendments to applicable laws and legislation, the nature of ongoing operations and technological innovations. In addition, regulatory authorities in various jurisdictions require us to post financial assurances to secure, in whole or in part, future reclamation and restoration obligations in such jurisdictions based on the approved closure plans. Changes to the amounts required, as well as the nature of the collateral to be provided, including as a result of updated closure plans, could significantly increase our costs, making the maintenance and development of existing and new mines less economically feasible. Any capital resources we utilize for this purpose will reduce the resources available for our other operations and commitments. Although we accrue for future closure costs based on current disturbance, we do not necessarily reserve cash for these obligations or otherwise fund these obligations in advance or immediately upon the commencement of closure. By way of example, to preserve flexibility for potential future operations, our closure plans for Flin Flon involved putting certain assets on care and maintenance for a period of time, thereby deferring certain closure costs. As a result, we will have significant cash expenditures when we close and restore our metallurgical complex in Flin Flon completely. The financial assurance we are required to provide in the meantime may increase in the future.

As of December 31, 2022, on an undiscounted basis, the total estimated environmental obligations related to our Flin Flon operations were approximately US$282.5 million.

RECRUITMENT, RETENTION AND LABOUR RELATIONS

The success of our operations and development projects depends in part on our ability to attract and retain geologists, engineers, metallurgists and other personnel with specialized skills and knowledge about the mining industry in the geographic areas in which we operate. The success of our operations in Snow Lake, Manitoba and southern Peru, in particular, depends in part on our ability to attract new skilled personnel to work for us in these geographic areas. Additionally, due to the closure of our 777 mine in 2022, the success of our operations in Snow Lake will also depend on our ability to continue to effectively train workers who have relocated from Flin Flon to Snow Lake.

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We also depend on a number of key management and operating personnel, and our success will largely depend on the efforts of these individuals and our ability to retain them. In addition, we also compete for the technical expertise and labour to find, develop, and operate such properties.

There can be no assurance that our business will not suffer from a work stoppage at any location where we operate. At Constancia, we have a minority union with less than 40% of our workforce unionized, and while we do not currently believe any labour discussions will result in a strike or work stoppage, there can be no assurance that such events will not occur from time to time. If a strike or work stoppage occurred at Constancia, while we believe we could continue operating, we would have a reduced workforce, and it may adversely affect our production efficiency.

In addition, from time to time, we may temporarily suspend or close certain of our operations, and we may incur significant labour and severance costs due to a suspension or closure. Further, temporary suspensions and closures may adversely affect our future access to skilled labour, as laid-off employees may seek employment elsewhere.

GOVERNMENTAL APPROVALS, PERMITTING AND ENVIRONMENTAL REGULATION

Our activities are subject to various laws and regulations governing prospecting, development, production, taxes, labour standards, occupational health, mine safety, toxic substances, protection of the environment and other matters. Government approvals and permits are currently required in connection with all of our operations, and further approvals and permits will be required in the future. Specifically, our ability to develop Phase I of the Copper World project in Arizona will continue to be dependent on, among other things, the receipt of all required state permits.

The success of our efforts to obtain and maintain permits is contingent upon many variables outside of our control, including the public consultation process undertaken by regulatory agencies. Obtaining and complying with governmental permits may increase costs and cause delays. There can be no assurance that all necessary permits will be obtained and, if obtained, that the time and costs involved will not exceed our estimates or that we will be able to maintain such permits as a result of, among other things, conditions imposed or legal challenges. To the extent such approvals are required and not obtained or maintained, our operations may be curtailed, or we may be prohibited from proceeding with planned exploration, development, or operation of mineral properties. Currently, the greatest risk of this occurring is in connection with our Copper World project in Arizona.

Environmental regulation continues to evolve, requiring stricter standards and enforcement, increased fines and penalties for non-compliance, and more stringent environmental assessments of proposed projects. There can be no assurance that existing or future environmental regulation will not materially adversely affect our business, financial condition and results of operations. There is contamination on properties that we own or owned or for which we have or have had care, management or control and, in some cases, on neighbouring properties, that may result in remediation requirements, fines and personal injury or natural resource damage claims, which could result in material costs. We could be held responsible for investigative-cleanup costs relating to presently unknown contamination on our properties. We may also acquire properties with environmental risks. Any investigative and remediation costs for known or unknown contamination or future releases of hazardous or toxic substances at our properties or related to our activities could be material.

Although we believe that our operations are currently carried out in material compliance with applicable laws and regulations, no assurance can be given that new laws and regulations will not be enacted or that existing laws and regulations will not be amended or applied in a manner that could have a material adverse effect on our business, financial condition and results of operations, including laws governing our tailings storage facilities. Any failure to comply with such laws and regulations may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. We may be required to compensate those suffering loss or damage relating to mining activities, and we may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations, which costs could be material.

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TRANSPORTATION AND INFRASTRUCTURE

At our mines in northern Manitoba and Saskatchewan, we are dependent upon a single railway and certain short-line rail networks to transport products from the Flin Flon metallurgical complex for further processing or to our customers. In Peru, concentrate production from the Constancia mine must travel approximately 450 kilometres by road to the Port of Matarani. The method and route of ore and concentrate transportation to our processing facilities and for sale give rise to a number of risks, including road safety and community and environmental risks. See "Energy and Other Consumable Prices and Availability" above.

We may have similar dependencies at future mining and processing operations. Inability to secure reliable and cost-effective transportation and other infrastructure, or disruption of these services due to community or political protests (as was the case with community protests in Peru), weather-related problems, strikes, lock-outs or other events could have a material adverse effect on our operations. If transportation for our products is or becomes unavailable, our ability to market our products could suffer. In addition, increases in our transportation costs, relative to our competitors, could make our operations less competitive and could adversely affect our profitability.

CLIMATE CHANGE

Governments and regulatory bodies at the international, national, regional and local levels have introduced or may introduce legislative changes to respond to the potential impacts of climate change, and it appears there is an increased commitment by the Canadian federal government to do so. Additional government actions in different jurisdictions to regulate (and price) climate change related measures, including regulations on carbon emissions and energy and water use to achieve net-zero emissions by 2050, as well as the achievement of our own internal greenhouse gas reduction targets, could increase the direct and indirect costs of our operations and may have a material adverse effect on our business. Potentially, additional rules or regulations in the United States at the state or federal level may be forthcoming with respect to greenhouse gas emissions and/or "cap and trade" legislation and could impact the economics of our future projects. If metal consuming economies implement carbon border adjustments, the relative competitiveness of our operations and the direct customer for our concentrates could be impacted.

In addition, there is increased investor attention on climate change, sustainability and environmental, social and governance ("ESG") issues more generally. Notwithstanding our commitment to conducting our business in a socially responsible manner and to adopt a greenhouse gas reduction strategy, to the extent mining companies fall out of favour with some investors due to the industry's real or perceived impacts on climate change and we are unable to achieve our greenhouse gas reduction targets, this could negatively affect our shareholder base and access to capital.

In addition, our operations are subject to the physical risks of climate change, which may include:

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Despite efforts to anticipate and mitigate the hazards and risks of climate change, the above risks and other factors may impact production forecasts, results of operations, financial condition, corporate strategy and share price.

PUBLIC HEALTH THREATS

An outbreak of infectious disease, a pandemic or a similar public health threat (such as COVID-19 and any variants thereto), or a fear of any of the foregoing, could cause operating, supply chain and project development stoppages and delays and disruptions, labour shortages, reduced product demand, travel and shipping disruption and shutdowns (including as a result of government regulation and prevention measures). The possibility of a global recession arising from a public health threat and attempts to control it may impact metals demand and prices and could reduce available liquidity options. As a result, we may experience production below estimated levels, increased costs or significantly reduced revenue. This can lead to a material adverse effect on the financial performance, liquidity and results of operations.

TITLE TO MINERAL PROPERTIES

Although we believe we have taken reasonable measures to ensure valid title to our properties, there can be no assurance that title to any of our properties will not be challenged or impaired. Third parties may have valid claims underlying portions of our interests, including prior unregistered liens, agreements, transfers or claims, and aboriginal land claims, and title may be affected by, among other things, undetected defects or unforeseen changes to the boundaries of our properties by governmental authorities.

In addition, a portion of the Copper World project and certain other of our mining properties in the United States are located on unpatented mine and millsite claims located on U.S. federal public lands. The right to use such claims is granted under the United States General Mining Law of 1872. Unpatented mining claims are unique property interests in the United States, and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented mining claims is often uncertain. While we believe there are no material defects in title of the applicable portion of the Copper World project lands, there can be no assurance that all of our unpatented mine and millsite claims (including those forming part of the Copper World project) will remain valid and available for development.

ANTI-BRIBERY LEGISLATION

We are subject to the U.S. Foreign Corrupt Practices Act ("FCPA"), which prohibits corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting controls. We are also subject to Canada's Corruption of Foreign Public Officials Act ("CFPOA"), which prohibits corporations and individuals from giving or offering to give a benefit of any kind to a foreign public official, or any other person for the benefit of the foreign public official, where the ultimate purpose is to obtain or retain a business advantage. Our Peru-based operations are also subject to local anti-bribery and anti-corruption laws including without limitation Law No. 30424, which imposes criminal liability for local and foreign bribery, money laundering, terrorism financing and related crimes, and Legislative Decree No. 1385 which sanctions private corruption.

Our international activities, including our Constancia mine and exploration activities elsewhere in South America, create the risk of unauthorized payments or offers of payments by our employees, consultants or agents to foreign persons. While we have implemented safeguards that are intended to prevent these practices, our existing safeguards and any future improvements to such safeguards may not be completely effective, and our employees, consultants or agents may engage in conduct for which we might be held responsible. Any failure to comply with the FCPA, the CFPOA and applicable laws and regulations in Peru and other foreign jurisdictions could result in substantial penalties or restrictions on our ability to conduct business in certain foreign jurisdictions, which may have a material adverse impact on us and our share price.

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MINERAL RESOURCE AND RESERVE ESTIMATES

There are numerous uncertainties inherent in estimating mineral reserves and mineral resources and the future cash flows that might be derived from their production. Estimates of mineral reserves and mineral resources, and future cash flows necessarily depend upon a number of variable factors and assumptions, including, among other things, ability to achieve anticipated tonnages and grade, geological and mining conditions that may not be fully identified by available exploration data or that may differ from experience in current operations, historical production from the area compared with production from other producing areas, the assumed effects of regulation by governmental agencies and assumptions concerning metals prices, exchange rates, interest rates, inflation, operating costs, development and maintenance costs, reclamation costs, and the availability and cost of labour, equipment, raw materials and other services required to mine and refine the ore. In addition, there can be no assurance that mineral resources will be converted into mineral reserves and that mineral recoveries in small scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production. This is heightened in the case of Lalor, which has substantial inferred mineral resources. For these reasons, estimates of our mineral reserves and mineral resources in our public disclosure, and any estimates of future cash flows may vary substantially from our actual results.

Failure to achieve production, cost or life-of-mine estimates could have an adverse impact on our future cash flows, profitability, results of operations and financial condition. Likewise, the failure to produce marketable mineral concentrates from our operations, or the presence of deleterious elements in our mineral concentrate products, may adversely impact our ability to generate revenues from our production. We are at an increased risk of this at our Constancia operations, where the presence of lead and zinc in certain parts of the ore body requires us to blend production in order to sell marketable copper concentrate. Our actual production, costs and the productive life of a mine may vary from estimates for a variety of reasons, including actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics, short-term operating factors relating to the mineral reserves, such as the need for sequential development of ore bodies and the processing of new or different ore grades, revisions to mine plans, risks and hazards relating to mining and availability of and cost of labour and materials. As a mine matures, the risks that may cause actual production to vary from previous estimates increases and the extraction of mineral reserves may become uneconomic.

There are a number of potential indicators that could trigger non-financial asset impairment or reversal of impairment in the future. One such potential indicator is a change to the life of mine ("LOM") plan for an asset. LOM plans incorporate management's best estimates of key assumptions which include future commodity prices, the value of mineral resources not included in the LOM plan, production based on current estimates of recoverable reserves, discount rates, future operating and capital costs and future foreign exchange rates.

REPUTATIONAL RISK

As a result of the increased usage and reach of social media and other internet platforms used to create and publish user-generated content, companies today are at much greater risk of losing control over how they are perceived in the marketplace. Publicity adverse to us, including as a result of such user-generated content, could result from the actual or perceived occurrence of any number of events (for example, with respect to the handling of environmental matters, community relations or litigation), whether true or not. Although Hudbay seeks to mitigate this risk through a number of measures, there can be no assurance that the Company's reputation will not be harmed. Reputation loss may lead to increased challenges in developing and maintaining community relations and decreased investor confidence and could ultimately have a material adverse impact on Hudbay.

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POST-RETIREMENT OBLIGATIONS

We have assets in defined benefit pension plans which accumulate through employer contributions and returns on investments made by the plans. The returns on investments are subject to fluctuations depending upon market conditions and we are responsible for funding any shortfall of pension assets compared to our pension obligations under these plans. Our liabilities under defined benefit pension plans are estimated based on actuarial and other assumptions. These assumptions may prove to be incorrect and may change over time and the effect of these changes can be material. We also have substantial commitments for post-retirement health and other benefits for which no specific funding arrangements are in place.

CREDIT RISK

We mitigate credit risk relating to customers of our copper, zinc and precious metals by carrying out credit evaluations on our customers and making a significant portion of sales on the basis of financial letters of credit. If customers default on the credit extended to them our liquidity and cash flows could be materially adversely affected. Further, we may enter into offsetting derivative contracts for which we do not obtain collateral or other security. In the event of non-performance by counterparties in connection with such derivative contracts, we are further exposed to credit risk.

DIVIDEND PAYMENTS

The Senior Unsecured Notes impose certain restrictions on our ability to make restricted payments, including common dividends. Our ability to make future dividend payments will be subject to compliance with the covenants contained in our debt agreements along with other liquidity considerations. At all times, the declaration of dividends is subject to the discretion of our Board of Directors and our Board of Directors may determine to cease our past practice of making dividend payments at any time.

MARKET PRICE OF COMMON SHARES

Our share price may be significantly affected by changes in commodity prices or in our financial condition or results of operations. Other factors unrelated to our performance that may have an effect on the price of our common shares include a lessening in trading volume, shareholder activism and general market interest in our securities and the size of our public float. As a result of any of these factors, the market price of our common shares may fall and otherwise may not accurately reflect our long-term value. Securities class action litigation has been brought against companies following periods of volatility in the market price of their securities (including in the context of shareholder activism campaigns) and issuers listed on U.S. stock exchanges (as we are), in particular, have been subject to increasing shareholder litigation. We may in the future be the target of similar litigation.

GROWTH STRATEGY AND ACQUISITION INTEGRATION

We evaluate growth opportunities and continue to consider the acquisition and disposition of exploration, development and operating properties and other mineral assets to achieve our strategy. We, from time to time, engage in discussions in respect of both acquisitions and dispositions, and other business opportunities, but there can be no assurance that any such discussions will result in a successfully completed transaction. In addition, in the event of any such acquisition, there can be no assurance that the acquired business will be successfully integrated into our current operations.

"PASSIVE FOREIGN INVESTMENT COMPANY" UNDER THE U.S. INTERNAL REVENUE CODE

We do not believe we are a "passive foreign investment company" under Section 1297(a) of the U.S. Internal Revenue Code ("PFIC") for the current taxable year. If we derive 75% or more of our gross income from certain types of ''passive'' income (such as rents, royalties, interest, dividends, and other similar types of income), or if the quarterly average value during a taxable year of our ''passive assets'' (generally, assets that generate passive income) is 50% or more of the average value of all assets held by us, then the PFIC rules may apply to U.S. taxpayers that hold our common shares (regardless of the extent of their ownership interest in us). Several ''look-through'' rules apply in determining PFIC status, including that a 25% or more owned subsidiary corporation's income and assets will be deemed those of its parent for purposes of the PFIC rules. Thus, a sufficiently active subsidiary may allow a parent corporation to avoid PFIC status, depending on the circumstances. Whether we are considered a PFIC for a specific taxable year is a factual determination that must be made annually at the end of that taxable year. As a result, our status in the current and future years will depend on the composition our gross income, our assets and activities in those years and our market capitalization as determined on the end of each calendar quarter, and there can be no assurance that we will or will not be considered a PFIC for any taxable year.

2022 ANNUAL INFORMATION FORM  |  44

If we are classified as a PFIC during any portion of a U.S. taxpayer's holding period for our common shares, as determined for U.S. federal income tax purposes, such taxpayer would be subject to adverse U.S. federal income tax consequences under the PFIC rules. In such case (except as discussed below), any excess distribution (generally a distribution in excess of 125% of the average distribution over a three- year period or shorter holding period for our common shares) and realized gain on the sale, exchange or other disposition of our common shares will be treated as ordinary income and generally will be subject to tax as if (a) the excess distribution or gain had been realized rateably over the U.S. taxpayer's holding period, (b) the amount deemed realized in each year had been subject to tax in each such year at the highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a PFIC, which would generally be subject to tax at the U.S. taxpayer's regular ordinary income rate for the current year and would not be subject to the interest charge discussed in (c) below), and (c) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. Where a company that is a PFIC meets certain reporting requirements, a U.S. taxpayer may be able to mitigate certain adverse PFIC consequences described above by making a "qualified electing fund" ("QEF") election to be taxed currently on its proportionate share of the PFIC's ordinary income and net capital gains. If we determine that we are a PFIC for any taxable year, we will determine at that time whether we will comply with the necessary accounting and record keeping requirements that would allow a U.S. taxpayer to make a QEF election with respect to us. We have no obligation to determine whether we are a PFIC and may not make any such determination.

DESCRIPTION OF CAPITAL STRUCTURE

COMMON SHARES

We are authorized to issue an unlimited number of common shares, of which there were 262,047,562 common shares issued and outstanding as of March 29, 2023 (being the final trading day prior to the date of this AIF).

Holders of common shares are entitled to receive notice of any meetings of our shareholders, to attend and to cast one vote per common share at all such meetings. Holders of common shares do not have cumulative voting rights with respect to the election of directors and, accordingly, holders of a majority of the common shares entitled to vote in any election of directors may elect all directors standing for election. Holders of common shares are entitled to receive, on a pro-rata basis, such dividends, if any, as and when declared by our board of directors at its discretion from funds legally available therefor. Upon our liquidation, dissolution or winding up, holders of common shares are entitled to receive, on a pro-rata basis, our net assets after payment of debts and other liabilities, in each case, subject to the rights, privileges, restrictions and conditions attaching to any other series or class of shares ranking senior in priority to or on a pro-rata basis with the holders of common shares with respect to dividends or liquidation. The common shares do not carry any pre-emptive, subscription, redemption or conversion rights, nor do they contain any sinking or purchase fund provisions.

PREFERENCE SHARES

We are authorized to issue an unlimited number of preference shares, none of which were issued and outstanding as of March 29, 2023 (being the final trading day prior to the date of this AIF).

Preference shares may from time to time be issued and the Board of Directors may fix the designation, rights, privileges, restrictions and conditions attaching to any series of preference shares. Preference shares shall be entitled to preference over the common shares and over any other of our shares ranking junior to the preference shares with respect to the payment of dividends and the distribution of assets or return of capital in the event of our liquidation, dissolution or winding up or any other return of capital or distribution of our assets among our shareholders for the purpose of winding up our affairs. Preference shares may be convertible into common shares at such rate and upon such basis as the Board of Directors in their discretion may determine. No holder of preference shares will be entitled to receive notice of, attend, be represented at or vote at any annual or special meeting, unless the meeting is convened to consider our winding up, amalgamation or the sale of all or substantially all of our assets, in which case each holder of preference shares will be entitled to one vote in respect of each preference share held. Holders of preference shares will not be entitled to vote or have rights of dissent in respect of any resolution to, among other things, amend our articles to increase or decrease the maximum number of authorized preference shares, increase or decrease the maximum number of any class of shares having rights or privileges equal or superior to the preference shares, exchange, reclassify or cancel preference shares, or create a new class of shares equal to or superior to the preference shares.

2022 ANNUAL INFORMATION FORM  |  45

SENIOR UNSECURED NOTES

On September 23, 2020, we issued $600 million aggregate principal amount of 6.125% senior unsecured notes due 2029 (the "2029 Notes"). The proceeds of this offering were used to redeem $400 million of our outstanding 7.250% senior unsecured notes due 2023 (the "2023 Redeemed Notes") and to pay any related premium, costs, and expenses for general corporate purposes. The 2029 Notes have extended maturity dates, significantly reduced interest costs and a more flexible covenant structure as compared to the 2023 Redeemed Notes.

On March 8, 2021 we issued $600 million aggregate principal amount of 4.50% senior unsecured notes due 2026 (the "2026 Notes"). The proceeds of this offering were used to redeem $600 million of our outstanding 7.625% senior unsecured notes due 2025 (the "2025 Redeemed Notes"). The 2026 Notes have extended maturity dates, significantly reduced interest costs and a more flexible covenant structure as compared to the 2025 Redeemed Notes.

The 2026 Notes and the 2029 Notes (together, the "Senior Unsecured Notes") are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by substantially all of our existing and future subsidiaries other than our subsidiaries associated with the Rosemont and Mason projects and certain newly formed or acquired subsidiaries that primarily hold or may develop non-producing mineral assets that are in the pre-construction phase of development. The Senior Unsecured Notes contain certain customary covenants and restrictions for a financing instrument of this type. Although there are no maintenance covenants with respect to our financial performance, there are transaction-based restrictive covenants that limit our ability to incur additional indebtedness and make restricted payments in certain circumstances.

On or after April 1, 2023 (in the case of the 2026 Notes), or April 1, 2024 (in the case of the 2029 Notes) we may redeem the Senior Unsecured Notes, at our option in whole or in part, at the redemption prices (expressed as percentages of the principal amount of such series of the Senior Unsecured Notes to be redeemed) set forth below, plus accrued and unpaid interest to the applicable date of redemption, if redeemed during the twelve-month period beginning on April 1 of each of the years indicated below:

2022 ANNUAL INFORMATION FORM  |  46

2026 Notes

2029 Notes

Year

Percentage

Year

Percentage

2023

102.250%

2024

103.063%

2024

101.125%

2025

102.042%

2025 and thereafter

100.000%

2026

101.021%

 

 

2027 and thereafter

100.000%

CREDIT RATINGS

The following table sets out the latest credit ratings received from Standard and Poor's Ratings Services ("S&P"), Moody's Investors Services ("Moody's"), and from Fitch Ratings ("Fitch").

 

Credit Rating Organization

S&P

Moody's

Fitch

Corporate Credit Rating

B

B1

BB-

Senior Unsecured Notes

B

B2

BB-

S&P

In March 2022, S&P affirmed its issuer credit and issue-level ratings of 'B' for Hudbay, affirmed its '3' recovery rating and affirmed its outlook of stable.

S&P's corporate credit rating (or issuer rating) is a forward-looking opinion about an obligor's overall creditworthiness in order to pay its financial obligations. This opinion focuses on the obligor's capacity and willingness to meet its financial commitments as they come due. It does not apply to any specific financial obligation.

S&P's corporate credit ratings are on a rating scale that ranges from AAA (highest quality) to D (lowest quality). The ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. According to S&P's rating system, an issuer rated 'B' currently has the capacity to meet its financial commitments, but adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitments. A 'B' rating is the sixth highest of ten categories in S&P's rating system.

Regarding the issue-level rating, according to S&P's rating system, S&P's issue credit ratings are based, in varying degrees, on its analysis of the following considerations: (i) likelihood of payment; (ii) nature of and provisions of the financial obligation; and (iii) protection afforded by, and relative position of, the obligation in the event of bankruptcy or reorganization. S&P's issue-level ratings are similarly on a rating scale that ranges from AAA (highest quality) to D (lowest quality), with the ratings from 'AA' to 'CCC' having plus (+) or minus (-) modifiers. According to S&P's rating system, an issue rated 'B' indicates that the obligor has the capacity to meet its financial commitments on the obligation, but adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitments on the obligation. A 'B' rating is the sixth highest of ten categories in S&P's rating system.

S&P's recovery ratings focus solely on expected recovery in the event of a payment default of a specific issue, and utilize a numerical scale that runs from 1+ to 6. The recovery rating is not linked to, or limited by, the corporate credit rating or any other rating, and provides a specific opinion about the expected recovery. A '3' recovery rating indicates S&P's expectations of meaningful (50%-70%) recovery in the event of default.

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Moody's

In July 2022, Moody's upgraded our corporate family rating to 'B1' (from 'B2'), our unsecured notes to 'B2' (from 'B3'), and our probability of default rating to 'B1-PD' (from 'B2-PD'). Moody's reaffirmed our speculative grade liquidity rating of 'SGL-2', and our Stable outlook.

Moody's issuer and issue-level credit ratings are on a rating scale that ranges from Aaa (highest quality) to C (lowest quality). Moody's appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks on the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. According to Moody's credit rating system, obligations rated 'B' are considered speculative and are subject to higher credit risk. A 'B' rating is the sixth highest of nine categories in Moody's rating system.

Moody's speculative grade liquidity ratings are on a rating scale that ranges from SGL-1 (best liquidity) to SGL-4 (weakest liquidity). According to Moody's speculative grade liquidity rating system, an issuer with an SGL-2 rating possesses good liquidity and is likely to meet its obligations over the coming 12 months through internal resources but may rely on external sources of committed financing. According to the system, the issuer's ability to access committed sources of financing is highly likely based on Moody's evaluation of near-term covenant compliance.

Moody's corporate family ratings are long-term ratings that reflect the likelihood of a default on a corporate family's contractually promised payments and the expected financial loss suffered in the event of default. A corporate family rating is assigned to a corporate family as if it had a single class of debt and a single consolidated legal entity structure.

A probability of default rating is a corporate family-level opinion of the relative likelihood that any entity within a corporate family will default on one or more of its long-term debt obligations.

Moody's long-term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of a default on contractually promised payments and the expected financial loss suffered in the event of default.

Moody's speculative grade liquidity ratings are opinions of an issuer's relative ability to generate cash from internal resources and the availability of external sources of committed financing, in relation to its cash obligations over the coming 12 months.

Fitch

In March 2022, Fitch Ratings upgraded Hudbay's Long-Term Issuer Default Rating to 'BB-' from 'B+' and affirmed our Rating Outlook as Stable. Fitch also upgraded our rating to 'BB-'/'RR4' from 'B+'/'RR4' for our Senior Unsecured Notes, being the 2029 Notes issued in September 2020 and the 2026 Notes issued in March 2021.

Fitch's credit ratings relating to issuers are an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Credit ratings relating to securities and obligations of an issuer can include a recovery expectation. Credit ratings are used by investors as indications of the likelihood of receiving the money owed to them in accordance with the terms on which they invested.

Fitch defines "investment grade" and "speculative grade" as shorthand to describe the categories 'AAA' to 'BBB' (investment grade) and 'BB' to 'D' (speculative grade), respectively, in-line with general industry practice. Investment grade categories indicate relatively low to moderate credit risk, while ratings in the speculative categories either signal a higher level of credit risk or that a default has already occurred. Credit ratings express risk in relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss.

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Fitch's credit ratings do not directly address any risk other than credit risk. In particular, ratings do not deal with the risk of a market value loss on a rated security due to changes in interest rates, liquidity and other market considerations. However, in terms of payment obligation on the rated liability, market risk may be considered to the extent that it influences the ability of an issuer to pay upon a commitment. Ratings nonetheless do not reflect market risk to the extent that they influence the size or other conditionality of the obligation to pay upon a commitment (for example, in the case of index-linked bonds).

Fitch Long-Term issuer default ratings, as well as issue-level ratings, are on a rating scale that ranges from AAA (highest quality) to C (lowest quality). Within rating categories, Fitch may use modifiers. The modifiers "+" or "-" may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to 'AAA' ratings and ratings below the 'CCC' category.

The instrument rating for an issuer's debt (whether secured, senior unsecured, or subordinated) is notched from the issuer's or guarantor's IDR. Rated entities with IDRs of 'BB–' and above usually have senior unsecured instrument ratings at the same level as the IDR, reflecting average (around 40%) rates of recovery across all sectors. For entities rated 'B+' and below, Fitch undertakes a 'bespoke' analysis of recovery upon default for each instrument. The resulting instrument rating reflects the Recovery Rating ("RR") (graded from 'RR1' to 'RR6'), and is notched from the IDR accordingly. Fitch divides the spectrum of recovery percentages from 0% to 100% within the six categories of RRs.

The credit ratings and stability ratings we received from S&P, Moody's and Fitch are not a recommendation to buy, sell or hold our securities and may be subject to revision or withdrawal at any time by any such credit rating organization. S&P, Moody's and Fitch each charged us a fee in respect of the credit ratings service they provided.

DIVIDENDS

Since September 2013, we have paid a semi-annual dividend in March and September of C$0.01 per share. At all times, the declaration of dividends is subject to the discretion of our Board of Directors.

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MARKET FOR SECURITIES

PRICE RANGE AND TRADING VOLUME

Our common shares are listed on the TSX and the NYSE under the symbol "HBM". The volume of trading and the high and low trading price of our common shares on the TSX and NYSE during the periods indicated are set forth in the following table.

Trading of Common Shares on TSX

Trading of Common Shares on NYSE

Period
(2022)

High
(C$)

Low
(C$)

Volume
(common shares)

High
($)

Low
($)

Volume
(common shares)

January

10.47

8.67

21,870,183

8.39

6.79

23,614,451

February

10.68

9.03

22,072,794

8.44

7.04

25,425,371

March

11.17

9.26

30,176,067

8.75

7.23

32,822,056

April

10.28

7.65

26,287,251

8.23

5.98

27,429,455

May

8.34

6.48

27,669,811

6.52

4.96

33,408,775

June

7.82

5.05

24,626,442

6.20

3.91

30,668,801

July

5.50

4.07

22,657,830

4.24

3.08

35,344,726

August

6.49

4.40

25,491,339

5.02

3.41

35,294,902

September

6.15

5.04

23,109,697

4.74

3.70

22,999,758

October

6.22

5.00

30,239,496

4.57

3.62

30,108,787

November

7.69

5.24

35,945,697

5.74

3.88

41,295,890

December

7.92

6.72

24,805,182

5.88

4.92

45,016,990

On March 29, 2023 (being the final trading day prior to the date of this AIF), the closing prices of our common shares on the TSX and NYSE were C$6.85 and $5.04 per common share, respectively.

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DIRECTORS AND OFFICERS

BOARD OF DIRECTORS

Carol T. Banducci
Mississauga, Ontario,
Canada		 Director since: May 4, 2017
Committee membership:
• Audit Committee (Chair)
• Compensation and Human
       Resources ("CHR") Committee		 Ms. Banducci retired as Executive Vice President and Chief Financial Officer of IAMGOLD Corporation on March 31, 2021. She joined IAMGOLD in July 2007, and, as EVP and CFO she was involved with developing and driving strategy and capital allocation and oversaw all aspects of the company's finance, information technology and investor relations functions. She is currently a corporate director.
Igor Gonzales
London, England		 Director since: July 31, 2013
Committee memberships:
• Environmental, Health,
       Safety and Sustainability
       ("EHSS") Committee
• Technical Committee		 Mr. Gonzales has more than 30 years of experience in the mining industry. He joined Appian Capital as Chief Operating Officer in June 2020 following over three years as President and CEO of Sierra Metals. Prior to that, he was with Compañia de Minas Buenaventura S.A.A. from November 2014 to May 2017, serving as Vice President of Operations and Barrick Gold Corporation from 1998 to 2013, serving as President of Barrick Gold South America for seven years, and later as Executive Vice President and Chief Operating Officer.
Richard Howes
Chelmsford, Ontario, Canada		 Director since: May 7, 2019
Committee memberships:
• CHR Committee
• Technical Committee		 Mr. Howes was appointed President and CEO of Reunion Gold Corporation, effective January 1, 2023. Mr. Howes retired as President and Chief Executive Officer of Dundee Precious Metals Inc. in May 2020. He joined Dundee Precious Metals in early 2009 as General Manager and Executive Director. In 2010 he was appointed Executive Vice President and Chief Operating Officer and in 2013 was appointed Chief Executive Officer. He is a Professional Mining Engineer with extensive open pit and underground experience and executive management and board experience.
Sarah B. Kavanagh
Toronto, Ontario, Canada		 Director since: July 31, 2013
Committee memberships:
• EHSS Committee (Chair)
• Corporate Governance and
       Nominating ("CGN") Committee		 Ms. Kavanagh is a corporate director and a former Commissioner at the Ontario Securities Commission, where she served from June 2011 through May 2016. Between 1999 and 2010, Ms. Kavanagh served in a number of senior investment banking roles at Scotia Capital Inc. She has also held senior financial positions in the corporate sector.
Carin S. Knickel
Golden, Colorado, United States		 Director since: May 22, 2015
Committee memberships:
• CHR Committee (Chair)
• CGN Committee		 Ms. Knickel served as Corporate Vice President, Global Human Resources of ConocoPhillips from 2003 until her retirement in May 2012. She joined ConocoPhillips in 1979 and held various senior operating positions in wholesale marketing, refining, transportation and commercial trading as well as leadership roles in planning and business development throughout her career in the U.S. and Europe. She is currently a corporate director.
Peter Kukielski
Toronto, Ontario, Canada		 Director since: May 7, 2019
Committee memberships:
• None		 Mr. Kukielski was appointed President and Chief Executive Officer in January 2020 after serving as Interim Chief Executive Officer since July 2019. Mr. Kukielski was President and Chief Executive Officer of Nevsun Resources Ltd. from May 2017 until its acquisition in December 2018. From 2013 to 2017, Mr. Kukielski was Chief Executive Officer of Anemka Resources and from 2008 to 2013, he was the Chief Executive, Mining for ArcelorMittal. From 2006 to 2008, Mr. Kukielski was the Chief Operating Officer of Teck Resources. From 2001 to 2006, he was with Falconbridge (originally Noranda) in senior roles, including Chief Operating Officer.

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George E. Lafond
Victoria, British Columbia, Canada		 Director since: May 10, 2022
Committee memberships:
• EHSS Committee
• CGN Committee		 Mr. Lafond was appointed to Hudbay's Board of Directors in May 2022 and is currently an independent strategic advisor. He is a citizen of the Saskatchewan Muskeg Lake Cree Nation in Treaty Six Territory and was appointed by the Government of Canada as the Treaty Commissioner of Saskatchewan. Mr. Lafond currently advises the Saskatchewan Indian Institute of Technology. In 2016, he received the Saskatchewan Order of Merit and in 2022, he received Queen Elizabeth II's Platinum Jubilee Medal.
Stephen A. Lang
Columbia, Missouri, United States		 Director since: October 3, 2019
Committee memberships:
• CHR Committee
• Technical Committee		 Mr. Lang was appointed Chair of Hudbay's Board of Directors in October 2019. He was Chief Executive Officer of Centerra Gold Inc. from 2008 to 2012 and served as Centerra's Board Chair from 2012 to 2019. Mr. Lang has also held positions at Stillwater Mining Company, Barrick Gold Corporation, Rio Algom Limited and Kinross Mining Corporation. He is currently a corporate director.
Daniel Muñiz Quintanilla
Madrid, Spain		 Director since: May 7, 2019
Committee memberships:
• Audit Committee
• EHSS Committee
 		 Mr. Muñiz Quintanilla was a member of the Board of Directors and Executive Vice President of Southern Copper, previously acted as Executive President & Chief Executive Officer of Industrial Minera Mexico S.A. de C.V. and also acted as Chief Financial Officer of Grupo Mexico. He is currently a corporate director.
Colin Osborne
Burlington, Ontario, Canada		 Director since: May 2018
Committee memberships:
• Technical Committee (Chair)
• EHSS Committee		 Mr. Osborne is President and Chief Executive Officer of Samuel Son & Co. Limited, a $5 billion company focused on providing metal solutions to a variety of end markets. He joined Samuel Son & Co. in August 2015 and was recently elected to its board of directors. From October 2007 through June 2015, Mr. Osborne was Chief Executive Officer and President of Vicwest Inc., and prior to that he was Chief Operating Officer at Stelco Inc. where his duties included overseeing mining operations.
David S. Smith
West Vancouver, British Columbia Canada		 Director since: May 7, 2019
Committee memberships:
• CGN Committee (Chair)
• Audit Committee		 Mr. Smith served as the Chief Financial Officer and Executive Vice President of Finning International Inc. from 2009 to 2014. Prior to joining Finning, Mr. Smith served as Chief Financial Officer and Vice President of Ballard Power Systems, Inc. from 2002 to 2009. Previously, he spent 16 years with Placer Dome Inc. (now Barrick) in various senior positions and 4 years with PriceWaterhouseCoopers. He is currently a corporate director.

The term of office for each director of the Company will expire upon the completion of the next annual meeting of shareholders of the Company.

Our executive officers as at the date of this AIF are listed below.

EXECUTIVE OFFICERS

Peter Kukielski
Toronto, Ontario, Canada
 
President and Chief Executive Officer		 For biographical information for Mr. Kukielski, refer above to the heading "Board of Directors".
Eugene Lei
Toronto, Ontario, Canada
 
Chief Financial Officer		 Mr. Lei was appointed Chief Financial Officer in October 2022 and is responsible for providing strategic financial and capital markets leadership to the Company. Since joining Hudbay in 2012, Mr. Lei has progressed through several senior management roles and executive responsibilities, most recently serving as Senior Vice President, Corporate Development and Strategy. Prior to joining Hudbay, Mr. Lei was Managing Director, Mining at Macquarie Capital Markets Canada, working as an advisor on global and domestic mergers and acquisitions and equity capital markets offerings.

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André Lauzon
Toronto, Ontario, Canada
 
Chief Operating Officer		 Mr. Lauzon was appointed Chief Operating Officer on January 4, 2022. Mr. Lauzon was previously Vice President, Arizona Business Unit from 2018 to 2021, following almost two years in the role of Vice President, Manitoba Business Unit. Mr. Lauzon has experience with both open pit and underground mines. He has worked in and supported projects and mines in a wide range of challenging locations and conditions, including Voisey's Bay in Newfoundland, Turkey, Alaska, Australia, Indonesia, Brazil, northern Ontario and the United States.
Patrick Donnelly
Oakville, Ontario, Canada
 
Senior Vice President, Legal and Organizational Effectiveness		 Prior to being appointed to his current role as Senior Vice President, Legal and Organizational Effectiveness effective May 30, 2022, Mr. Donnelly served as Vice President, General Counsel for eight years. Prior to joining Hudbay in 2008, Mr. Donnelly practiced corporate and securities law at Osler, Hoskin & Harcourt LLP.
 
Javier Del Rio
Tucson, Arizona, United States
 
Senior Vice President, South America and USA

Mr. Del Rio was appointed Senior Vice President, South America and USA in March 2023. Mr. Del Rio previously served as Vice President, South America and USA, following over five years as Vice President, South America Business Unit from 2017 to 2022. Mr. Del Rio also previously served as Executive Director, Business Development – South America from 2010 to 2017. Mr. Del Rio has over 30 years of mining experience and has held management positions in business planning, optimization process, and business analysis with Newmont Mining Corporation in the United States and Peru.
Olivier Tavchandjian
Canmore, Alberta, Canada
 
Senior Vice President, Exploration and Technical Services

Mr. Tavchandjian was appointed Senior Vice President, Exploration and Technical Services in March 2023. Mr. Tavchandjian joined Hudbay in September 2017 and prior to his current role, served as Hudbay’s Vice President, Exploration and Technical Services. Mr. Tavchandjian brings 30 years of experience in mineral resource and mineral reserve estimation and reporting, exploration, strategic and life of mine planning, technical support to operations and corporate development. Prior to joining Hudbay, Mr. Tavchandjian was VP, Resource Evaluation for Anemka Resources, the mining portfolio company of a large private investment firm. 
Peter Adamek
Toronto, Ontario, Canada
 
Vice President, Finance		 Mr. Adamek was appointed Vice President, Finance in May 2019, responsible for overseeing financial reporting and information systems and technology. Since joining Hudbay in 2010, Mr. Adamek has held several progressively senior management roles, most recently as CFO for the Arizona Business Unit. Mr. Adamek has over 20 years of experience in a broad range of fields including corporate finance, capital markets, equity research and public audit. Prior to joining Hudbay, Mr. Adamek worked in equity research with RBC Capital Markets.
Candace Brûlé
Pickering, Ontario, Canada
 
Vice President, Investor Relations		 Ms. Brûlé was appointed Vice President, Investor Relations in November 2021. She joined Hudbay in 2010 with a focus on corporate development and worked closely with the operational and technical teams to execute the acquisition of Constancia. Ms. Brûlé has over 15 years of experience in capital markets, corporate development and investor relations in the mining sector. She started her career in global mining investment banking at Macquarie Capital Markets.
Robert Carter
Flin Flon, Manitoba, Canada
 
Vice President, Manitoba Business Unit		 Mr. Carter was appointed Vice President, Manitoba Business Unit in April 2022. Prior to his current role, Mr. Carter served as the General Manager of our Manitoba mines since 2018 and previously held various other positions with the Company, including Manager of the Lalor mine in Manitoba and Director of Business Development and Technical Services in our corporate office. He has nearly 25 years of mining industry experience in technical, operational and senior leadership roles.
David Clarry
Toronto, Ontario, Canada
 
Vice President, Corporate Social Responsibility		 Mr. Clarry joined Hudbay in 2011. From 2009 to 2011 he worked through his own firm, Innotain Inc., providing consulting services to the mining and energy industries. Prior to that, he spent 18 years with Hatch Ltd., an international engineering and consulting firm, ultimately serving in the role of Director - Climate Change Initiatives.
Jon Douglas
Toronto, Ontario, Canada
 
Vice President and Treasurer		 Mr. Douglas joined Hudbay in 2015. Prior to joining Hudbay, he was Chief Financial Officer of Barrick Gold Corporation's global copper business unit. Prior to that he was Senior Vice President and Chief Financial Officer of Northgate Minerals Corporation for over ten years.

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Warren Flannery
Toronto, Ontario, Canada
 
Vice President, Business Planning and Reclamation		 Mr. Flannery joined Hudbay in February 2023. Prior to joining the Company, Mr. Flannery was the Head of Mining, Technical at CIBC Global Mining, responsible for leading the assessment of mining operations for financing packages and M&A reviews. Mr. Flannery has nearly 30 years of experience in mine operations, planning and project development and nearly 10 years of experience in capital markets.
Mark Gupta
Toronto, Ontario, Canada
 
Vice President, Corporate Development		 Mr. Gupta was appointed Vice President, Corporate Development in 2022. Since joining Hudbay in 2014, he has served in various corporate development roles. Mr. Gupta left Hudbay briefly in 2021 to serve as Lead Principal, Business Development at BHP, but returned to Hudbay in 2022 as Executive Director, Capital Planning and Operations Strategy before being appointed to his current role. Prior to first joining Hudbay in 2014, Mr. Gupta worked in various investment banking roles and holds a Chartered Financial Analyst designation.

As of March 29, 2023 (the final trading day prior to the date of this AIF), our directors and executive officers, as a group, beneficially owned, directly or indirectly, or exercised control or direction over, 728,900 common shares, representing less than 0.3% of the total number of common shares outstanding.

CORPORATE CEASE TRADE ORDERS, BANKRUPTCIES, PENALTIES AND SANCTIONS

Stephen A. Lang was a director of Hycroft Mining Corporation ("Hycroft"), (formerly Allied Nevada Gold Corp.) which, on March 10, 2015, together with certain of its direct and indirect subsidiaries, filed voluntary petitions of relief under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Delaware Bankruptcy Court"). On October 8, 2015, Hycroft's Plan of Reorganization was approved by the Delaware Bankruptcy Court, and effective October 22, 2015, Hycroft completed its financial restructuring process and emerged from Chapter 11 bankruptcy.

Carin S. Knickel was a director of Whiting Petroleum Corp. ("Whiting") which, on March 31, 2020, together with certain of its subsidiaries, commenced voluntary Chapter 11 cases under the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (the "Texas Bankruptcy Court"). On September 1, 2020, Whiting announced that it has successfully completed its financial restructuring and emerged from Chapter 11 protection. Whiting officially concluded its reorganization after completing all required actions and satisfying the remaining conditions to its Plan of Reorganization.

Igor Gonzales and Daniel Muñiz Quintanilla are directors of Gatos Silver, Inc. ("Gatos"). On April 1, 2022, the Ontario Securities Commission issued a management cease trade order against the CEO and CFO of Gatos ordering each such executive officer to cease trading in the securities of Gatos until Gatos completed its annual continuous disclosure filings for the year ended December 31, 2021 as required by Ontario securities laws. Additional management cease trade orders were issued by the Ontario Securities Commission on April 12, 2022 and July 7, 2022 in connection with certain other delays in Gatos' financial reporting. Such management cease trade orders remain in effect as of the date of this AIF.

CONFLICTS OF INTEREST

To the best of our knowledge, there are no known existing or potential conflicts of interest among or between us, our subsidiaries, our directors, officers or other members of management, as a result of their outside business interests, except that certain of our directors, officers, and other members of management serve as directors, officers, promoters and members of management of other entities and it is possible that a conflict may arise between their duties as a director, officer or member of management of Hudbay and their duties as a director, officer, promoter or member of management of such other entities.

Our directors and officers are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and we will rely upon such laws in respect of any directors' and officers' conflicts of interest or in respect of any breaches of duty by any of our directors or officers. All such conflicts are required to be disclosed by such directors or officers in accordance with the CBCA, and such individuals are expected to govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law. In addition, our Code of Business Conduct and Ethics requires our directors and officers to act with honesty and integrity and to avoid any relationship or activity that might create, or appear to create, a conflict between their personal interests and our interests.

2022 ANNUAL INFORMATION FORM  |  54

AUDIT COMMITTEE DISCLOSURE

The Audit Committee is responsible for monitoring our systems and procedures for financial reporting and internal control, reviewing certain public disclosure documents, monitoring the performance and independence of our external auditors, monitoring the performance of our internal audit function and the design and ongoing review of our risk management system. The Audit Committee is also responsible for reviewing our annual audited consolidated financial statements, unaudited consolidated quarterly financial statements and management's discussion and analysis of results of operations and financial condition for annual and interim periods prior to their approval by the full board of directors. There was no instance in the year ended December 31, 2022 where our board of directors declined to adopt a recommendation of the Audit Committee.

The Audit Committee's charter sets out its responsibilities and duties, qualifications for membership, procedures for committee appointment and reporting to our board of directors. A copy of the current Audit Committee charter is attached hereto as Schedule C.

COMPOSITION

As at December 31, 2022, the Audit Committee consisted of Carol T. Banducci (Chair), Daniel Muñiz Quintanilla and David S. Smith.

Relevant Education and Experience

Each member of the Audit Committee is independent and financially literate within the meaning of NI 52-110 and has experience as a Chief Financial Officer of a publicly traded company. Set out below is a description of the education and experience of each Audit Committee member that is relevant to the performance of his or her responsibilities as an Audit Committee member.

Ms. Banducci retired as Executive Vice President and Chief Financial Officer of IAMGOLD Corporation on March 31, 2021. She joined IAMGOLD in July 2007, and, as EVP and CFO, she was involved with developing and driving strategy and capital allocation and oversaw all aspects of the company's finance, information technology and investor relations functions. From 2005 to 2007, Ms. Banducci was Vice President, Financial Operations of Royal Group Technologies. Previous executive finance roles include Chief Financial Officer of Canadian General-Tower Limited and Chief Financial Officer of Orica Explosives North America and ICI Explosives Canada & Latin America. Ms. Banducci has extensive finance experience in capital markets, statutory and management reporting, audit, budgeting, capital programs, treasury, tax, acquisitions and divestments, pension fund management, insurance and information technology. She holds a Bachelor of Commerce degree from the University of Toronto.

Mr. Muñiz Quintanilla was a member of the Board of Directors and Executive Vice President of Southern Copper, previously acted as Executive President & Chief Executive Officer of Industrial Minera Mexico S.A. de C.V. and also acted as Chief Financial Officer of Grupo Mexico. In the past, he worked at the Law Firms Cortes, Muniz y Nunez Sarrapy, Mijares, Angotia Cortes y Fuentes, and Baker & McKenzie. He holds a Masters degree in Business Administration from Instituto de Empresa and a Masters degree in Financial Law from Georgetown University.

Mr. Smith has more than 35 years of experience in financial and executive leadership roles, including by serving as the Chief Financial Officer and Executive Vice President of Finning International Inc. ("Finning") from 2009 to 2014. Prior to joining Finning, Mr. Smith served as Chief Financial Officer and Vice President of Ballard Power Systems, Inc. from 2002 to 2009. Previously, he spent 16 years with Placer Dome Inc. (now Barrick) in various senior positions and 4 years with PriceWaterhouseCoopers. He is currently a corporate director. Mr. Smith holds a Bachelor's of Science degree in Business Administration, Accounting from California State University, Sacramento and has completed the Institute of Corporate Directors, Directors Education Program (ICD.D).

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POLICY REGARDING NON-AUDIT SERVICES RENDERED BY AUDITORS

We have adopted a policy requiring Audit Committee pre-approval of non-audit services. Specifically, the policy requires that proposals seeking approval by the Audit Committee for routine and recurring non-audit services describe the terms and conditions and fees for the services and include a statement by the independent auditor and Chief Financial Officer that the provision of those services could not be reasonably expected to compromise or impair the auditor's independence. The Audit Committee may pre-approve non-audit services without the requirement to submit a specific proposal, provided that any such pre-approval on a general basis shall be applicable for twelve months. The Chair of the Audit Committee has been delegated authority to pre-approve, on behalf of the Audit Committee, the provision of specific non-audit services by the independent auditor where (a) it would be impractical for the services to be provided by another firm; or (b) the estimated fees associated with such services are not expected to exceed C$50,000. Any approvals granted under this delegated authority are to be presented to the Audit Committee at its next scheduled meeting.

REMUNERATION OF AUDITOR

The following table presents, by category, the fees billed by Deloitte LLP as external auditor of, and for other services provided to, the Company for the fiscal years ended December 31, 2022 and 2021, respectively.

Category of Fees

2022

2021

Audit fees

C$2,417,063

C$2,405,438

Audit-related fees

C$114,396

C$202,539

Tax fees

-

-

All other fees

C$97,500

C$80,000

Total

C$2,628,959

C$2,687,977

"Audit fees" include fees for auditing annual financial statements and reviewing the interim financial statements, as well as services normally provided by the auditor in connection with our statutory and regulatory filings.

"Audit-related fees" are fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under "Audit fees", including audit work related to our pension, benefit and profit sharing plans.

"All other fees" are fees for services other than those described in the foregoing categories. Management presents regular updates to the Audit Committee of the services rendered by the auditors as part of the Audit Committee's oversight regarding external auditor independence and pre-approved service authorizations.

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

LEGAL PROCEEDINGS

Hudbay is subject to three claims in the Ontario Superior Court in connection with its previous ownership of the Fenix project in Guatemala through its subsidiary at the time, Compañía Guatemalteca de Níquel S.A. ("CGN").

The first action was served in 2010. The plaintiff, Angelica Choc, asserts a claim of negligence against Hudbay and wrongful death, among other claims, against CGN in connection with the death of her husband Adolfo Ich Chaman on September 27, 2009. The plaintiff claims that the head of CGN security shot and killed Mr. Chaman during a confrontation between members of local communities, who were unlawfully occupying CGN property, and CGN personnel. The aggregate amount of the claim is C$12 million.

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In the second action, served in 2011, eleven plaintiffs claim that they were victims of sexual assault committed by CGN security and members of the Guatemalan police and army during court ordered and state implemented evictions in January 2007 (before the project was acquired by Hudbay). These claims are asserted against Hudbay and its subsidiary at the time HMI Nickel Inc. The aggregate amount of the claims is C$55 million.

The plaintiff in the third action, German Chub Choc, claims that he was shot and permanently injured by the head of CGN security during the same events that gave rise to the claim brought by Ms. Choc. This action was served in October 2011. The aggregate amount of the claim is C$12 million.

We believe that all of the claims with respect to the Fenix project are without merit.

We are not aware of any litigation outstanding, threatened or pending against us as of the date hereof that would reasonably be expected to be material to our financial condition or results of operations.

REGULATORY ACTIONS

We have not: (a) received any penalties or sanctions imposed against us by a court relating to securities legislation or by a securities regulatory authority during the financial year; (b) received any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision; and (c) entered any settlement agreements with a court relating to securities legislation or with a securities regulatory authority during the financial year.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Except as may be otherwise disclosed in this AIF, since January 1, 2020, none of our directors, executive officers or 10% shareholders and no associate or affiliate of the foregoing persons has or has had any material interest, direct or indirect, in any transaction that has materially affected or is reasonably expected to materially affect us.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common shares is TSX Trust Company at its principal office in Toronto, Ontario.

MATERIAL CONTRACTS

Except for those contracts entered into in the ordinary course of our business, the following are the material contracts we entered into (i) within the last financial year or (ii) between January 1, 2002 and the beginning of the last financial year, which are still in effect:

1. the Precious Metals Purchase Agreement dated August 8, 2012, as amended, with Wheaton Precious Metals (previously Silver Wheaton), whereby we agreed to sell a portion of the precious metals production from our 777 mine to Wheaton Precious Metals;

2. the Amended and Restated Precious Metals Purchase Agreement dated November 4, 2013, as amended, with Wheaton Precious Metals (International) Ltd. ("Wheaton International", previously Silver Wheaton (Caymans) Ltd.), whereby we agreed to sell 100% of the silver production and 50% of the gold production from our Constancia mine to Wheaton International;

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3. the Amended and Restated Precious Metals Purchase Agreement, dated as of February 8, 2019 between HudBay Arizona (Barbados) SRL, Hudbay, Wheaton International and Wheaton Precious Metals;

4. the Indenture dated as of September 23, 2020 with U.S. Bank National Association, as trustee, governing the Senior Unsecured Notes expiring in 2029;

5. the Indenture dated as of March 8, 2021 with U.S. Bank National Association, as trustee, governing the Senior Unsecured Notes expiring in 2026;

6. the Fifth Amended and Restated Credit Facility with the lenders party thereto from time to time and the Canadian Imperial Bank of Commerce, as administrative agent, dated as of October 26, 2021, as amended, providing for a four-year $300 million revolving credit facility; and

7. the Third Amended and Restated Credit Facility with the lenders party thereto from time to time and the Canadian Imperial Bank of Commerce, as administrative agent, dated as of October 26, 2021, as amended, providing for a four-year $150 million revolving credit facility.

QUALIFIED PERSONS

The scientific and technical information contained in this AIF has been approved by Olivier Tavchandjian, P.Geo., our Senior Vice President, Exploration and Technical Services. 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, as well as data verification procedures and a general discussion of the extent to which the estimates may be affected by any known environmental, permitting, legal title, taxation, sociopolitical, marketing or other relevant factors, please see the technical reports for our material properties as filed by us on SEDAR at www.sedar.com.

INTERESTS OF EXPERTS

Olivier Tavchandjian, P.Geo., our Senior Vice President, Exploration and Technical Services, is an expert who has prepared certain technical and scientific reports for us. As at March 29, 2023 (being the final trading day prior to the date of this AIF), to our knowledge, Mr. Tavchandjian beneficially owns, directly or indirectly, less than 1% of our outstanding securities and has no other direct or indirect interest in our Company or any of its associates or affiliates.

The auditor of the Company is Deloitte LLP. Deloitte LLP is independent with respect to the Company within the meaning of the rules of professional conduct of the Chartered Professional Accountants of Ontario and within the meaning of the Securities Act of 1933, as amended and the applicable rules and regulations thereunder adopted by the SEC and the Public Company Accounting Oversight Board (United States) (PCAOB).

ADDITIONAL INFORMATION

Additional information, including directors' and officers' remuneration and indebtedness, principal holders of our securities and securities authorized for issuance under equity compensation plans, as applicable, is contained in our management information circular dated April 5, 2022. Additional financial information is provided in our financial statements and management's discussion and analysis for the fiscal year ended December 31, 2022.

Additional information relating to the Company may be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

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SCHEDULE A: GLOSSARY OF MINING TERMS

The following is a glossary of certain mining terms used in this annual information form.

 
"mineral
reserves"		  
That part of a measured or indicated mineral resource which could be economically mined, demonstrated by at least a preliminary feasibility study that includes adequate information on mining, processing, metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified. A mineral reserve includes diluting materials and allowances for losses that may occur when the material is mined. Mineral reserves are those parts of mineral resources which, after the application of all mining factors, result in an estimated tonnage and grade which, in the opinion of the qualified person(s) making the estimates, is the basis of an economically viable project after taking account of all relevant processing, metallurgical, economic, marketing, legal, environment, socio-economic and government factors. Mineral reserves are inclusive of diluting material that will be mined in conjunction with the mineral reserves and delivered to the treatment plant or equivalent facility. The term "mineral reserve" need not necessarily signify that extraction facilities are in place or operative or that all governmental approvals have been received. It does signify that there are reasonable expectations of such approvals. Mineral reserves are subdivided into proven mineral reserves and probable mineral reserves. Mineral reserves fall under the categories of proven mineral reserves and probable mineral reserves.
   
"preliminary economic assessment" Means a study, other than a pre-feasibility or feasibility study, that includes an economic analysis of the potential viability of mineral resources;
   
"proven mineral reserves" That part of a measured mineral resource that is the economically mineable part of a measured mineral resource, demonstrated by at least a preliminary feasibility study that includes adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction is justified.
   
"probable mineral reserves" That part of an indicated and in some circumstances a measured mineral resource that is economically mineable demonstrated by at least a preliminary feasibility study that includes adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.
   
"mineral resources" A concentration or occurrence of natural, solid, inorganic or fossilized organic material in or on the Earth's crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral resources fall under the categories of measured mineral resource, indicated mineral resource and inferred mineral resource.
   
"measured mineral resource" That part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity.
   
"indicated mineral resource" That part of a mineral resource for which quantity, densities, shape and physical characteristics can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters and to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.
   
"inferred mineral resource" That part of a mineral resource for which quantity and grade or quality can be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.

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SCHEDULE B: MATERIAL MINERAL PROJECTS

CONSTANCIA MINE

Project Description, Location and Access

We own a 100% interest in the Constancia mine in southern Peru. Constancia includes the Constancia and Pampacancha deposits and is located approximately 600 kilometres southeast of Lima. Geographic coordinates at the centre of the property are longitude 71° 47' west and latitude 14° 27' south.

We acquired Constancia in March 2011 through our acquisition of all of the outstanding shares of Norsemont Mining Inc. ("Norsemont"). We own a 100% interest in the 66 mining concessions (covering an area of 43,536 hectares) that comprise Constancia, all of which are duly registered in the name of our wholly-owned subsidiary, HudBay Peru S.A.C. Most of the known mineralization is located in the claims Katanga J, Katanga O, Katanga K, and Peta 7, though small mineralized outcrops are common throughout the area. All the mining concessions are currently in good standing. The annual concession fee payments of $3.00 per hectare are due on June 30 each year.

We have entered into life-of-mine agreements with the neighboring communities of Chilloroya and Uchucarcco. These agreements provide us the surface rights required for operations at both the Constancia and Pampacancha mine sites and specify our commitments to these local communities over the course of the mine life. In particular, the community agreements contemplated cash payments for the land access rights, as well as funds for facilitation of development projects and investment for local enterprises. The agreements also outline ongoing annual investments in community development including medical, educational and agricultural services and contemplate a bi-annual review of certain of the social development terms.

Hudbay has obtained approval of a third amendment to the Environmental and Social Impact Assessment (ESIA) (ESIA MOD III) that will allow for the optimization of the water balance and management plan, an alternate road for transportation of the concentrate, improvements to the TMF dike design criteria and other benefits. With the ESIA MOD III approved, the specific permitting processes and mine closure plan amendments will commence.

The Ministry of Energy and Mines authorized the start of the exploitation activities for the Pampacancha pit in December 2020.

Constancia and Pampacancha are subject to the following tax regime and agreement concerning mineral production:

1.  Peruvian Tax Regime

Constancia is subject to the Peruvian tax regime, which includes the mining tax, mining royalty, 8% labour participation, corporate tax and IGV/VAT. The Special Mining Tax ("SMT") and the Mining Royalty ("MR") were introduced in late-2011 for companies in the mineral extractive industries. Both the SMT and the MR are applicable to mining operating income based on a sliding scale with progressive marginal rates. The effective tax rate is calculated according to the operating profit margin of the Company. Based on Constancia's expected life-of-mine operating profit margin, the effective SMT and MR tax rates are projected to be 2.90% and 2.90% of operating income over the life of the mine. The MR is subject to a minimum of 1% of sales during a given month.

2.  Precious Metals Stream Agreement

100% of the silver production and 50% of the gold production from Constancia and Pampacancha is subject to our stream agreement with Wheaton Precious Metals, as described in this AIF. 

2022 ANNUAL INFORMATION FORM  |  B1

Accessibility, Climate, Local Resources, Infrastructure and Physiography

Constancia and Pampacancha are accessible from Lima by flying to either Arequipa or Cusco and then proceeding by paved and gravel highway to the mine site, which in each case takes approximately seven hours. The closest town is Yauri (population 23,000), which is approximately 80 kilometres by road from the mine site. Copper concentrate is transported via Yauri to the Matarani port, which is approximately 460 kilometres by road from the mine site.

The climate of the region is typical of the Peruvian altiplano in which the seasons are divided into the wet season between October and March with slightly higher temperatures and a dry season during April to September with colder temperatures. Temperatures can dip below -10° Celsius and rise to 20° Celsius. The sun can be very strong with high ultraviolet readings being common during the mid-day period. There is a climate monitoring station installed at the mine site.

Elevations on the property range from 4,000 to 4,500 metres above sea level with moderate relief and grass-covered altiplano terrain. Slopes are typically covered with grasses at lower elevations. At higher elevations, talus cover is common with very little vegetation. The grasslands are used as pasture for animals and at lower elevations for some limited subsistence agriculture. Water resources are readily available from a number of year-round streams near the mine site.

The infrastructure includes the waste rock facility, tailings management facility, water management system, electrical power supply and transmission and improvements to the roads and port. The primary road to the site consists of a 70 kilometre sealed road (National Route PE-3SG) from Yauri to the Livitaca turn-off and approximately 10 kilometres of unsealed road (CU-764) from the Livitaca turn-off to site. These roads (and bridges) have been upgraded, as necessary, to meet the needs for construction and life of mine use.

The combined maximum demand for electricity by Constancia and Pampacancha is estimated to be 96 MW with an average load of 85 to 90 MW in the next 5 years. Electricity is supplied via the 220 kV Tintaya substation located about 70 kilometres from the mine site and a dedicated transmission line from this substation to Constancia.

Copper concentrate is shipped from the Constancia site via road (~490 kilometers) and arrives at the Matarani port in trucks. These trucks are equipped with a hydraulically operated covered-box hinged at the rear, the front of which can be lifted to allow the concentrate to be deposited in the concentrate shed assigned to Hudbay by TISUR, the port operator. These trucks can load up to 37 tonnes of Cu Concentrate.  All concentrates are dumped into an enclosed receiving system specially designed for Hudbay. This receiving system includes sampling platforms, dump and screening hoppers, dust scrubbers, car wash system and a conveyor underground system that leads into an existing stacking system.  Pier C has been assigned to Hudbay and has a 75 thousand tonne capacity, with a minimum of 30kt guaranteed.  A chute from the shed will feed a conveyor system in a tunnel below. This feeds a tubular conveyor with a capacity of 1200 metric tonnes per hour capacity. The same conveyor and ship loading equipment is shared with other copper concentrate exporters.

History

The original Constancia property, consisting of 13 concessions, was obtained by Norsemont pursuant to an option agreement with Rio Tinto Mining and Exploration Ltd. ("Rio Tinto"). Norsemont acquired an initial 51% interest in the property from Rio Tinto in November 2007 and in March, 2008, Norsemont acquired the remaining 19% interest held by Rio Tinto. Norsemont acquired the 30% interest in the project from Mitsui Mining and Smelting Company Limited Sucursal Del Peru ("Mitsui") and 23 additional concessions were obtained by Norsemont in 2007 and 2008.

The San Jose prospect (which forms part of the Constancia deposit) was explored by Mitsui during the 1980s. Exploration consisted of detailed mapping, soil sampling, rock chip sampling, and ground magnetic and induced polarization surveys with several drill campaigns. Drilling was mainly focused on the western and southern sides of the prospect. Mitsui completed 24 drill holes (4,200 metres) and Minera Katanga completed 24 shallow close-spaced drill holes at San Jose (1,200 metres).

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In 1995, reconnaissance prospecting by Rio Tinto identified evidence for porphyry style mineralization exposed over an area 1.4 x 0.7 kilometres, open in several directions, with some copper enrichment below a widespread leach cap developed in both porphyry and skarn.

In May 2003, Rio Tinto revisited the area and the presence of a leached cap and the potential for a significant copper porphyry deposit were confirmed.

The Rio Tinto exploration activities consisted of geological mapping, soil, and rock chip sampling, and surface geophysics (magnetics and induced polarization). Rio Tinto completed 24 diamond drill holes for a total of 7,500 metres.

Geological Setting, Mineralization, and Deposit Types

The Constancia deposit is a porphyry copper-molybdenum system which includes copper-bearing skarn mineralization. This type of mineralization is common in the Yauri-Andahuaylas metallogenic belt where several porphyry Cu-Mo-Au prospects have been described but not exploited. Multiple phases of monzonite and monzonite porphyry have intruded a sequence of sandstones, mudstones and micritic limestone of Cretaceous age. Structural deformation has played a significant role in preparing and localising the hydrothermal alteration and copper-molybdenum-silver-gold mineralization, including skarn formation. The skarn component of the mineralization is more prevalent along the Yanak fault on the western margin of the Constancia deposit. Recent drilling conducted in 2019-2020 has confirmed a 300m extension of both high grade skarn and shallow porphyry mineralization to the north of deposit into the Constancia North area. In 2021, Hudbay completed an internal positive scoping study which resulted in an inferred mineral resource estimate of 6.5 million tonnes at 1.2% copper in two high grade skarn lenses located below the open pit in the Constancia Norte area. The study concluded these two lenses could be mined by underground methods once the open pit has reached its final configuration in this area..

The Pampacancha deposit is a porphyry related skarn system, with copper-bearing skarn mineralization. This type of mineralization is common in the Yauri-Andahuaylas metallogenic belt where several skarn deposits have been developed, including Corocohuayco in the Tintaya District and Las Bambas.

The Constancia porphyry copper-molybdenum system, including skarn, exhibits five distinct deposit types of mineralization:

1. Hypogene fracture-controlled and disseminated chalcopyrite mineralization in the monzonite (volumetrically small);

2. Hypogene chalcopyrite (rare bornite) mineralization in the skarns (significant);

3. Supergene digenite-covellite-chalcocite (rare native copper) in the monzonite (significant);

4. Mixed secondary sulphides/chalcopyrite in the monzonite (significant); and

5. Oxide copper mineralization (volumetrically small).

Molybdenite, gold and silver occur within all these mineralization types.

Two areas of porphyry-style mineralization are known within the project area, Constancia and San José. At Constancia, mineralization is deeper than that observed at San José which occurs at surface. The mineralized zone extends about 1,200 metres in the north-south direction and 800 metres in the east- west direction.

The Pampacancha deposit is located approximately three kilometers southeast of the Constancia porphyry. The stratigraphy unit in the area is the massive, gray micritic limestone of Upper Cretaceous Ferrobamba Formation; this unit in contact with the dioritic porphyry generates a magnetite skarn, hosts economic mineralization of Cu-Au-Mo.

The intrusive rocks are Oligocene age unmineralized basement diorite. Diorite porphyry is recognized as the source for skarn mineralization, which in turn is cut by mineralized monzonite intrusions which provide minor local increases in Cu-Au mineralization. Skarn Cu-Au mineralization is best developed at the upper and lower margins of the limestone body.

2022 ANNUAL INFORMATION FORM  | B3

Epithermal mineralization of the low sulphidation quartz-sulphides Au + Cu style, accounts for common supergene enriched Au anomalies, and along with other features such as hydrothermal alteration and veins typical of near porphyry settings.

Exploration

A geophysical Titan-24 survey was completed in July 2011 to the south of the Constancia deposit. In late 2013, an aeromagnetic and radiometric helicopter geophysical survey was carried out over an area of 80 square kilometers near Constancia.

A mapping and geochemical sampling program was completed between 2007 to 2014, where 20,789 hectares were mapped. Of the 20,789 hectares, 8,905 were mapped on Hudbay mining concessions, which represent 80% of the mining rights in the area.

Future exploration efforts are anticipated to focus on the Maria Reyna, Caballito and Kusiorco prospective satellite properties located within trucking distance of the Constancia mill, as described in this AIF. In August 2022, Hudbay executed an exploration agreement with the community of Uchucarco which allowed the company to start exploration activities over the Caballito property and a large portion of the Maria Reyna and Kusiorco properties.

Drilling

Extensive drilling has been conducted at the Constancia and Pampacancha deposits since the early 2000s. The most recent drilling programs were completed by Hudbay, with prior drilling programs conducted by Rio Tinto and Norsemont Mining. The various drilling campaigns conducted at Constancia and Pampacancha totaled 225,000 meters of drilling with approximately 93% of the drilling being conducted by diamond drilling (coring) methods and only 7% done by reverse circulation (RC).

Out of the total drilling completed over the two deposits, 551 holes (156,590) at Constancia and 290 holes (68,080m) at Pampacancha were used to conduct grade estimation within the mineralized envelopes and to report the current mineral resource and mineral reserve estimates.

Sampling and Analysis and Security of Samples

The sample preparation, analysis, security procedures and data verification processes used in the exploration campaigns on the Constancia mine prior to our acquisition were reviewed through the documentation available in previously filed technical reports and we have determined that the sampling methodology, analyses, security measures and data verification processes were adequate for the compilation of data at Constancia and Pampacancha and such processes continue to be used by us.

1,849 and 633 bulk density measurements were respectively used for the resource block models of Constancia and Pampacancha. These measurements were conducted at ALS Chemex, Certimin and Bureau Veritas laboratories using the paraffin wax coat method. These measurements are representative of the different rock and mineralization domains recognized to date.

During the Hudbay drilling campaigns conducted between 2011 and 2015, blanks were inserted into the sample stream as per geologist instruction at approximate intervals of every 30 samples. Standard references were prepared with material obtained from the Constancia and Pampacancha deposits by us and were analyzed and certified by Acme labs. Duplicates were obtained by splitting half core samples, obtaining two quarter core sub-samples, one quarter representing the original sample and the other quarter representing the duplicate sample. Duplicates were inserted approximately every 30 samples.

Between 2017 and 2019, 14% of blanks and 5% of standards were inserted at site, prior to dispatching the core boxes to Certimin, Bureau Veritas or SGS laboratories. In addition, 10% of all the pulps samples and 6% of all the coarse reject samples were reclaimed. 50% were resent to the initial laboratory and the other 50% were sent to an umpire lab for duplicate analysis. 5% of blanks, 5% of standards and 5% of duplicates were added to the re-analysis streams.

2022 ANNUAL INFORMATION FORM  | B4

During the 2019-2020 drilling campaign, all the samples were prepared at the Constancia mine laboratory and dispatched to Bureau Veritas for ICP analysis. 15% blanks and 5% standards were inserted at site, before samples preparation and after samples preparation, to monitor both the sample preparation and the assaying. Finally, coarse and pulp rejects were reclaimed and re-assayed at Bureau Veritas Lima. Selected pulps were also dispatched to an umpire lab (SGS Lima). The inserted blanks and standards analyzed by Bureau Veritas and SGS were submitted as "blind".

During the 2021-2022 drilling campaign, the samples were mostly prepared at the Constancia mine laboratory and only a small part was sent to Certimin laboratory due to time constraints. 72% of the samples were assayed at the Constancia mine laboratory which is operated by Bureau Veritas while the remaining 28% were assayed at Certimin. 15% blanks and 5% standards were inserted at site, before samples preparation and after samples preparation, to monitor both the sample preparation and the assaying. 6% of coarse and 6% of pulp rejects were reclaimed and re-assayed at Bureau Veritas Lima, (i.e . umpire lab). Inserted blanks and standards analyzed by Bureau Veritas Lima were submitted as "blind".

Data Validation

Assay data was delivered in digital form by the laboratories. Checks for inconsistent values were made by the senior geologist before data was uploaded.

All lithological, alteration, geotechnical and mineralization data was logged on paper logs that were later entered in spreadsheets from where they were imported into the database. The data entry spreadsheets have a number of built-in logical checks to improve the validity of the database. We checked collar positions visually on plans and down-hole surveys were validated by examining significant deviations.

In 2017, 17 holes representing over 4,167 metres of sampling previously drilled by Norsemont and Hudbay and covering the full extent of the Constancia reserve pit were twined in order to further investigate the impact of suspected losses of fine material in the original drilling both on grade estimation and on the metallurgical model. The 2017 twin hole program evidenced an under-estimation bias in the copper grade in the historical drilling for the supergene portion of the Constancia deposit. A robust correction was developed to address this grade bias.

In 2020, Hudbay conducted a systematic revalidation of the drillhole database used in the MineSight software for resource modeling by comparing 5% of the entire database to the original laboratory certificates. From the 4089 samples tested, only 4 samples were found to have different values than in the original certificates representing 0.09% of the total and therefore the database can be considered very reliable. A comparison with the previous version of the resource modelling database used between 2014 and 2019 evidenced that element precision had been truncated to the second decimal place in the past resulting in an under-estimation in gold grade in the 2019 database and no significant differences for the other metals of economic interest. The under-estimation in gold grade is close to 10% and has been corrected, contributing to an improvement in the gold grade in the updated mineral resource and mineral reserve estimates.

Mineral Processing and Metallurgical Testing 

The metallurgical responses of Constancia ore (ex: Hypogene, Supergene, Skarn, Mixed and High Zinc) is acceptable in terms of treatment rate, recovery and molybdenum and copper concentrate grades. For example, the copper grade in the final concentrate is higher than 26%, with acceptable levels of zinc, lead, iron, etc. The molybdenum concentrate produced is over 47% molybdenum with low contents of copper, lead, iron, etc. Metallurgical test work performed at laboratory and plant levels with Hypogene, Skarn, Supergene, High Zinc and Mixed ore from different polygons have enabled the operator to identify different reagents which show better performance according to each type of ore treated. Engineering studies continue to evaluate the addition of Pebble Crushers to the comminution circuit to address the increase in ore hardness of the hypogene ore.

Metallurgical testwork was finalized in 2021 for the Pampacancha ore and has confirmed the ore recovery and throughput assumptions currently used in the Life of Mine plan. Ore hardness (100 samples) and flotation response (40 samples) variability testing was completed on samples distributed throughout the mineable reserve.

2022 ANNUAL INFORMATION FORM  | B5

For the production year 2022, the Constancia plant achieved an average copper recovery of 85.0%. Copper recoveries over the remaining life of mine are expected to average within the range of 86% to 89%, with variation based on ore type and processing plant flow sheet improvements currently in progress.

Mineral Resource and Mineral Reserve Estimates

The mineral resource and mineral reserve estimates for the Constancia and Pampacancha properties are effective January 1, 2023. Other than as disclosed in this AIF, there are no known metallurgical, environmental, permitting, legal, taxation, socio-economic, marketing or political issues that could reasonably be expected to materially impact the mineral resource and mineral reserve estimates.

Resource estimations for the Constancia and Pampacancha deposits are based on the most up to date geological interpretations and geochemical results from the drilling data currently available. Multi pass ordinary kriging interpolation setup was used to interpolate the grades in the block model while honouring the geology.

In 2022, a reconciliation between the reserve model and the reported production from the Constancia and Pampacancha mines as credited by the mill continued to show close results for tonnes and grade within less than 6% except for the gold grade, which had a negative variation exceeding expectations. This was mostly due to a local grade estimation discrepancy for the material mined during the month of December at Pampacancha. The resource model for Pampacancha has been updated incorporating the 2022 infill drilling results and using this new resource model for the December reconciliation, grade estimates for all metals were back within less than 5% of mill credit.

The component of the mineralization within the block model that meets the requirements for reasonable prospects of economic extraction was based on the application of a Lerchs-Grossman cone pit algorithm.

The mine production plan contains 535.2 million tonnes of waste and 474.8 million tonnes of ore, yielding a waste to ore stripping ratio of 1.1 to 1.0. An average life of mine mining rate of 67.3 million tonnes per annum, with a maximum of 83.0 million tonnes per annum through the first 15 years, will be required to provide the assumed nominal process feed rate of approximately 31.0 million tonnes per annum. The ore production schedule for the life of mine shows average grades of 0.30% Cu, 84 g/t Mo, 0.06 g/t Au and 3.0 g/t Ag.

Reconciliation of Reserves and Resources 

Both the Constancia and Pampacancha resource models were updated in 2022 to incorporate results from the 2022 infill drill programs for each pit. The mine plans were also adjusted to account for 2022 mining depletion, delays in stripping at Pampacancha due to road blockades, a change in mining sequence at Constancia to account for the offload of a section of the pit close to the Baratina fault and other minor adjustments.

Overall, these changes resulted in minor modifications to the total mineral reserve estimates tonnage and grade mined over the life of the mine with the total quantity of both copper and gold being within approximately 1% of last year's estimate after accounting for the 2022 mining depletion.

The changes in measured and indicated mineral resource estimates are also modest with a slight increase of 4% in copper content. The tonnage of open pit inferred mineral resource estimates remains but at lower grade due to recent drilling results at Pampacancha and to some conversion to measured and indicated categories. The underground inferred mineral resource estimates for Constancia Norte remain unchanged.

2022 ANNUAL INFORMATION FORM  | B6

A year-over-year reconciliation of the estimated mineral reserves and resources at Constancia and Pampacancha is presented in the tables below.

Constancia Mine and Pampacancha Deposit - January 1, 2023

Mineral Reserve Reconciliation

Tonnes

Cu (%)

Mo (g/t)

Ag (g/t)

Au (g/t)

Cu (t)

(Proven & Probable)

A    2022 Mineral Reserve

521,000,000

0.31

87

3.09

0.065

1,599,000

B    2022 Depletion (from Reserve)

(31,400,000)

0.37

112

3.6

0.114

(115,000)

C  (A-B) = Depleted Reserve

489,600,000

0.31

86

3.06

0.062

1,498,000

D    2023 Mineral Reserves

492,200,000

0.30

84

3.0

0.059

1,485,000

 

 

 

 

 

 

 

Mineral Resource Reconciliation
(exclusive of Mineral Reserves)

Measured & Indicated

Tonnes

Cu (%)

Mo (g/t)

Ag (g/t)

Au (g/t)

Cu (t)

E    2022 Mineral Resource

252,600,000

0.23

64

2.23

0.048

572,000

F  2022 Gain (Drilling)

15,800,000

0.20

147

1.33

0.001

31,000

G  (E+F) = 2023 Mineral Resource

268,400,000

0.22

69

2.18

0.045

603,000

 

 

 

 

 

 

 

Mineral Resource Reconciliation

Tonnes

Cu (%)

Mo (g/t)

Ag (g/t)

Au (g/t)

Cu (t)

Open Pit (Inferred)

H    2022 Open Pit Resource

57,800,000

0.30

80

2.96

0.081

174,000

I    Gain/(Loss) - Drilling

25,000,000

0.15

76

0.30

0.048

37,500

J    Gain/(Loss) - Conversion/Remodel

(25,200,000)

0.23

70

2.80

0.130

(58,000)

K    2023 Open Pit Resource (H+I+J)

57,600,000

0.27

83

1.88

0.045

157,000

Mineral Resource Reconciliation

Tonnes

Cu (%)

Mo (g/t)

Ag (g/t)

Au (g/t)

Cu (t)

Underground (Inferred)

L    2022 Underground Resource

6,500,000

1.20

69

8.62

0.140

78,000

M  2023 Underground Resource

6,500,000

1.20

69

8.62

0.140

78,000

Notes:

1. Totals may not add up correctly due to rounding.

2. Mineral resources are exclusive of mineral reserves and do not have demonstrated economic viability.

3. Long term metal prices of $3.60 per pound copper, $12.00 per pound molybdenum, $1,650 per ounce gold and $22.00 per ounce silver were used to estimate open pit mineral reserves and resource.

4. Open pit mineral reserves and resources are estimated using a minimum NSR cut-off of $6.40 per tonne while the underground inferred resource of Constancia Norte is based on a 0.65% Cu cut-off grade.

5. Metallurgical recoveries are applied by ore type and assumed to be 86% on average for the life of mine.

Mining Operations

The Constancia mine is a traditional open pit shovel/truck operation with two deposits: Constancia and Pampacancha. The operation consists of open pit mining and flotation of sulphide minerals to produce commercial grade concentrates of copper and molybdenum. Silver and a small quantity of payable gold reports to the copper concentrate. The Pampacancha deposit exhibits higher grades of copper and gold.

To match the production requirements, operations are conducted from 15 metre high benches using large-scale mine equipment, including: 10-5/8-inch-diameter rotary blast hole drills, 27 cubic metre class hydraulic shovels, 19 cubic metre front-end loaders, and 240 ton off-highway haul trucks.

Processing and Recovery Operations 

In 2022, the processing plant achieved its nominal throughput capacity of 89,340 tonnes per day of ore (30.52 million tonnes per annum at 93.6% plant availability).

The primary crusher, belt conveyors, thickeners, tanks, flotation cells, mills and various other types of equipment are located outdoors and are not protected by buildings or enclosures. To facilitate the appropriate level of operation and maintenance, the molybdenum concentrate bagging plant, copper concentrate filters and concentrate storage are housed in clad structural steel buildings.

2022 ANNUAL INFORMATION FORM  |  B7

The processing plant has been laid out in accordance with established good engineering practice for traditional grinding and flotation plants. The major objective is to make the best possible use of the natural ground contours by using gravity flows to minimize pumping requirements and to reduce the height of steel structures.

An instrumentation plan has enhanced the processing plant's performance with various initiatives implemented at different sub-process levels. These initiatives include video cameras at the apron feeder and belts, froth cameras at the flotation cells and a particle-size analyzer, all of which have been installed and commissioned. These initiatives were part of an overall automation plan integrated into the processing plant system.

Capital and Operating Costs 

Growth capital expenditures include several projects at the mine and process plant while sustaining capital expenditures include capital required for major mining equipment acquisition, rebuilds, and major repair. The cost also includes site infrastructure expansion (Tailings Management Facility, Waste Rock Facility, etc.) and process plant infrastructure.

The forecasted life of mine capital and operating costs are set out in the Constancia Technical Report. Cost inflation, changes to the mine plan and other factors may cause these costs to fluctuate over the life of mine and, as such, Hudbay provides three year production guidance each year based on current assumptions. A guidance range for capital and operating costs is provided on an annual basis and the 2023 cost guidance was set out in Hudbay's news release dated February 23, 2023.

The information presented in this section is forward looking information. See "Cautionary Statement on Forward-Looking Information" and "Risks and Uncertainties" in this AIF.

Exploration, Development and Production

The Constancia mine commenced initial production in the fourth quarter of 2014 and achieved commercial production in the second quarter of 2015 while the Pampacancha mine achieved commercial production in the third quarter of 2021.

In addition, as described in the AIF, we acquired a large, contiguous block of mineral rights to explore for mineable deposits within trucking distance of the Constancia processing facility in 2018. Community agreements have been concluded with the community of Uchucarco in 2022 and with the community of Quehuincha in 2018 allowing Hudbay to start exploration activities on significant portions of the highly prospective Caballito, Maria Reyna and Kusiorco properties. The activities included necessary archeological, environmental and geological base line studies to support drill permit applications in 2023.

LALOR AND OTHER SNOW LAKE ASSETS

Project Description and Location

Lalor is a gold, zinc and copper mine near the town of Snow Lake in the province of Manitoba. Lalor is located approximately 200 kilometres mostly by paved highway east of Flin Flon, Manitoba. Lalor commenced initial ore production from the ventilation shaft in August 2012 and commenced commercial production from the main shaft in the second half of 2014.

The town of Snow Lake is a full-service community with available housing, hospital, police, fire department, potable water system, restaurants and stores. To house non-local employees during their work rotations, the Company provides a camp located in town which services Hudbay employees and contractors for the mine and mill operations. Other infrastructure in the area includes provincial roads, a 115 kV Manitoba Hydro power grid within four kilometres of Lalor and Manitoba Telecom land line and cellular phone service.

2022 ANNUAL INFORMATION FORM  |  B8

As described in this AIF, Hudbay operates two processing facilities in the Snow Lake area that process ore production from the Lalor mine The Stall concentrator produces zinc and copper concentrates and our recently refurbished New Britannia mill produces copper concentrate and gold/silver doré.

Following the closure of the Flin Flon zinc plant in mid-2022, the zinc concentrates produced from the Stall mill are sold to market.

In February 2019, Hudbay announced the discovery of the 1901 deposit located less than 1,000 metres from the existing ramp between the former Chisel mine and Lalor and benefiting from the proximity of existing infrastructure. In 2020 and 2021, Hudbay conducted infill drilling, metallurgical testing and a pre-feasibility study that confirmed the technical and economic viability of the indicated and measured portion of the mineral resource estimates at 1901 and highlighted the exploration potential to increase both the mineral resource and mineral reserve estimates through the discovery of a copper-gold rich feeder lens. In 2022, Hudbay drilled eight additional holes to test the extension of the main gold zone, for a total of 5,375m.

The WIM deposit was acquired by Hudbay in 2018 for approximately C$0.5 million. WIM is a copper-gold deposit that starts from surface and is located approximately 15 kilometres by road north of the New Britannia mill. Access is currently via a winter road, and so a year-round gravel road is required for accessing WIM from New Britannia. Powerlines along the access road will also be required to feed the underground electrical distribution system.

The New Britannia mine is a former producing gold mine that produced approximately 600,000 ounces between 1949 and 1958 and an additional 800,000 ounces between 1995 and 2005. Significant mineral resources remain accessible at New Britannia as well as in the nearby Birch and 3 Zone with some investment in the existing mining infrastructure, such as rehabilitating the existing portal and ramp development at 3 Zone.

3 Zone is currently accessible via road and located approximately 3 kilometres (by road) northwest of New Britannia mill. Like WIM, 3 Zone requires powerlines along the access road, and year-round maintenance to the access road to site. Other surface infrastructure needed to support mining activities at WIM and 3 Zone include maintenance and warehouse facilities, fuel farms and storage tanks, and a mine safety and crew lineup space and changehouse. It is envisaged that the main administration offices will be centralized at either the New Britannia mill or Lalor mine site.

Pen II is a low tonnage and high-grade zinc deposit that starts from surface and is located approximately 6 kilometres by road from the Lalor mine. Access is currently via winter road, with potential for an all-weather road to be established north of Lalor mine.

The Watts deposit is located approximately 100 kilometres by road from the Stall mill and is near existing Manitoba Hydro powerlines. It is between 50 and 900 metres below surface, and in 2019 Hudbay conducted a limited drill program which successfully extended the known high grade copper mineralization along the strike of the ore body.

For all the properties mentioned above, Hudbay owns a 100% interest. Aside from a 1.5% royalty on 3 Zone, there are no other royalties payable other than those potentially payable to the province. Surface rights are held under general permits and are sufficient for purposes of our development plans.

In 2020, Hudbay exercised its buy back right to regain 51% ownership of the Talbot deposit that had been optioned to Rockcliff Metals Corp. ("Rockcliff") in 2014. The Talbot deposit is located approximately 200km southeast of the Stall and New Britannia mills. Rockcliff conducted several drilling campaigns between 2014 and 2019 that led to the declaration by Rockcliff of a NI 43-101 indicated mineral resource estimate of 2.2 million tonnes at 2.3% Cu, 2.1 g/t Au, 1.8% Zn, 36 g/t Ag and inferred mineral resource of 2.4 million tonnes at 1.1% Cu, 1.9 g/t Au, 1.7% Zn, 25.8 g/t Ag. Hudbay has the right to extend its ownership to 65% by incurring expenses related to the development of the project and for the purpose of this report relies on the mineral resource estimates reported by Rockcliff.

2022 ANNUAL INFORMATION FORM  | B9

Accessibility, Climate, Local Resources, Infrastructure and Physiography

At Lalor, the current project infrastructure includes a 3.5 kilometre main access road that was constructed in 2010 from provincial road 395 and provides access from the Chisel North mine site to the Lalor site. This access road includes a corridor with freshwater/discharge pipelines, tailings/discharge pipelines for the Paste Plant and a main hydro line. Access to the site is off paved provincial highway 392, which joins the town of Snow Lake and provincial highway 39 and provides access to Flin Flon.

The Snow Lake area has a typical mid-continental climate, with short summers and long, cold winters. Climate generally has only a minor effect on local exploration and mining activities. The project area is approximately 300 metres above sea level, consisting of ridged to hummocky sloping rocks with depressional lowlands, and has gentle relief that rarely exceeds 10 metres. The area of Lalor and surrounding water bodies (Snow, File, Woosey, Anderson and Wekusko lakes) are located in the Churchill River Upland Ecoregion in the Wekusko Ecodistrict.

We commissioned a 2,000 US gallon per minute water treatment plant in 2008 at Chisel Lake, approximately eight kilometres from Lalor, where water from the Lalor mine is treated in the Water Treatment Plant along with water from the Chisel Open Pit.

Tailings production associated with the Lalor mine is impounded in the Anderson Tailings Impoundment Area ("TIA") and a capacity expansion has been approved to accommodate our planned future operations.

Power for the site is being transmitted at 25 kV from the Lalor substation located at the Chisel North minesite via a 3.5 kilometre transmission line.

History

The Snow Lake area has a long exploration and mining history. Exploration in the Lalor-Chisel area has been occurring since the 1950s and the Chisel Basin area has hosted four past producing mines. This basin is also the host of the Lalor deposit. Lalor commenced initial ore production from the ventilation shaft in August 2012, only five years after its initial discovery hole and achieved commercial production from the main shaft in the third quarter of 2014.

Gold was first discovered in 1914 approximately 20 kilometres to the southeast of Snow Lake and in 1917, the Moose Horn-Ballast claims produced the first gold in Manitoba. First mine construction at the New Britannia site started in 1945 and in March 1949, the mine was opened as the Nor-Acme mine. Production continued until 1958. 4.9 million tonnes were mined at an average grade of 4.4 g/t and Nor-Acme mill recovered approximately 610,000 ounces of gold during this production period. TVX and High River formed a joint venture to reopen the mine and TVX became the operator. Full production from the main shaft was achieved in August 1996. Through various transactions, Kinross became the operator of the New Britannia mine-mill complex. Production ceased at the end of September 2004 and the mill was put on care and maintenance in 2005 due to a low gold price environment after producing 1.6 million ounces of gold.

Geological Setting

The Snow Lake deposits including Lalor are all located within the Trans-Hudson Orogen of the Flin Flon Greenstone Belt. The volcanic assemblages consist of mafic to felsic volcanic rocks with intercalated volcanogenic sedimentary rocks.

The volcanogenic massive sulphide (VMS) deposits located near the town of Snow Lake have been subdivided into two different groups: Cu-Zn-rich (Cu-Zn, Cu-Zn-Au) and Zn-Cu-rich (Zn-Pb-Cu-Ag) types. The Cu-Zn-rich deposits mainly occur in the Anderson sequence and the Zn-Cu-rich deposits occur in the Chisel sequence. The Watts and Talbot deposits, located east-southeast of the town of Snow Lake lies in the eastern portion of the Flin Flon-Snow Lake Greenstone belt and is a stratabound accumulation of sulphides that precipitated in a depositional environment similar to the base metal deposits of the Snow Lake mining camp.

Mineralization of the lode-gold vein-type deposits are hosted in the Amisk group mafic and felsics volcanic rocks which are structurally controlled and associated with shear zones, faults, fold hinges and axial planes that host simple to complex vein systems. The mineralization is associated with lithological contacts of contrasting properties in the sequence of interlayered volcanic and volcaniclastic rocks.

2022 ANNUAL INFORMATION FORM  | B10

Drilling

At Lalor, over 5,345 drill holes totaling more than 786,395 metres were included in the Lalor database to support the mineral resource and mineral reserve estimates.

Drilling supporting the 1901, Watts, Pen II and Wim mineral resource and mineral reserve estimates totals 80,875 metres, 25,000 metres, 2,000 metres and 43,000 metres, respectively.

For the New Britannia resource estimates including the 3 Zone and Birch zones, over 730,000 metres of drilling completed after 1995 was used. Drilling at all properties is a combination of NQ and BQ diamond drill holes, surveyed with either Reflex downhole tools or Gyro for deeper/longer holes.

Mineralization

The Lalor deposit and its associated 1901 satellite zone are interpreted as a gold enriched volcanogenic massive sulphide ("VMS") deposit that precipitated at or near the seafloor in association with contemporaneous volcanism, forming a stratabound accumulation of sulphide minerals. The depositional environment for the mineralization is similar to that of present and past producing base metal deposits in felsic to mafic volcanic and volcaniclastic rocks in the Snow Lake mining camp. The deposit appears to have an extensive associated hydrothermal alteration pipe.

The Lalor VMS deposit is isoclinaly folded and flat lying, with zinc mineralization beginning at approximately 600 metres from surface and extending to a depth of approximately 1,400 metres. The mineralization trends about 320° to 340° azimuth and dips between 30° and 45° to the northeast. It has a lateral extent of about 1,400 metres in the north-south direction and 780 metres in the east-west direction. Sulphide mineralization is pyrite, sphalerite and chalcopyrite. The current interpretation suggests the deeper copper-gold lens tends to have a much more linear trend to the north than the rest of the zones. Gold and silver enriched zones occur near the margins of the sulphide lenses and in local silicified footwall alterations. These silicified areas often correlate with disseminated stringer chalcopyrite, pyrrhotite and pyrite, whether together or independent of each other. This footwall gold mineralization is typical of VMS footwall feeder zones with copper-rich disseminated and vein style mineralization overlain by massive zinc-rich zones. The gold bearing lithologies remain open down plunge to the north and northeast.

The WIM deposit comprises a stratabound, semi-massive to massive sulphide lens with an adjacent stringer/disseminated sulphide zone. Mineralization is characterized by disseminated to massive, recrystallized and medium to coarse grained pyrite, pyrrhotite, chalcopyrite and minor sphalerite. The VMS mineralization extends from surface to 720 m below surface with a strike length of 725 m with an average thickness of 10 m. The WIM deposit is conformable to stratigraphy, trends to the northwest at a N310º azimuth, a 40-45º dip towards the northeast and a plunge of 40º to the north.

The Snow Lake Gold Properties including No. 3 and Birch zones belong to the quartz-carbonate vein gold subtype of orogenic lode gold deposits. This subtype of gold deposits consists of simple to complex quartz carbonate vein systems associated with brittle-ductile rock behaviour, corresponding to intermediate depths within the crust, and compressive tectonic settings.

At Watts, sulphide intersections can be up to 23m in core length, with a lateral extent of approximately 1,200m. Diamond drilling has intersected mineralization at depths of 850m below surface. Mineralization was intersected and interpreted as three lenses; Main Lens, Main Footwall Lens, and East Lens comprised of coarse-grained pyrite, pyrrhotite, chalcopyrite, sphalerite, and minor galena. The sulphides have generally been recrystallized to a coarse grain size, but sections of finer grained sulphides do occur.

The Pen II deposit comprises a stratabound, semi-massive to massive sulphide lens with an adjacent stringer/disseminated sulphide zone. Mineralization is characterized by disseminated to massive, recrystallized and medium to coarse-grained sphalerite, pyrite, pyrrhotite and minor chalcopyrite. The mineralization extends from surface to 500 m below surface. The current strike length of the deposit is 400 m with an average thickness of 4 m. The deposit is conformable to stratigraphy, trends to the northeast at a N40º azimuth, a 45-65º dip towards the northwest.

2022 ANNUAL INFORMATION FORM  | B11

Sampling Methods

As per Hudbay's standard procedures in Snow Lake, drill core is logged, sample intervals selected and marked clearly on the core. The majority of exploration core is cut in half with a diamond saw and a representative portion of the hole is kept. Definition and delineation core is whole core sampled. All samples are placed in a plastic bag with its unique sample identification tag. The average length for the sample intervals is 0.9 metres. The core was photographed before samples were split and bagged for shipment before dispatch to the laboratories.

Sampling and Analysis

Sample preparation has been conducted at three different laboratories over time. Prior to 2016, a total of 160,804 drill core samples were analyzed at the Hudbay laboratory in Flin Flon. Copper, zinc, and silver were digested in aqua regia and analyzed by ICP-OES. Gold was determined by lead-collection fire assay fusion, for total sample decomposition, followed by atomic absorption spectroscopy (AAS) analysis. Fire assays were performed on 15 to 30g subsample pulps to avoid problems due to potential nuggetty gold. All samples with gold values (AAS) > 10 g/t were re-assayed using a gravimetric finish.

Since September 2016, nearly all samples are prepared and assayed at Bureau Veritas in Vancouver. All drill core samples have been sent for analysis at Bureau Veritas while the SGS laboratory in Vancouver was used as the umpire laboratory for quality control purposes. Copper, zinc and silver were digested in aqua regia and analyzed by inductively coupled plasma optical emission spectrometry (ICP-OES) and more recently in 2016 by inductively coupled plasma mass spectrometry (ICP-MS). Samples with copper and zinc over the upper limit of detection (ULD) were analyzed by titration, whereas those samples with silver values over the ULD were analyzed by fire assay and gravimetric finish. Gold was determined by fire assay followed by atomic absorption spectroscopy (AAS).

The sampling methodology, analyses and security measures used by the previous owners at New Britannia have been documented in the Technical Report produced by Genivar for Alexis Resources in 2011 and available on SEDAR. Most of the drill cores and chips assays from 1995 to 2003 from the New Britannia mine were completed at the on-site mill laboratory using a fire assay/atomic absorption finish (FA/AA) method. Standard, blank and duplicate assay samples were added to each batch of 21 samples for drill core and to each batch of 24 samples for chip samples. The sampling and analytical procedures conformed to the industry standards at the time, and these were adequate to ensure a representative determination for the type of gold mineralization identified on the property. In 2019, 6 holes drilled by Hudbay at 3 Zone confirmed previous drilling results.

As of January 1, 2023, a total of 109,597 density measurements were collected by Hudbay. These measurements were performed at the Flin Flon laboratory, Bureau Veritas laboratory or at Hudbay logging facility, using a non-wax-sealed immersion technique to measure the weight of each sample in air and in water and pycnometry methods.

Quality Assurance and Quality Control

Quality Assurance and Quality Control samples were inserted into the sample stream. Hudbay's practice in Lalor involves insertion of the following every 100 samples; 2 blanks, 5 duplicates, 5 standards. The exploration team in 1901 inserts 5 blanks, 5 duplicates and 5 standards per 100 samples.

Results from the QA/QC program for standards, blanks, duplicates and external checks show that the program has been working effectively for the Lalor, 1901, Watts, Pen II and Wim properties, meeting industry standards and the data used provides a representative and unbiased basis for resource modeling purposes.

Security of Samples

Security measures taken to ensure the validity and integrity of the samples collected consist of a chain of custody of drill core from the drill site to the core logging area. All facilities used for core logging and sampling are located on the mine site and all sample splitting and shipping activities are conducted by technicians under the supervision of Hudbay geologists. The sample results are stored on a secure mainframe based Laboratory Information Management System (LIMS). The diamond drill hole database is stored on the secure Hudbay network, using the acQuire database management system with strict access rights.

2022 ANNUAL INFORMATION FORM  | B12

Mineral Processing and Metallurgical Testing

The Stall concentrator is an operating plant running at steady state and, as a result, several of the initial metallurgical test results and assumptions have been revised to reflect the operating experience and performance of the plant over the past six years of operation in processing the ore produced from the Lalor mine. The Stall concentrator is producing a copper concentrate grade of 18 to 20% copper at 83 to 85% recovery and a zinc concentrate grade of 51% zinc at 90 to 93% recovery. 55 to 62% of the gold and silver are recovered in the copper concentrate as co-products. Over the life of the Lalor mine, copper, gold and silver grade will increase and the average zinc grade will decrease. This trend will partially be offset in 2026, when the 1901 deposit is expected to enter production to feed Stall with zinc rich mineralization.

Extensive metallurgical testing was conducted in 2019 and 2020 to demonstrate the technical viability and economic benefits of some changes to the process flowsheet of the Stall mill to improve metal recoveries and/or concentrate grade from historical performance. The main changes to the flowsheet planned to be implemented in 2023 include the addition of Jameson cells to increase copper rougher and cleaner capacity, the addition of a talc pre-flotation circuit, an increase in the zinc circuit cleaning capacity and froth washing and an increase in recovery of free gold through the addition of a Knelson gravity concentrator on the copper regrind cyclone underflow. In addition, further testwork is underway to include a lead recovery stage into the sequential flotation circuit. Although the benefits of this addition have not yet been incorporated into the present life of mine plan, Hudbay anticipates a short payback on this additional limited investment at Stall.

In 2020 a metallurgical testwork program was conducted by Blue Coast Research to cover composites representing low grade, medium grade and high grade of the two zinc rich lenses of the 1901 deposit. A subsample of each of the composite samples was ground to a p80 of 100µm and submitted for mineralogical analysis. Mineralogical analysis and flotation tests were completed on each of the six composites and confirmed that the metallurgical performance of the Stall concentrator for the Lalor base metal lenses was applicable to the 1901 deposit, including the potential benefit of a lead recovery stage in the flotation circuit.

The Snow Lake operations life of mine plan includes the processing of gold ore at the Company's New Britannia mill, which achieved commercial production in November 2021. As described in this AIF, Hudbay has completed the refurbishment of the New Britannia mill, including the addition of a copper flotation circuit, to optimize processing of the Lalor gold and copper gold ores.

Commissioning of the New Britannia mill commenced in July 2021 and achieved commercial production in November 2021. Initial problems with the rod mill liner package and cyanide destruction circuit reduced plant availability until field rectifications were completed. After rectification work was completed, the New Britannia mill achieved and exceeded the steady state design throughput of 1,500 tonnes per day as well as expected copper, gold and silver recoveries.  Going forward, a throughput of 1,650 tonnes per day is assumed without negative impact on metal recovery.

Metallurgical testwork conducted in 2019 on WIM and 3 zone has confirmed that this mineralization is also amenable to successful beneficiation at the New Britannia mill. Four composites were created for each deposit and submitted for mineralogical, comminution and flotation as well as leach test work and gravity concentration in the case of 3 Zone. These tests have been used to confirm the copper, gold and silver recoveries applied in the life of mine plan for these two satellite deposits.

Mineral Resource Estimates

The mineral resource and mineral reserve estimates for the Lalor mine and all the other Snow Lake deposits are effective January 1, 2023. Other than as disclosed in this AIF, there are no known metallurgical, environmental, permitting, legal, taxation, socio-economic, marketing or political issues that could reasonably be expected to materially impact the mineral resource and mineral reserve estimates.

2022 ANNUAL INFORMATION FORM  | B13

The mineral resources for Lalor, 1901, Watts, WIM, 3 Zone and Pen II are estimated either as base metal lenses or gold zones and classified as Measured, Indicated or Inferred resources, as described in the most recent technical report.

The construction of the mineralized envelopes was based on the type of mineralization intersected.

The resource is based on integrated geological and assay interpretation of information recorded from diamond drill core logging and assaying and underground mapping and is comprised of the following steps: exploratory data analysis, high-grade capping (when required), and estimation and interpolation parameters consistent with industry standards.

The block models were updated using both infill and exploration drilling conducted up until July 2022 using the methodology documented in the March 2021 Lalor and Snow Lake Operations Technical Report and validated to ensure appropriate honouring of the input data by the following methods:

Hudbay uses a stringent approach to establish the potential for economic extraction of its resource reporting for underground deposits. With this approach, the potential for economic extraction of the mineral resource estimates are reported within the constraint of a 'stope optimization envelope'. This excludes small isolated individual blocks above the economic cut-off criteria from the resource estimate and includes some 'geological dilution' that would need to be included in the economic envelope to maintain minimum spatial continuity requirements to define mineable shapes.

The parameters used as input to define the stope optimization envelope cover all the relevant technical and economic constraints including minimum stope and waste pillar dimensions and a NSR value calculation for each block based on anticipated metal recoveries, long-term metal price forecast and operating and capital costs based on the 2023 Lalor mine and Stall and New Britannia concentrator budgets. Two NSR values are calculated for each block to assess and compare the value of the blocks going to the Stall mill (no material difference between the two) or going to the new Britannia mill. The mineral resource estimates are reported to ensure that each potential stope would cover all its associated operating mining and milling costs.

For the former New Britannia, mine and its satellite gold deposits, the historical resource estimates performed by Kinross and by Alexis Minerals followed a conventional and industry standard approach and have been independently validated in 2018 by WSP Engineering ("WSP"). The cut-off grades for the resource have been estimated over a 6-ft. minimum true width with a variable cut-off by zone. The variation in the cut-off grade is related to new mining versus remnant mining.  Given that WSP had to rely on historical documentation for some of the technical information supporting the estimation of the mineral resource estimates, the tonnes and grades previously estimated by Kinross and Alexis Minerals as measured and indicated resources were downgraded to an inferred category. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

Mineral Reserve Estimates

The current mineral reserves were estimated based on a life of mine ("LOM") plan prepared using Deswik mine design software that generated mining inventory based on stope geometry parameters and mine development sequences. Appropriate dilution and recovery factors were applied based on cut and fill and longhole open stoping mining methods with a combination of paste and unconsolidated waste backfill material.

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The following steps were followed in developing the reserve estimates at Lalor, 1901, WIM and 3 Zone:

The above methodology takes into consideration the different ore types and the milling options for the mine's future production and considers the various ore types found at these deposits.

The mineral reserve estimates exclude the mined out mineral resources, non-recoverable pillars (rib, post and sill) within mined out areas, mineral resources that are sterilized or not recoverable due to previous mining and stopes based on inferred mineral resource estimates.

Reconciliation of Reserves and Resources 

Other than as disclosed in this AIF, there are no known metallurgical, environmental, permitting, legal, taxation, socio-economic, marketing or political issues that could reasonably be expected to materially impact the mineral resource and mineral reserve estimates.

The 2023 reserve estimates of 15.3 Million tonnes is 3% (400kt) lower than in 2022 after accounting for mining depletion with resource to reserve conversion offset by mineability and economic re-evaluation in remnant areas of the mine. The 2023 inferred mineral resource estimate of 2.2 Million tonnes for base metal lenses represent a loss of 0.37 million tonnes and is due to the re-evaluation of the potential for economic extraction of sill pillars at Lalor. The gold and copper/gold inferred mineral resource estimate remains essentially unchanged from 2022 with the addition of 0.5M tonnes at 1901 through exploration drilling being offset by resource to reserve conversion at Lalor.

2022 ANNUAL INFORMATION FORM  | B15

Lalor Mine and 1901 - January 1, 2023

Mineral Reserve Reconciliation

Tonnes

Cu (t)

Zn (t)

Au (oz)

Ag (oz)

(Proven & Probable)

A    2022 Mineral Reserve

17,200,000

109,000

601,000

2,150,000

15,896,000

B    2022 Production (from Reserve)

1,490,000

11,000

47,000

191,000

1,051,000

C  (A-B) = Depleted Reserve

15,710,000

98,000

554,000

1,958,000

14,845,000

D    2023 Reserve update

15,300,000

94,000

506,000

1,857,000

13,668,000

E  (D-C)  Gain/(Loss)

(410,000)

(4,000)

(48,000)

(101,000)

(1,177,000)

  

 

 

 

 

 

Mineral Resource Reconciliation

Tonnes

Cu (t)

Zn (t)

Au (oz)

Ag (oz)

Base Metal (Inferred)

F    2022 Mineral Resource

2,630,000

7,000

152,000

128,000

2,509,000

G  2023 Resources update

2,260,000

7,000

127,000

122,000

2,327,000

H  (G-F)  Gain/(Loss)

(370,000)

0

(26,000)

(6,000)

(182,000)

 

 

 

 

 

 

Mineral Resource Reconciliation

Tonnes

Cu (t)

Zn (t)

Au (oz)

Ag (oz)

Gold Zones (Inferred)

I    2022 Mineral Resource

5,430,000

84,000

17,000

875,000

4,735,000

J  2023 Resources update

5,360,000

77,000

15,000

881,000

4,047,000

K  (J-I)  Gain/(Loss)

(70,000)

(7,000)

(1,000)

5,000

(687,000)

Notes:

1. Totals may not add up correctly due to rounding.

2. Mineral resources that are not mineral reserves and do not have demonstrated economic viability.

3. Mineral resources in the above table does not include mining dilution or recovery factors.

4. Long term metal prices of $1.20 per pound zinc, $1,650 per ounce gold, $3.60 per pound copper, and $22.00 per ounce silver with an exchange rate of 1.33 C$/US$ were used to estimate mineral reserves and resources.

5. Lalor mineral reserves are estimated using NSR cut-off ranging from C$137 to C$168 per tonne, assuming a long hole mining method and depending on the mill destination.

6. 1901 mineral reserves are estimated using a minimum NSR cut-off of C$166 per tonne, assuming the material is mined via post pillar cut-and-fill methods and is processed at the Stall mill.

7. Individual stope gold grades at Lalor were capped at 10 grams per tonne, as a prudent estimate until reserves-to-mill reconciliations can establish support for the recovery of high-grade gold. This capping method resulted in an approximate 3% reduction in the overall gold reserve grade at Lalor.

8. Base metal mineral resources are estimated based on the assumption that they would be processed at the Stall concentrator while gold mineral resources are estimated based on the assumption that they would be processed at the New Britannia concentrator.

The mineral reserve and resource estimates presented in this AIF for WIM, 3 Zone, Pen II, Watts, New Britannia Mine and Talbot remain unchanged from the prior year and are effective January 1, 2023. As a result, a detailed reconciliation has been omitted.

Mining Operations: Mine Planning

Lalor mine is a multi-lens, flat lying orebody with ramp access from surface and shaft access to the 955 metre level. Internal ramps located in the footwall of the orebody provide access between mining levels, with the mine currently developed to the 1,240 meter level in the Copper Gold lens 27. Stopes are accessed by cross cuts from the major mining levels.

Power is provided to the mine via power cables located in the production shaft. The Chisel North mine ventilation system in sequence with the Lalor mine Downcast Raise, the Access Ramp and the Lalor mine Production Shaft provide a total of 955,000 cfm for ventilation purposes. Mine ventilation air is heated by direct fired propane heaters located at each of the intakes. Lalor mine's fresh water source is Chisel Lake. Mine water reports to the water treatment plant at Chisel Lake where it is treated and released. All water within the mine is collected in intermediary collection sumps and proceeds to the main collection areas via drain lines, drain holes or drainage ditches.

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In 2022, Lalor achieved a total of 1.5 million tonnes of production while the mine continued ramp-up activities and Hudbay transitioned personnel and equipment from Flin Flon to Snow Lake following the closure of the 777 mine in June 2022.The life of mine plan continues to be based on steady state mine production of 5,300 tpd and gradually replacing 600tpd of trucking by hoisting 100% of the mine's production

Mining is done using mobile rubber tired diesel equipment. Load haul dump ("LHD") units vary from 8 to 10 cubic yards. Trucks are currently 42 to 65 tonne units that haul both ore and waste. Autonomous operation of a LHD loader underground is also completed from surface by tele-remote monitoring. Ore is directed to rock breakers located near the production shaft at the 910 metre level, where it is sized to 0.55 metre and conveyed to the shaft for hoisting to surface by two 16 tonne capacity bottom dump skips in balance. Hoisted ore is hauled by truck to the Chisel North mine site, crushed to less than 0.15 metre and stockpiled. Crushed ore is loaded by front end loader to tractor trailers and hauled to Hudbay concentrators. Waste rock is disposed of as backfill underground.

Lateral advance is made in 4 m long segments (rounds), with typical dimensions of 6 metre wide by 5 metre high. Lateral drilling is completed with two boom electric hydraulic jumbo drills, each round requires approximately 80 holes. Following mucking, standard ground support is installed. Mine services, including compressed air, process water and discharge water pipes, paste backfill pipeline, power cables, leaky feeder communications antenna and ventilation duct are installed in main levels and stope entrances.

Two main mining methods are used at Lalor mine, cut and fill and longhole open stoping. Cut and fill methods include: mechanized cut and fill, post pillar cut and fill and drift and fill. Longhole open stoping methods include: transverse, longitudinal retreat and uppers retreat. Each mining area is evaluated to determine the most economic stoping method. In general where the dip exceeds 35° and the orebody is of sufficient thickness, longhole open stoping is used and lateral cut and fill mining methods are used in flatter areas. Approximately 74% of the mineral reserves are to be mined using the longhole open stoping methods, 19% through the cut and fill methods and 7% via development in ore. All stope mining is done using emulsion explosives.

The production is supported by a hoisting plant capable of 6,000 tonnes per day, transitioning to more bulk mining methods with additional mining fronts and implementing technology and automation processes to improve mining efficiencies, developing ore passes and transfer raises to reduce truck haulage cycle times from the upper portions of the mine. In addition, a paste backfill plant was commissioned in 2018.

Ore is received at the Stall concentrator, approximately 16 kilometres east of Lalor mine, and offloaded onto a dedicated stockpile at the mill depending on ore type. Ore is crushed in campaigns through a two-stage external crushing plan where the final product size is less than 19 millimeters. Ore crushed for processing through the Stall concentrator is directly conveyed to the fine ore bins or stockpiled. Ore crushed for processing through New Britannia is stockpiled ahead of haulage to the New Britannia concentrator.

Crushed ore is conveyed to Stall's two sequential rod and ball mill combinations operating parallel with each other. The mills feed a sequential flotation process where a bulk rougher copper concentrate is floated first. The copper rougher concentrate is reground, followed by three stages of cleaning producing a concentrate grading approximately 21% copper. The copper concentrate is either thickened and filtered to remove water, and is conveyed to concentrate storage onsite, or is pumped to the New Britannia filtration circuit. The stored copper concentrate is then loaded on to semi-tractor trailer trucks for transport to Flin Flon for transport by rail to third party smelters.

The tails from the copper circuit feed the zinc flotation circuit which produces a zinc rougher concentrate. This is followed by three stages of zinc cleaning which produces a concentrate grading approximately 51% zinc. Zinc concentrate is thickened and filtered and is conveyed to concentrate storage.  After the Flin Flon zinc plant closure in mid-2022, Hudbay commenced selling the zinc concentrates produced from the Stall mill to market. Like the copper concentrate, the zinc concentrate is loaded on to semi-tractor trailer trucks for transport to Flin Flon for transport by rail to customers. Final tails from the Stall concentrator are currently pumped to the Anderson Tailings Impoundment Area ("TIA") for permanent disposal.

Crushed ore that is hauled to the New Britannia concentrator is side dumped into a loading pocket and conveyed to the fine ore bin. No stockpiling capacity is present at the New Britannia site. The crushed ore is conveyed to the single rod and ball mill line. The mill feeds a single flotation circuit where a copper concentrate is produced. The copper concentrate is thickened and filtered to remove water and is dropped into the concentrate storage on site. The tails from the flotation circuit feeds the tails leach circuit which produces a gold silver doré. The tails leach circuit utilizes a carbon-in-pulp flowsheet from which the tailings are treated to remove residual cyanide before pumping to the Anderson Tailings Impoundment Area ("TIA") for permanent disposal.

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The paste plant is located northeast of the existing headframe complex at the Lalor mine and delivery capacity of the paste can achieve 165 tonnes per hour solids (tails) or 93 cubic metres per hour paste. The paste plant is designed to fill voids left by mining of approximately 4,500 tonnes per day. Taking into account waste generated from development in the LOM and the plan not to hoist waste from underground the combined paste/waste backfilling capacity is approximately 6,000 tonnes per day. The paste plant is capable of varying the binder content in the paste to provide flexibility in the strength gain of the paste where higher and early strength may be required depending on mining method.

Tails required for paste are diverted to the Anderson booster pump station. Capacity of the pumping station range from 110 to 130 tonnes per hour to allow for some variation in the output of tailings from the concentrator. The tailings are directed into the Anderson TIA when not required for the paste plant.

Two pipelines are installed between the Anderson booster pump station and the paste plant located at Lalor mine site, approximately a 13 kilometre distance. Paste is delivered underground via one of two - nominal 8 inch diameter, cased boreholes from surface to the 780 metre level the mine. Only one borehole is required during normal operation, with the second borehole available as a spare in the event of a plug or excessive wear on the primary hole.

A network of underground lateral piping and level to level boreholes transfer the paste from the base of the discharge hopper to the required underground locations.

Permitting and Environmental

The permits required for the current Lalor operation, including the Lalor mine, Stall concentrator, New Britannia concentrator and Anderson tailings facility have all been issued and remain valid.

At this time, there are no known environmental concerns which could adversely affect Hudbay's ability to operate the Lalor mine. Since the mine site is nearby existing facilities in the Snow Lake area, the Lalor mine was able to utilize infrastructure, services, and previously disturbed land associated with permitted, pre-existing and current mining operations in the Snow Lake area. The Lalor mine and associated projects are designed to minimize the potential impact on the surrounding environment by keeping the footprint of the operations as small as possible and by using existing licensed facilities for the withdrawal of water and disposal of wastes.

Initial proposals for baseline work at WIM have been prepared by AECOM. Once complete these environmental studies will form the basis of the required approvals needed to advance this project should it be deemed viable.

3 Zone is part of the New Britannia site. Significant environmental studies of the area are available, and additional environmental assessments would be utilized to augment our understanding of the property and any potential offsite impacts. Approvals to advance this project would be through Provincial regulators as part of an alteration of the existing Environment Act Licence for the property.

The 1901 deposit would leverage all existing surface and underground development near Lalor operations. Significant environmental baseline work has recently been conducted by AECOM and in conjunction with the significant amount past studies will be used to gain approvals for this development should it prove viable.

Based on Hudbay's long-term (more than 50 years) mining experience in the Snow Lake region, and baseline studies to date, there is no known First Nation or Aboriginal hunting, fishing, trapping or other traditional use of the land in the zone of potential influence for the Lalor mine and associated facilities. Post closure, all water quality and earthen structures will be monitored and inspected in order to ensure the sites' conditions meet the applicable regulatory requirements.

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Capital and Operating Costs

The capital expenditures required to execute the LOM plan at Lalor and 1901 includes pre-production mine development for 1901, and the sustaining capital required to continue capitalized mine development activity and to replace/acquire mining equipment. The 1901 mine development plan is scheduled to start in 2024, followed by ramp-up to the maximum production rate in 2026. It is also envisaged that additional synergies with Lalor will exist and so reductions in mine equipment costs and personnel requirements are factored into the cost profile.

Other remaining capitalized expenditures included in the LOM plan relate to milling and environmental activities and growth projects such as the Stall mill recovery improvement program (discussed under "Mineral Processing and Metallurgy" above).

The forecasted life of mine capital and operating costs are set out in the Snow Lake Technical Report. Cost inflation, changes to the mine plan and other factors may cause these costs to fluctuate over the life of mine and, as such, Hudbay provides an annual guidance range each year based on current assumptions. The 2023 cost guidance is set out in Hudbay's news release dated February 23, 2023.

The information presented in this section is forward looking information. See "Cautionary Statement on Forward-Looking Information" and "Risks and Uncertainties" in this AIF.

Exploration, Development and Production

Since 2014, one exploration drift and one exploration ramp were developed at Lalor for a total of 1,891 metres. The development was undertaken to establish underground platforms to conduct exploration drilling on targets that could not be drilled from existing mine infrastructure.

Since 2017, exploration drilling at Lalor has both focused on adding and converting inferred mineral resource estimates with a strong emphasis on confirming the continuity of the gold mineralization.

Hudbay commenced a winter drill program in January 2023 with four drill rigs testing the down-dip gold and copper extensions of the Lalor deposit, which is the first time we have completed step-out drilling in the deeper zones at Lalor since the initial discovery of the gold and copper-gold zones in 2009 and 2010. One additional drill rig is testing a geophysical anomaly located within 400 metres of existing Lalor underground infrastructure. Four drill holes have been completed during the winter drill program and assay results from base metal and copper-gold mineralized intercepts identified from core logging are pending as of the date hereof.

With the inclusion of the New Britannia mill, net revenue at Lalor will shift from primarily zinc to primarily gold, positioning Lalor as a primary gold mine with significant zinc, copper and silver by-products. Revenue from precious metals through the remaining life-of-mine is expected to be approximately 65% of total revenue. Significant zinc and copper revenue provides diversified commodity exposure.

WIM and 3 Zone mine operations are scheduled for 24 hours per day, 365 days per year, with initial production from WIM scheduled to commence in 2030. A combined mining rate between 1,200 and 1,500 tonnes per day will match the New Britannia mill capacity and will provide an additional 8 years of operating life after the Lalor mine ceases operation. From 2030 to 2038, New Britannia is expected to operate at average feed grades of 2.2 grams per tonne gold and 1.3% copper, as the Lalor feed is replaced by WIM and 3 Zone.

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WIM and 3 Zone Capital and Operating Cost Profiles

The WIM mine development plan contemplates construction activities occurring in 2029, followed by commissioning in 2030 and ramp-up to the maximum production rate by end of 2031. The capital expenditures required for refurbishing the existing mining infrastructures at 3 Zone have been grouped with the WIM sustaining capital expenditure and are estimated to be C$164 million, in aggregate from 2029 to 2037.

WIM and 3 Zone will be traditional long hole underground mining operation with waste backfill and ramp access. Ore from both deposits will be trucked using the same haul road to the New Britannia mill which is located 15 kilometres from WIM and 3 kilometres from 3 Zone. It is envisaged to use some of the spare equipment from Lalor as well as an already existing workforce. Given the short distance to the town of Snow Lake, there will be no need for an additional camp.

The information presented in this section is forward looking information. See "Cautionary Statement on Forward-Looking Information" and "Risks and Uncertainties" in this AIF.

COPPER WORLD

Project Description, Location and Access

The Copper World project (the "Project") is located within the historic Helvetia-Rosemont Mining District that dates back to the 1800's. The deposit lies on the northern end and western foothills of the Santa Rita Mountain range approximately 30 miles (50 km) southeast of Tucson, in Pima County. The land is located in Townships 17, 18 and 19 South, Ranges 15 and 16 East, Gila & Salt River Meridian, Pima County, Arizona. The Project geographical coordinates are approximately 31º 86'N and 110º 77'W. Access to the Project is from Santa Rita and Helvetia Roads from the west and Highway 83, over and across Forest Service roads from the east.

The core of the Project mineral resource is contained within the 132 patented mining claims and mill sites that in total encompass an area of 2,004 acres (811 hectares) (the "Patented Claims"). Surrounding the Patented Claims is a contiguous package of 1,866 unpatented mining claims and mill sites with an aggregate area of more than 22,416 acres (9,072 hectares) (the "Unpatented Claims"). Associated with the Patented Claims and Unpatented Claims are 80 parcels of fee (private) land consisting of approximately 3,301 acres (1,336 hectares) (the "Associated Fee Lands"). The area covered by the Patented Claims, Unpatented Claims and Associated Fee Lands totals approximately 27,721 acres (11,218 hectares).

The patented mining claims are considered to be private lands that provide the owner with both surface and mineral rights. The patented mining claim block, including the core of the mineral resource, is monumented in the field by surveyed brass caps on short pipes cemented into the ground. The fee lands are located by legal description recorded at the Pima County Recorder's Office. The patented claims and Associated Fee Lands are subject to annual property taxes amounting to a total of approximately $8,800.

Mineral Rights on US Forest Service and Bureau of Land Management ("BLM") lands have been reserved to Copper World, Inc., via the unpatented claims that surround the patented claims. Wooden posts and stone cairns mark the unpatented claim corners, end lines and discovery monuments, all of which have been surveyed. The unpatented claims are maintained through the payment of annual maintenance fees of $155.00 per claim, for a total of approximately $165,000 per year, payable to the BLM.

There is a 3% NSR royalty on all 132 patented claims, 603 of the unpatented claims, and one parcel of the Associated Fee Lands with an area of approximately 180 acres.

As discussed in the body of this AIF, the Copper World Project consists of the seven recently discovered Copper World deposits, along with the East deposit, and Hudbay's ownership in the Project is subject to a precious metals stream agreement with Wheaton Precious Metals.

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History

The first recorded mining activity in the Helvetia-Rosemont mining district occurred in 1875. The Helvetia-Rosemont mining district was officially established in 1878. Production from mines on both sides of the Santa Rita ridgeline supported the construction and operation of the Columbia Smelter in Helvetia and the Rosemont Smelter in Old Rosemont. Copper production from the district ceased in 1961 after production of about 438,000 tons of ore containing 36,766,000 pounds of copper, 1,130,000 pounds of zinc and 361,600 ounces of silver.

By the late 1950s, the Banner Mining Company (Banner) had acquired most of the claims in the area and had drilled the discovery hole into the East deposit. In 1963, the Anaconda Mining Co. acquired options to lease the Banner holdings. Their exploration program demonstrated that a large-scale porphyry/skarn existed at the East deposit. Regional exploration also identifies targets at the Broadtop Butte and Peach-Elgin prospects.

In 1973, Anaconda Mining Co. and Amax Inc. formed a 50/50 partnership to form the Anamax Mining Co. In 1977, following years of drilling and evaluation, the Anamax joint venture generated a resource estimate of about 445 million tons of sulfide mineralization averaged 0.54% copper using a cut-off grade of 0.20% copper. In addition to the sulfide material, 69 million tons of oxide mineralization averaging 0.45% copper was estimated.

In 1979, Anamax carried out a resource estimate for the Broadtop Butte deposit located about a mile north of the East deposit. Their mineral estimate identified 9 million tons averaging 0.77% copper and 0.037% molybdenum. In 1985, Anamax ceased operations and liquidated their assets.

Asarco purchased the patented and unpatented mining claims in the Helvetia-Rosemont mining district from real estate interests in August 1988 and renewed exploration of the Peach-Elgin and initiated engineering studies on the East deposit. In 1999, Grupo Mexico acquired the Helvetia-Rosemont property through a merger with Asarco. 2004, Grupo Mexico sold the property to a Tucson developer.

In April 2005, Augusta purchased the property from Triangle Ventures LLC. Over the next several years, Augusta continued to evaluate the mineral potential and refine the economics of developing this resource.

Following the acquisition of the Project, Hudbay conducted infill drilling campaign between September 2014 and November 2015 in further efforts to gain a better understanding of the geological setting and mineralization of the East deposit and to collect additional metallurgical and geotechnical information. Drilling conducted by Hudbay was used in combination with previous drilling campaigns to build resource models that supported a Feasibility Study completed and documented in the 2017 Technical Report. The 2017 Technical Report included an estimate of the mineral reserves and mineral resources at the East deposit that is now considered to be a historical estimate.

After significant exploration success on its patented mining claims in 2020 and ongoing litigation uncertainty regarding the project design set forth in the 2017 Feasibility Study, Hudbay began to evaluate alternative design options to unlock value within this prospective district. This included remodeling the 2017 mineral resources, incorporating the new mineral resources from successful exploration results and completing new metallurgical testing work, which led to a comprehensive review of the mine plan, process plant design, tailings deposition strategies and permitting requirements for the new project.

This culminated in the release of a preliminary economic assessment of our 100%-owned Copper World project in July 2022 (the "PEA").

Geological Setting, Mineralization, and Deposit Types

The deposits are located in the Laramide belt, a major porphyry province that includes a number of other world class deposits. The deposits are located in the northern block of the Santa Rita Mountains dominated by Precambrian granite with slices of Paleozoic and Mesozoic sediments and small stocks and dikes of quartz monzonite or quartz latite porphyry that are related to porphyry copper and skarn mineralization. Tertiary faulting has significantly segmented the original stratigraphy juxtaposing mineralized and unmineralized rocks. Mineralization occurs as both copper oxides and sulfides in skarns and in the intrusive porphyry.

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Genetically, skarns form part of the suite of deposit styles associated with porphyry copper centers. The skarns were formed as the result of thermal and metasomatic alteration of Paleozoic carbonate and to a lesser extent Mesozoic clastic rocks. Near surface weathering has resulted in the oxidation of the sulfides in the overlying Mesozoic units at the East deposit and near surface Paleozoic units at Copper World.

Mineralization is mostly in the form of primary (hypogene) copper, molybdenum and silver bearing sulfides, found in stockwork veinlets, and disseminated in the altered host rock at depth. Near surface, along structural zones, and in quartzite units oxidized copper mineralization is present. The oxidized mineralization occurs as mixed copper oxide and copper carbonate minerals. Locally, enrichment of supergene chalcocite and associated secondary mineralization are found in and beneath the oxidized mineralization.

Exploration

In October 2020, Hudbay resumed exploration drilling on targets at its Copper World private land claims located north and west of the East deposit. The drill program included drilling of targets proximal to the historic mines in the Broadtop Butte and Peach areas as well as greenfield drilling over the Elgin, Copper World (now referred to as the "West" deposit) and Bolsa areas.

In 2021, Hudbay expanded its exploration drilling efforts on its private land claims located northwest of the East deposit, now defined as the Copper World areas where small scale copper mining had been conducted between the late 19th century until the 1960's. Drilling confirmed the occurrence of both oxide and sulfide copper mineralization over 7 deposits including: Bolsa, Broad Top Butte, Copper World, Peach South Limb, North Limb, and Elgin deposits. The copper mineralization starts in most cases near surface and contains higher grades at shallower depth than at the East deposit. Hudbay continued to drill in 2022 with a focus on infill drilling to support the future conversion of mineral resource to mineral reserve estimates.

Drilling

Extensive drilling has been conducted at the Copper World deposits by several successive property owners. The most recent drilling was by Hudbay, with prior drilling campaigns completed by Banner Mining Company, Anaconda Mining Co., Anamax, ASARCO and Augusta. In total, 244,260 metres of drilling have been completed on the property. These drill holes were drilled using a combination of churn, percussion, reverse circulation and diamond drilling (coring) methods.

In all of the Hudbay's drilling campaigns, efforts were consistently made to obtain representative samples by drilling either H-size (2.5 inch or 63.5 mm diameter) or N-size (1.9 inch or 47.6 mm diameter) core. Reverse circulation drilling performed under Hudbay's ownership were excluded from mineral resource estimates in skarn mineralization due to a sampling representativity issue. Some limited reverse circulation drilling conducted in the porphyry mineralization was retained as valid and used for resource modeling purposes..

Sampling, Analysis, and Data Verification

The Sampling, Analysis and Data Verification results has been discussed in length in the last technical report published on SEDAR in 2022, therefore, only a high-level description will be presented here.

Sample preparation, security, and analytical procedures used by Augusta and Hudbay since 2005 meet current industry accepted standards. QA/QC procedures including the use of certified reference material, blanks and interlaboratory checks on pulp duplicates have resulted in acceptable precision, accuracy, and contamination level. Statistical comparisons and database entry checks of older historical drilling data did not identify any significant biases or database quality issues. Specific gravity was measured in laboratories using water displacement on core and validated with box weight measurements to derive in-situ density estimates for each mineralization domain.

2022 ANNUAL INFORMATION FORM  | B22

Mineral Processing and Metallurgical Testing

Numerous metallurgical tests were performed, notably confirmation: testing of the tests conducted by Augusta, comminution, JK drop-weight, SAG Power Index and Bond ball mill work index tests to assess the hardness of the material, mineralogical and metallurgical testing of the oxide material on the Peach, Elgin and Broadtop Butte deposits and also on the East deposit transitional zone mineralization where copper occurs as secondary copper sulfides and copper oxides.

The test work demonstrated that copper-molybdenum separation was achievable but due to the limited amount of test work done to date, Molybdenum recovery estimates are based on industry benchmarking and assume 50% recovery to a 50% molybdenum concentrate.

Through the course of all the mineral processing and metallurgical testing, no deleterious elements were found to have a negative impact on plant performance or on the marketable value of the copper and molybdenum concentrates to be produced at the Project.

On the basis of the body of testwork that exists, including both the historical testwork, and the testing programs completed by Hudbay since the acquisition of the property, forecasts of recovery, concentrate grade and quality, as well as characteristics of the resultant tailing product have been developed. Metal recovery regressions were established for each deposit as a function of the ratio between copper in oxides and total copper.

Mineral Resources Estimate

Hudbay used three-dimensional models of lithological units and mineralization envelopes constructed in Leapfrog Geo™ software using an 'implicit modeling' approach. A wireframe model of the 0.10% Cu grade shell was also constructed in Leapfrog Geo™. The selection of this copper grade thresholds for modelling was based on visual inspection of the spatial and statistical grade distribution. The grade shell includes mineralization grading less than 0.10% Cu where it was deemed necessary in order to maintain a smooth and continuous three-dimensional envelope. The different lithological units were grouped into four structural domains which were further divided into mineralized envelopes based on the dominance of oxide or sulfide copper mineralization within the 0.10% Cu grade shell.

Drill core assay intervals for copper (Cu), soluble copper (CuSS), molybdenum (Mo), and silver (Ag) were composited down hole into a fixed length of 25ft. The composite intervals were back-tagged with a copper grade-shell code based on the wireframe models to be used during grade estimation. Visual checks were conducted to ensure back-tagging worked as expected.

The block model consists of non-rotated regular blocks of 50ftx50ftx50ft as a reasonable proxy for the anticipated Selective Mining Unit (SMU) during open pit mining. All the individual blocks in the model were assigned a mineralized envelope code using the wireframes prepared in Leapfrog™. Within each mineralized envelope, blocks were assigned a dry bulk density based on the mean value of in-situ density measured from core box weights and validated with laboratory measurements.

The Cu, CuSS, Mo and Ag block grade values were interpolated using an Ordinary Kriging (OK) estimator with a three-pass estimation approach with each successive pass having greater search distances and less restrictive sample selection requirements. A firm boundary approach within each mineralized envelope was employed for all metals.

The block model grade estimates were validated by Hudbay through visual inspection comparing composite grades to block grades, statistical checks, and selectivity checks. During its review, Hudbay identified an opportunity to reduce the inherent smoothing of the kriged model. This correction was implemented separately by mineralized envelope based on grade distribution and also by areas with consistent drilling density.

A Lerchs Grossman analysis was performed using the block models constructed by Hudbay. Several economic analyses were developed for nested pit shells. The purpose of this assessment was to evaluate free discounted cash flow, revenue, stripping ratio, development, sustaining capital, and as guidance for internal phases, recoveries by processing route and by deposit. The base-case pit shell retained for resource reporting corresponds to a revenue factor of 1.0 with an assumed copper price of $3.45/lb to ensure potential for economic extraction of the mineral resource estimates.

2022 ANNUAL INFORMATION FORM  | B23

Mining Operations

The mine will be a traditional open pit shovel and truck operation with bench heights of 50 and 100 feet, and 255- ton capacity haul trucks for material and waste movement.

The mining sequence follows a two-phase approach, where the first phase of production considers the exploitation of the pits and their associated infrastructure over a footprint requiring only state and local permits for 16 years (plus one year of pre-stripping). During this period, all waste, tailings, and leach pads are disposed within the limits of Hudbay's private land properties. After this first phase, it is assumed that all necessary permits have been obtained in order to mine and deposit tailings and waste also on unpatented mining claims for a second production phase. The open pits are mined in a sequence consisting of 17 mining phases for a total lifetime of 44 years, plus one additional year of pre-stripping. The three Copper World pits will measure 5,600 ft on average in diameters with an average depth of 520 ft while the final East pit size will measure approximately 8,200 ft in diameter and have a depth of approximately 2,250 ft. Through the life of mine 1,486 million tons of economic material and approximately 2,437 million tons of waste will be extracted, yielding a life of mine stripping ratio of 1.64 (including pre-stripping material).

Pit design and production were conducted using a NSR optimization model in order to select the optimum processing method that maximizes NPV for each mining block extracted from the open pits taking into consideration land restriction both for mining and for the connected actions of waste, leach pads and tailings depositions as well as the maximum capacity of the various components of the processing facilities.

An important constraint on the mine production schedule during Phase I is the limited space for disposing waste rock, tailings, and economic material on leach pads. In addition, some of the waste rock can only be disposed after mining has been completed at the Elgin and West pits. These important constraints result in a sub-optimum mining sequence from a strict economic standpoint but allow the mine to operate in a sustainable manner during Phase I for 17 years until federal permits are in place. Securing these permits earlier would unlock significant benefits to the project by removing these important constraints on the mining schedule allowing more tons and/or better grade to enter the mine plan earlier than currently planned.

Processing and Recovery Operations

The processing facilities include an oxide leach and solvent extraction and electro-winning (SX/EW) facility, a sulfide concentrator, a concentrate leach facility and an acid plant. The capacity of the sulfide concentrator during Phase I is 60,000 tons per day of sulfide material while the tonnage of Run of Mine (ROM) leached material is 20,000 tons per day. In year 17, the sulfide throughput will increase to 90,000 tons per day for the duration of Phase II.

The oxide leach and SX/EW facility follows a conventional process involving ROM leaching, solvent extraction and electrowinning. The sulfide mill consists of conventional crushing, grinding, flotation, molybdenum separation, concentrate dewatering and tailings dewatering. The sulfide concentrate produced in the sulfide mill is further processed in the concentrate leach facility via atmospheric leach tanks to produce a pregnant leach solution (PLS) which is combined with the PLS from the oxide leaching circuit. The combined PLS is treated by SX/EW to produce copper cathode. For the purpose of the PEA, atmospheric leach tanks were selected as the preferred technology. In addition, the concentrate leach facility comprises sulfur flotation, dewatering, and purification to produce a sulfur concentrate which is processed through an acid plant, along with additional purchased sulfur, to create 410 kt/a of sulfuric acid. The solids residue is further treated in a precious metals recovery step. Fugitive heat from the acid plant is recovered and used for power generation.

Capital and Operating Costs

The total project capital costs are estimated to be $1,966 million including $401 million in contingency. The LOM sustaining capital costs are estimated to be $1,498 million excluding capitalized stripping and $2,065 million including capitalized stripping. The capital cost estimate is considered to be a Class 5 estimate as defined by AACE Recommended Practice 47R-11 for the mining and mineral process industry.

2022 ANNUAL INFORMATION FORM  | B24

The economic viability of the Project has been evaluated using the metal prices outlined below and cost projections based on the 2022 PEA study. The metal prices used in the economic analysis are based on a blend of consensus metal price forecasts from over 30 well known financial institutions and Wood Mackenzie.

Metal Price Assumptions:

Spot Copper: $3.50 (per pound)

Spot Molybdenum: $11.00 (per pound) 

Spot Silver: $22.00 (per ounce)

Streamed Silver: $3.90 (per ounce), subject to a 1% escalation after 3 years

Based on the cash flow model results, the Project has an unlevered after-tax NPV10% of $1,296M, an after-tax IRR of 18%, a payback period of 5.3 Years, and an annual average EBITDA of $492M at a long-term copper price of $3.50/lb. Phase I has a stand-alone NPV10% of $741M and an after-tax IRR of 17% while Phase II adds $555M to the NPV10% with an incremental after-tax IRR of 49% entirely funded through cash flow from operation during Phase I.

SUMMARY OF KEY METRICS (at $3.50lb Cu)

METRIC

UNIT

Phase I

Phase II

LOM

Valuation Metrics (Unlevered)1

 

 

 

 

Net present value @ 8% (after-tax)

$ millions

$1,097

$947

$2,044

Net present value @ 10% (after-tax)

$ millions

$741

$555

$1,296

Internal rate of return (after-tax)

%

17%

49%

18%

Payback period

# years

5.3

1.7

-

EBITDA (annual avg.)2

$ millions

$438

$530

$497

Project Metrics

 

 

 

 

Growth capital

$ millions

$1,917

$885

$2,802

Construction length

# years

3.0

2.0

-

Operating Metrics

 

 

 

 

Mine life

# years

16.0

28.0

  44.0

Cu cathode - mined resources (annual avg.)3

000 tonnes

86.4

101.3

95.9

Cu cathode - total (annual avg.)3

000 tonnes

98.7

123.3

114.3

Copper recovery - sulfide to cathode

%

77.3

80.1

79.2

Copper recovery - oxide to cathode

%

59.0

58.7

58.9

Sustaining capital (annual avg.)

$ millions

$33

$35

$34

Cash cost4

$/lb Cu

$1.15

$1.11

$1.12

Sustaining cash cost4

$/lb Cu

$1.44

$1.42

$1.43

Notes: "LOM" refers to life-of-mine total or average.

1. Calculated assuming the following commodity prices: copper price of $3.50 per pound, copper cathode premium of $0.01 per pound (net of cathode transport charges), silver stream price of $3.90 per ounce and molybdenum price of $11.00 per pound. Reflects the terms of the existing Wheaton Precious Metals stream, including an upfront deposit of $230 million in the first year of Phase I construction in exchange for the delivery of 100% of silver produced.

2. EBITDA is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information, please refer to the company's most recent Management's Discussion and Analysis.

2022 ANNUAL INFORMATION FORM  | B25

3. The mine plan assumes external concentrate is sourced in years when spare capacity exists at the SX/EW facility in order to maximize the full utilization of the facility. Copper cathode production from mined resources excludes the production from external concentrate. Average annual copper cathode production from external concentrates is approximately 12,000 tonnes in Phase I and 22,000 tonnes in Phase II. There remains the potential to replace external copper concentrate with additional internal feed.

4. Cash cost and sustaining cash cost, net of by-product credits, per pound of copper produced from internally sourced feed and excludes the cost of purchasing external copper concentrate, which may vary in price or potentially be replaced with additional internal feed. Byproduct credits calculated using the following commodity prices: molybdenum price of $11.00 per pound, silver stream price of $3.90 per ounce and amortization of deferred revenue as per the company's approach in its quarterly financial reporting. By-product credits also include the revenue from the sale of excess acid produced at a price of $145 per tonne. Sustaining cash cost includes sustaining capital expenditures and royalties. Cash cost and sustaining cash cost are non-IFRS financial performance measures with no standardized definition under IFRS. For further details on why Hudbay believes cash costs are a useful performance indicator, please refer to the company's most recent Management's Discussion and Analysis.

Exploration, Development and Production

Following the release of the Copper World PEA, we have continued to execute our strategy to de-risk the project. Pre-feasibility activities for Phase I of the Copper World project are well-advanced and are expected to support the conversion of mineral resources to mineral reserves and optimize the layout and sequencing of the mineral processing facilities, in addition to evaluating other upside opportunities. A pre-feasibility study for Phase I of the Copper World project is expected to be released in mid-2023.

The information presented in this section is forward looking information. See "Cautionary Statement on Forward-Looking Information" and "Risks and Uncertainties" in this AIF.

2022 ANNUAL INFORMATION FORM  | B26

SCHEDULE C: AUDIT COMMITTEE CHARTER

HUDBAY MINERALS INC.

(THE "COMPANY")

AUDIT COMMITTEE CHARTER

PURPOSE

The Audit Committee is appointed by the Board of Directors to assist the Board of Directors in its oversight and evaluation of:

• the quality and integrity of the financial statements of the Company,

• the compliance by the Company with legal and regulatory requirements in respect of financial disclosure,

• the qualification, independence and performance of the Company's independent auditor,

• the appointment, independence and performance of the Company's head of the internal audit function,

• the design and ongoing review of the Company's risk management system, and

• the performance of the Company's Chief Financial Officer.

In addition, the Audit Committee provides an avenue for communication among the independent auditor, the internal audit function, the Company's Chief Financial Officer and other financial senior management, other employees and the Board of Directors concerning accounting, auditing and risk management matters.

The Audit Committee is directly responsible for the recommendation of the appointment and retention (and termination) and for the compensation and the oversight of the work of the independent auditor (including oversight of the resolution of any disagreements between senior management and the independent auditor or the internal audit function regarding financial reporting) for the purpose of preparing audit reports or performing other audit, review or attest services for the Company. Also, the Audit Committee is directly responsible for the approval of the appointment and retention (and termination) and the oversight of the work of the internal audit function.

The Audit Committee is not responsible for:

• planning or conducting audits,

• certifying or determining the completeness or accuracy of the Company's financial statements or that those financial statements are in accordance with generally accepted accounting principles.

Each member of the Audit Committee shall be entitled to rely in good faith upon:

• financial statements of the Company represented to him or her by senior management of the Company or in a written report of the independent auditor to present fairly the financial position of the Company in accordance with generally accepted accounting principles; and

• any report of a lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by any such person.

The fundamental responsibility for the Company's financial statements and disclosure rests with senior management.

2022 ANNUAL INFORMATION FORM  |  C1

REPORTS

The Audit Committee shall report to the Board of Directors on a regular basis and, in any event, before the public disclosure by the Company of its quarterly and annual financial results. The reports of the Audit Committee shall include any issues of which the Audit Committee is aware with respect to the quality or integrity of the Company's financial statements, its compliance with legal or regulatory requirements, the performance and independence of the Company's independent auditor, the performance and independence of the Company's internal audit function and changes in risks over which the Audit Committee has oversight.

The Audit Committee also shall prepare, as required by applicable law, any audit committee report required for inclusion in the Company's publicly filed documents.

COMPOSITION

The members of the Audit Committee shall be three or more individuals who are appointed (and may be replaced) by the Board of Directors on the recommendation of the Company's Corporate Governance and Nominating Committee. The appointment of members of the Audit Committee shall take place annually at the first meeting of the Board of Directors after a meeting of shareholders at which directors are elected, provided that if the appointment of members of the Audit Committee is not so made, the directors who are then serving as members of the Audit Committee shall continue as members of the Audit Committee until their successors are appointed. The Board of Directors may appoint a member to fill a vacancy that occurs in the Audit Committee between annual elections of directors. Any member of the Audit Committee may be removed from the Audit Committee by a resolution of the Board of Directors. Unless the Chair is elected by the Board of Directors, the members of the Audit Committee may designate a Chair by majority vote of the members of the Audit Committee.

Each of the members of the Audit Committee shall meet the Company's Categorical Standards for Determining Independence of Directors and shall be financially literate (or acquire that familiarity within a reasonable period after appointment) in accordance with applicable legislation and stock exchange requirements. No member of the Audit Committee shall:

• accept (directly or indirectly) any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries1 (other than remuneration for acting in his or her capacity as a director or committee member) or be an "affiliated person"2 of the Company or any of its subsidiaries, or

• concurrently serve on the audit committee of more than three other public companies without the prior approval of the Audit Committee, the Corporate Governance and Nominating Committee and the Board of Directors and their determination that such simultaneous service would not impair the ability of the member to effectively serve on the Audit Committee (which determination shall be disclosed in the Company's annual management information circular).

Notes:

1 A company is a subsidiary of another company if it is controlled, directly or indirectly, by that other company (through one or more intermediaries or otherwise).

2 An "affiliate" of a person is a person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with the first person.

2022 ANNUAL INFORMATION FORM  | C2

RESPONSIBILITIES

Independent Auditor

The Audit Committee shall:

• Recommend the appointment and the compensation of, and, if appropriate, the termination of the independent auditor, subject to such Board of Directors and shareholder approval as is required under applicable legislation and stock exchange requirements.

• Obtain confirmation from the independent auditor that it ultimately is accountable, and will report directly, to the Audit Committee and the Board of Directors.

• Oversee the work of the independent auditor, including the resolution of any disagreements between senior management and the independent auditor regarding financial reporting.

• Pre-approve all audit and non-audit services (including any internal control-related services) provided by the independent auditor (subject to any restrictions on such non-audit services imposed by applicable legislation, regulatory requirements and policies of the Canadian Securities Administrators).

• Adopt such policies and procedures as it determines appropriate for the pre-approval of the retention of the independent auditor by the Company and any of its subsidiaries for any audit or non-audit services, including procedures for the delegation of authority to provide such approval to one or more members of the Audit Committee.

• Provide notice to the independent auditor of every meeting of the Audit Committee.

• Approve all engagements for accounting advice prepared to be provided by an accounting firm other than independent auditor.

• Review quarterly reports from senior management on tax advisory services provided by accounting firms other than the independent auditor.

• Review expense reports of the Chairman and the Chief Executive Officer.

Internal Audit Function

The Audit Committee shall:

• Approve the appointment and, if appropriate, the termination of the head of the internal audit function.

• Obtain confirmation from the head of the internal audit function that he or she is ultimately accountable, and will report directly, to the Audit Committee.

• Oversee the work of the internal audit function, including the resolution of any disagreements between senior management and the internal audit function.

• Approve the internal audit function annual plan.

• Review quarterly reports from the head of the internal audit function.

2022 ANNUAL INFORMATION FORM  | C3

The Audit Process, Financial Statements and Related Disclosure

The Audit Committee shall:

• Meet with senior management and/or the independent auditor to review and discuss,

• the planning and staffing of the audit by the independent auditor,

• before public disclosure, the Company's annual audited financial statements and quarterly financial statements, the Company's accompanying disclosure of Management's Discussion and Analysis and earnings press releases and make recommendations to the Board of Directors as to their approval and dissemination of those statements and disclosure,

• financial information and earnings guidance provided to analysts and rating agencies: this review need not be done on a case by case basis but may be done generally (consisting of a discussion of the types of information disclosed and the types of presentations made) and need not take place in advance of the disclosure,

• any significant financial reporting issues and judgments made in connection with the preparation of the Company's financial statements, including any significant changes in the selection or application of accounting principles, any major issues regarding auditing principles and practices, and the adequacy of internal controls that could significantly affect the Company's financial statements,

• all critical accounting policies and practices used,

• all alternative treatments of financial information within IFRS that have been discussed with senior management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor,

• the use of "pro forma" or "adjusted" non-IFRS information,

• the effect of new regulatory and accounting pronouncements,

• the effect of any material off-balance sheet structures, transactions, arrangements and obligations (contingent or otherwise) on the Company's financial statements,

• any disclosures concerning any weaknesses or any deficiencies in the design or operation of internal controls or disclosure controls made to the Audit Committee in connection with certification of forms by the Chief Executive Officer and/or the Chief Financial Officer for filing with applicable securities regulators, and

• the adequacy of the Company's internal accounting controls and management information systems and its financial, auditing and accounting organizations and personnel (including any fraud involving an individual with a significant role in internal controls or management information systems) and any special steps adopted in light of any material control deficiencies.

• Review disclosure of financial information extracted or derived from the Company's financial statements.

• Review with the independent auditor,

• the quality, as well as the acceptability of the accounting principles that have been applied,

• any problems or difficulties the independent auditor may have encountered during the provision of its audit services, including any restrictions on the scope of activities or access to requested information and any significant disagreements with senior management, any management letter provided by the independent auditor or other material communication (including any schedules of unadjusted differences) to senior management and the Company's response to that letter or communication, and

2022 ANNUAL INFORMATION FORM  | C4

• any changes to the Company's significant auditing and accounting principles and practices suggested by the independent auditor or other members of senior management.

Risks

The Audit Committee shall:

• Recommend to the Board of Directors for approval a policy (the "ERM Policy") that sets out the risk management philosophy of the Company and the expectations and accountabilities for identifying, assessing, monitoring and managing the most significant risks facing the Company (the "Principal Risks") that is developed and is to be implemented by senior management.

• Meet with senior management to review and discuss the Principal Risks that have been assigned to the Audit Committee for monitoring, including business, financial and information technology risks of the Company, including potential emerging risks, and the actions taken by the Company to mitigate those risks.

• Approve a formalized, disciplined and integrated enterprise risk management process (the "ERM Process") that is developed by senior management and, as appropriate, the Board and its Committees, to monitor, manage and report Principal Risks.

• Recommend to the Board of Directors for approval policies (and changes thereto) setting out the framework within which each identified Principal Risks of the Company shall be managed.

• At least semi-annually, obtain from senior management and, as appropriate, with the input of one or more of the Board's Committees, a report specifying the management of the Principal Risks of the Company including compliance with the ERM Policy and other policies of the Company for the management of Principal Risks.

• Review with senior management the Company's tolerance for financial risk and senior management's assessment of the significant financial risks facing the Company.

• Discuss with senior management, at least annually, the guidelines and policies utilized by senior management with respect to financial risk assessment and management, and the major financial risk exposures and the procedures to monitor and control such exposures in order to assist the Audit Committee to assess the completeness, adequacy and appropriateness of financial risk disclosure in Management's Discussion and Analysis and in the financial statements.

• Review policies and compliance therewith that require significant actual or potential liabilities, contingent or otherwise, to be reported to the Board of Directors in a timely fashion.

• Review the adequacy of insurance coverages maintained by the Company.

• At least semi-annually, obtain from senior management a report on information technology matters, including any significant developments related to the Company's information security policies and practices and information technology infrastructure, and the management of related risks.

• Discharge the Board's oversight function in respect of the administration of the pension and other retirement plans of the Company and its affiliates.

2022 ANNUAL INFORMATION FORM  | C5

Compliance

The Audit Committee shall:

• Obtain reports from senior management that the Company's subsidiary/foreign affiliated entities are in conformity with applicable legal requirements and the Company's Code of Business Conduct and Ethics including disclosures of insider and affiliated party transactions and environmental protection laws and regulations.

• Review with senior management and the independent auditor any correspondence with regulators or governmental agencies and any employee complaints or published reports, which raise material issues regarding the Company's financial statements or accounting policies.

• Review senior management's written representations to the independent auditor.

• Advise the Board of Directors with respect to the Company's policies and procedures regarding compliance with applicable laws and regulations and with the Company's Code of Business Conduct and Ethics.

• Review with the Company's General Counsel legal matters that may have a material impact on the financial statements, the Company's compliance policies and any material reports or inquiries received from regulators or governmental agencies.

• Establish procedures for,

• the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and

• the confidential, anonymous submission by employees of the Company with concerns regarding any accounting or auditing matters.

Delegation

To avoid any confusion, the Audit Committee responsibilities identified above are the sole responsibility of the Audit Committee, unless otherwise directed by the Board of Directors.

INDEPENDENT ADVICE

In discharging its mandate, the Audit Committee shall have the authority to retain (and authorize the payment by the Company of) and receive advice from special legal, accounting or other advisors as the Audit Committee determines to be necessary to permit it to carry out its duties.

2022 ANNUAL INFORMATION FORM  | C6
Hudbay Minerals Inc.: Exhibit 99.2 - Filed by newsfilecorp.com
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Exhibit 99.2

 

 

Audited Consolidated Financial Statements

(In US dollars)

 

HUDBAY MINERALS INC.

 

Years ended December 31, 2022 and 2021

 

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Hudbay Minerals Inc. ("Hudbay" or the "Company") is responsible for establishing and maintaining internal control over financial reporting ("ICFR").

Under the supervision of and with the participation of the Chief Executive Officer and the Chief Financial Officer, Hudbay's management assessed the effectiveness of the Company's ICFR as of December 31, 2022 based upon the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that Hudbay's ICFR was effective as of December 31, 2022.

The effectiveness of the Company's ICFR as of December 31, 2022 has been audited by Deloitte LLP, Independent Registered Public Accounting Firm, as stated in their report immediately preceding the Company's audited consolidated financial statements for the year ended December 31, 2022.

 

Peter Kukielski Eugene Lei
President and Chief Executive Officer Senior Vice President and Chief Financial Officer

 

Toronto, Canada

February 23, 2023

 

exhibit99-1x001.jpg Deloitte LLP
Bay Adelaide East
8 Adelaide Street West
Suite 200
Toronto ON M5H 0A9
Canada

Tel: 416-601-6150
Fax: 416-601-6151
www.deloitte.ca

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Hudbay Minerals Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Hudbay Minerals Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated income statements, consolidated statements of comprehensive profit (loss), changes in equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and its financial performance and its cash flows for each of the two years in the period ended December 31, 2022, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Impairment - Assessment of Whether Indicators of Impairment or Impairment Reversal Exist in Non-financial Assets - Refer to Note 2d & 3i to the Financial Statements

Critical Audit Matter Description

The Company's determination of whether an indicator of impairment or impairment reversal exists in non-financial assets at the cash generating unit ("CGU") level requires significant management judgment.

While there are several inputs that are required to determine whether or not an indicator of impairment or impairment reversal exists, the judgments with the highest degree of subjectivity are the future long-term copper price, inputs to the market capitalization deficiency assessment (specifically control premiums, industry specific factors and company performance), and the discount rate. Auditing these estimates and inputs required a high degree of subjectivity in applying audit procedures and in evaluating the results of those procedures. This resulted in an increased extent of audit effort, including the involvement of fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the future long-term copper price, inputs to the market capitalization deficiency assessment (specifically control premiums, industry specific factors and company performance), and the discount rate in the assessment of indicators of impairment or impairment reversal included the following, among others:

• Evaluated the effectiveness of controls over management's assessment of the indicators of impairment or impairment reversal.

• With the assistance of fair value specialists:

◦ Evaluated the future long-term copper price by comparing management forecasts to third party forecasts,

◦ Performed an assessment of the market capitalization deficiency to the carrying value of the CGUs which included: assessing control premiums, industry specific factors, company performance, and

◦ Evaluated the reasonableness of the discount rate by comparing the key inputs to external data.

Impairment - Identification of Impairment Indicator within Arizona CGU - Refer to Note 2d, 3i, & 12 to the Financial Statements

Critical Audit Matter Description

The Company's determination of whether an indicator of impairment or impairment reversal exists in non-financial assets at the cash generating unit ("CGU") level requires significant management judgment. An impairment loss is recognized if the carrying amount of the CGU exceeds its recoverable amount. The recoverable amount of the CGU is estimated based on the higher of its fair value less cost of disposal and its value in use. An impairment indicator was identified at the Arizona CGU due to the release of the preliminary economic assessment ("PEA") and two-phase mine plan for the Copper Word Complex ("Copper World"). The Company used a discounted cashflow model to determine the recoverable amount of the Arizona CGU which required management to make significant estimates and assumptions related to the future commodity prices, production based on current estimates of recoverable resources, discount rates, and future operating and capital costs.

While there are several inputs that are required to determine the recoverable amount of the Arizona CGU, the estimates and assumptions with the highest degree of subjectivity and judgment uncertainty are the future long-term copper price and the discount rates. Auditing these estimates and assumptions required a high degree of auditor judgment in applying audit procedures and in evaluating the results of those procedures. This resulted in an increased extent of audit effort, including the involvement of fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the future long-term copper price and discount rates used to determine the recoverable amount of the Arizona CGU included the following procedures, among others:

• Evaluated the effectiveness of relevant controls over management's determination of the long-term copper price and the discount rates.

• With the assistance of fair value specialists:

◦ Evaluated the future long-term copper price by comparing management forecasts to third party forecasts, and

◦ Evaluated the reasonableness of the discount rates by testing the source information underlying the determination of the discount rates and developed a range of independent estimates for the discount rates and compared to the discount rates selected by management.

/s/ Deloitte LLP

Chartered Professional Accountants

Licensed Public Accountants

Toronto, Canada

February 23, 2023

We have served as the Company's auditor since 2005.

 

exhibit99-1x001.jpg

Deloitte LLP
Bay Adelaide East
8 Adelaide Street West
Suite 200
Toronto ON M5H 0A9
Canada
Tel: 416-601-6150
Fax: 416-601-6151
www.deloitte.ca

 

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Hudbay Minerals Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Hudbay Minerals Inc. and subsidiaries (the "Company") as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 23, 2023, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

/s/ Deloitte LLP

Chartered Professional Accountants

Licensed Public Accountants

Toronto, Canada

February 23, 2023

HUDBAY MINERALS INC.

Consolidated Balance Sheets
(in thousands of US dollars)
 
 
      Dec. 31,     Dec. 31,  
  Note   2022     2021  
Assets              
Current assets              
Cash 7 $ 225,665   $ 270,989  
Trade and other receivables 8   113,182     204,081  
Inventories 9   155,012     158,453  
Prepaid expenses and other current assets     20,106     15,338  
Other financial assets 10   1,063     7,867  
Taxes receivable     9,153     -  
      524,181     656,728  
Receivables 8   13,329     16,084  
Inventories 9   50,725     37,573  
Other financial assets 10   9,799     11,158  
Intangibles and other assets 11   49,841     20,138  
Property, plant and equipment 12   3,552,430     3,740,966  
Deferred tax assets 23b   125,638     133,584  
    $ 4,325,943   $ 4,616,231  
Liabilities              
Current liabilities              
Trade and other payables 13 $ 211,467   $ 207,777  
Taxes payable     4,051     15,243  
Other liabilities 14   46,806     63,002  
Other financial liabilities 15   33,301     29,308  
Gold prepayment liability 5, 16   71,208     71,394  
Lease liabilities 17   16,156     33,529  
Deferred revenue 19   64,658     88,963  
      447,647     509,216  
Other financial liabilities 15   52,446     52,358  
Gold prepayment liability 5, 16   -     68,614  
Lease liabilities 17   44,863     44,473  
Long-term debt 18   1,184,162     1,180,274  
Deferred revenue 19   404,880     426,363  
Pension obligations 21   3,262     6,252  
Other employee benefits 22   86,340     128,588  
Environmental and other provisions 20   279,240     461,501  
Deferred tax liabilities 23b   251,294     261,764  
      2,754,134     3,139,403  
Equity              
Share capital 24b   1,780,774     1,778,848  
Reserves     26,538     (182 )
Retained earnings     (235,503 )   (301,838 )
      1,571,809     1,476,828  
    $ 4,325,943   $ 4,616,231  
Commitments (note 29)  

 

1

HUDBAY MINERALS INC.

Consolidated Income Statements

(in thousands of US dollars, except per share amounts)
 
 
  Note   Year ended December 31,  
  2022     2021  
Revenue 6a $ 1,461,440   $ 1,501,998  
Cost of sales              
Mine operating costs 6b   846,937     819,582  
Depreciation and amortization 6c   337,615     357,924  
Impairment - environmental provision 6i   -     193,473  
      1,184,552     1,370,979  
               
Gross profit     276,888     131,019  
Selling and administrative expenses     33,986     43,011  
Exploration expenses 5   34,511     39,223  
Other expenses 5, 6f   32,586     35,119  
Re-evaluation adjustment - environmental provision 5, 20   (133,460 )   (4,602 )
Impairment - Arizona 6h   94,956     -  
Results from operating activities     214,309     18,268  
Net interest expense on long term debt 6g   67,663     74,748  
Accretion on streaming arrangements 6g   27,778     42,654  
Change in fair value of financial instruments 6g   942     54,514  
Other net finance costs 6g   22,111     49,103  
Net finance expense     118,494     221,019  
Profit (loss) before tax     95,815     (202,751 )
Tax expense 23a   25,433     41,607  
Profit (loss) for the year   $ 70,382   $ (244,358 )
               
Profit (loss) per share              
Basic   $ 0.27   $ (0.93 )
Diluted   $ 0.27   $ (0.93 )
               
Weighted average number of common shares outstanding:              
Basic 26   261,858,531     261,462,323  
Diluted 26   262,217,528     261,462,323  

 

2

HUDBAY MINERALS INC.

Consolidated Statements of Cash Flows
(in thousands of US dollars)
 
 
      Year ended December 31,  
Note   2022     2021  
Cash generated from operating activities:              
Profit (loss) for the year   $ 70,382   $ (244,358 )
Tax expense 23a   25,433     41,607  
Items not affecting cash:              
Depreciation and amortization

6c

   339,063     359,767  
Share-based compensation

6d

   2,064     12,145  
Net interest expense on long-term debt

6g

   67,663     74,748  
Accretion on streaming arrangements

6g

   27,778     42,654  
Change in fair value of financial instruments

6g

   942     54,514  
Other net finance costs

6g

   22,111     49,103  
Inventory adjustments

6b

   3,553     3,999  
Amortization of deferred revenue and variable consideration

6a

   (73,188 )   (73,136 )
Pension and other employee benefit payments, net of accruals     1,545     7,975  
Re-evaluation adjustment - environmental obligation

5, 20

   (133,460 )   (4,602 )
Impairment - environmental obligation

6i

   -     193,473  
Impairment - Arizona

6h

   94,956     -  
Decommissioning and restoration payments

20

   (15,460 )   (21,663 )
Other

31a

   (2,043 )   7,768  
Taxes paid     (39,610 )   (20,132 )
Operating cash flow before precious metals stream deposit and changes in non-cash working capital     391,729     483,862  
Precious metals stream deposit

19

   -     4,000  
Change in non-cash working capital

31b

   96,074     (102,791 )
      487,803     385,071  
Cash used in investing activities:              
Acquisition of property, plant and equipment

5

   (308,960 )   (352,177 )
Community agreements

5

   (37,491 )   (26,511 )
Net proceeds from disposal of investments     1,919     1,193  
Proceeds from disposition of property, plant and equipment     4,101     -  
Change in restricted cash     (49 )   (100 )
Interest received     2,810     1,338  
      (337,670 )   (376,257 )
Cash used in financing activities:              
Issuance of senior unsecured notes, net of transaction costs

18a

   -     591,922  
Principal repayments

18a

   -     (600,000 )
Premium paid on redemption of notes

18a

   -     (22,878 )
Interest paid on long-term debt     (63,750 )   (84,435 )
Financing costs     (12,272 )   (19,623 )
Lease payments

17

   (35,770 )   (37,719 )
Gold prepayment liability

16

   (71,714 )   -  
Deferred Rosemont acquisition payment     (10,000 )   -  
Net proceeds from exercise of stock options     1,253     980  
Dividends paid 24b   (4,047 )   (4,146 )
      (196,300 )   (175,899 )
Effect of movement in exchange rates on cash     843     (1,061 )
Net decrease in cash     (45,324 )   (168,146 )
Cash, beginning of the year     270,989     439,135  
Cash, end of the year   $ 225,665   $ 270,989  

 

3

HUDBAY MINERALS INC.

Consolidated Statements of Comprehensive Profit (Loss)
(in thousands of US dollars)
 
 
    Year ended December 31,  
    2022     2021  
Profit (loss) for the year $ 70,382   $ (244,358 )
             
Other comprehensive (loss) income:            
Item that will be reclassified subsequently to profit or loss:            
Recognized directly in equity:            
Net (loss) gain on translation of foreign currency balances   (17,666 )   1,336  
    (17,666 )   1,336  
             
Items that will not be reclassified subsequently to profit or loss:            
Recognized directly in equity:            
Gold prepayment revaluation (note 16)   512     (2,684 )
Tax effect   (135 )   721  
Remeasurement - actuarial gain   45,083     29,449  
Tax effect   (2,249 )   (6,195 )
    43,211     21,291  
             
Other comprehensive income net of tax, for the year   25,545     22,627  
Total comprehensive profit (loss) for the year $ 95,927   $ (221,731 )
 

 

4

HUDBAY MINERALS INC.

Consolidated Statements of Changes in Equity
(in thousands of US dollars)
 
 
    Share capital
(note 24)		     Other capital
reserves		     Foreign currency
translation reserve		     Remeasurement
reserve		     Retained earnings     Total equity  
Balance, January 1, 2021 $ 1,777,340   $ 55,937   $ 1,571   $ (81,708 ) $ (53,334 ) $ 1,699,806  
Loss   -     -     -     -     (244,358 )   (244,358 )
Other comprehensive income   -     -     1,336     21,291     -     22,627  
Total comprehensive income (loss)   -     -     1,336     21,291     (244,358 )   (221,731 )
Contributions by and distributions to owners:                                    
Dividends (note 24b)   -     -     -     -     (4,146 )   (4,146 )
Stock options (note 6d)   -     1,919     -     -     -     1,919  
Issuance of shares related to stock options redeemed   1,508     (528 )   -     -     -     980  
Total contributions by and distributions to owners   1,508     1,391     -     -     (4,146 )   (1,247 )
                                     
Balance, December 31, 2021 $ 1,778,848   $ 57,328   $ 2,907   $ (60,417 ) $ (301,838 ) $ 1,476,828  

 

5

HUDBAY MINERALS INC.

Consolidated Statements of Changes in Equity
(in thousands of US dollars)
 
 
    Share capital
(note 24)		     Other capital
reserves		     Foreign currency
translation reserve		     Remeasurement
reserve		     Retained earnings     Total equity  
Balance, January 1, 2022 $ 1,778,848   $ 57,328   $ 2,907   $ (60,417 ) $ (301,838 ) $ 1,476,828  
Profit   -     -     -     -     70,382     70,382  
Other comprehensive (loss) income   -     -     (17,666 )   43,211     -     25,545  
Total comprehensive (loss) income   -     -     (17,666 )   43,211     70,382     95,927  
Contributions by and distributions to owners:                                    
Dividends (note 24b)   -     -     -     -     (4,047 )   (4,047 )
Stock options (note 6d)   -     1,848     -     -     -     1,848  
Issuance of shares related to stock options redeemed   1,926     (673 )   -     -     -     1,253  
Total contributions by and distributions to owners   1,926     1,175     -     -     (4,047 )   (946 )
                                     
Balance, December 31, 2022 $ 1,780,774   $ 58,503   $ (14,759 ) $ (17,206 ) $ (235,503 ) $ 1,571,809  

 

6

HUDBAY MINERALS INC.

Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

1. Reporting entity

Hudbay Minerals Inc. ("HMI" or the "Company") is a company existing under the Canada Business Corporations Act. The address of the Company's principal executive office is 25 York Street, Suite 800, Toronto, Ontario. The audited consolidated financial statements ("financial statements") of the Company for the year ended December 31, 2022 and 2021 represent the financial position and the financial performance of the Company and its subsidiaries (together referred to as "Hudbay").

Wholly owned subsidiaries as at December 31, 2022 and 2021 include HudBay Marketing & Sales Inc. ("HMS"), HudBay Peru Inc., HudBay Peru S.A.C. ("Hudbay Peru"), HudBay (BVI) Inc., Hudbay Arizona Inc, Copper World, Inc. ("Copper World") and Mason Resources (US) Inc. ("Mason").

Hudbay is a diversified mining company with long-life assets in North and South America. Huday's operations in Cusco (Peru) produce copper with gold, silver and molybdenum by-products. Hudbay's operations in Manitoba (Canada) produce gold with copper, zinc and silver by-products. Hudbay has an organic pipeline that includes copper development projects in Arizona and Nevada (United States), and a focused growth strategy on exploration, development, operation, and optimization of properties that Hudbay already controls, as well as other mineral assets that Hudbay may acquire that fit the Company's strategic criteria. 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.

2. Basis of preparation

(a) Statement of compliance:

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") effective for the year ended December 31, 2022.

The Board of Directors approved these consolidated financial statements on February 23, 2023.

(b) Functional and presentation currency:

Hudbay's consolidated financial statements are presented in US dollars, which is the Company's and all material subsidiaries' functional currency, except the Company's Manitoba business unit, which has a functional currency of Canadian dollars. All values are rounded to the nearest thousand ($000) except where otherwise indicated.  

(c) Basis of measurement:

The consolidated financial statements have been prepared on the historical cost basis except for the following items in the consolidated balance sheets:

- Derivatives, embedded derivatives, other financial instruments, and financial assets measured at fair value through profit or loss ("FVTPL");

- Liabilities for cash-settled share-based compensation arrangements are measured at fair value; and,

- A defined benefit liability is recognized as the net total of the plan assets, unrecognized past service costs and unrecognized actuarial losses, less unrecognized actuarial gains and the present value of the defined benefit obligation.

 

7

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(d) Use of judgements and estimates:

The preparation of the consolidated financial statements in conformity with IFRS requires Hudbay to make judgements, estimates and assumptions that affect the application of accounting policies, reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and reported amounts of revenue and expenses during the reporting period. Actual results may differ from these estimates.

Hudbay reviews these estimates and underlying assumptions on an ongoing basis, based on experience and other factors, including expectations of future events that the Company believes to be reasonable under the circumstances. Revisions to accounting estimates are recognized prospectively in the period in which the estimates are revised and in any future periods affected.

The following are critical and significant judgements and estimates impacting the consolidated financial statements:

- Indicators and testing of impairment (reversal of impairment) of non-financial assets (notes 3h, 3i and 12) - There are a number of potential indicators that could trigger non-financial asset impairment or reversal of impairment. These indicators may require critical judgements to determine the extent that external and/or internal environmental business changes may impact Hudbay's overall assessment of the recoverability of non-financial assets. Such business changes include changes to the life of mine ("LOM") plan, changes to budget, changes to closure plans, changes to discount rates and changes to long-term commodity prices. If an impairment or impairment reversal indicator is noted then there are also critical estimates involved in the determination of the recoverable amount of cash generating units ("CGU") or below for more specific groups of assets. Recoverable amounts are calculated using discounted after-tax cash flows based on cash flow projections and assumptions in Hudbay's most recent LOM plans. LOM plans are based on optimized mine and processing plans and the assessment of capital expenditure requirements of a mine site. LOM plans incorporate management's best estimates of key assumptions which include future commodity prices, the value of mineral resources not included in the applicable LOM plans, production based on current estimates of recoverable reserves, discount rates, future operating and capital costs and future foreign exchange rates. Most critical to the value of the recoverable amount are the assumptions of future commodity prices and the value of mineral resources not included in the applicable LOM plans. Expected future cash flows used to determine the recoverable amount during impairment testing are inherently uncertain and could materially change over time. Should management's estimate of the future not reflect actual events, impairments may be identified, which could have a material effect on the financial statements. Although it is reasonably possible for a change in key assumptions to occur, the possible effects of a change in any single assumption may not fairly reflect the impact of CGU's fair value as the assumptions are inextricably linked.

- Mineral reserves and resources (notes 3g, 3k and 3i) - Hudbay estimates mineral reserves and resources to determine future recoverable mine production based on assessment of geological, engineering and metallurgical analyses, estimates of future production costs, capital costs and reclamation costs, as well as long term commodity prices and foreign exchange rates. There are numerous uncertainties inherent in estimating mineral reserves and resources, including many factors beyond Hudbay's control. The estimates are based on information compiled by appropriately qualified persons relating to the geological data on the size, depth and shape of the ore body and interpreting this data requires complex geological judgements. Changes in assumptions, including economic assumptions such as metals prices and market conditions, could have a material effect on the financial position and results of operations.

Changes in the mineral reserve or resource estimates may affect:

- the carrying value of exploration and evaluation assets, capital works in progress, mining properties and plant and equipment;

 

8

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

- depreciation expense for assets depreciated either on a unit-of-production basis or on a straight line basis where useful lives are restricted by the life of the related mine plan;

- the provision for decommissioning, restoration and similar liabilities;

- the carrying value of deferred tax assets; and,

- amortization of deferred revenue.

- Property plant and equipment (notes 3h and 12) - The carrying amounts of property, plant and equipment and exploration and evaluation assets on Hudbay's consolidated balance sheets are significant and reflect multiple estimates and applications of judgement. Management exercises judgement in determining whether the costs related to exploration and evaluation are eligible for capitalization and whether they are likely to be recoverable by future exploration, which may be based on assumptions about future events and circumstances. Judgement and estimates are used when determining whether exploration and evaluation assets should be transferred to capital works in progress within property, plant and equipment. For mines in the production stage, management applies judgement to determine development costs to be capitalized based on the extent they are incurred in order to access reserves mineable over more than one year. For depreciable property, plant and equipment assets, management makes estimates to determine depreciation. For assets depreciated using the straight line method, residual value and useful lives of the assets or components are estimated. A significant estimate is required to determine the total production basis for units-of-production depreciation. The most currently available reserve and resource report is utilized in determining the basis which has material impacts on the amount of depreciation recorded through inventories and the consolidated income statements. There are numerous uncertainties inherent in estimating mineral reserves, and assumptions that were valid at the reporting date may change when new information becomes available. The actual volume of ore extracted and any changes in these assumptions could affect prospective depreciation rates and carrying values. In determining whether stripping costs incurred during the production phase of a mining property relate to mineral reserves and mineral resources that will be mined in a future period and therefore should be capitalized, Hudbay makes estimates of the proportion of stripping activity which relates to extracting current ore and the proportion which relates to obtaining access to ore reserves which will be mined in the future.

- Tax provisions (notes 3m and 23) - Management makes estimates in determining the measurement and recognition of deferred tax assets and liabilities recorded on the consolidated balance sheets. The measurement of deferred tax assets and deferred tax liabilities is based on tax rates that are expected to apply in the period that the asset is realized or liability is settled based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets, including those arising from unutilized tax losses, require management to assess the likelihood of taxable income in the future periods in order to utilize recognized deferred tax assets. Estimates of future taxable income are based on forecasted cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability to realize the net deferred tax assets recorded at the balance sheet date could be affected. At the end of each reporting period, management reassesses the period that the assets are expected to be realized or liabilities are settled and the likelihood of taxable income in future periods in order to support and adjust the deferred tax assets and deferred tax liabilities recognized on the consolidated balance sheets.

- Assaying utilized to determine revenue and recoverability of inventories (notes 3c and 3f) - Assaying of contained metal is a key estimate in determining the amount of revenues recorded in the consolidated income statements. The estimate is finalized after final surveying is completed, which may extend to six months in certain transactions. Since assays are utilized to determine the value of recorded revenues, significant differences in given assays may result in a material misstatement of revenues on the consolidated income statements. Assay survey results are also a factor utilized to determine if inventories on hand have a net realizable value that exceeds cost. Material differences in assay results may lead to misstatements of inventory balances in the consolidated balance sheets.

 

9

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

- Decommissioning and restoration obligations (notes 3k and 20) - Significant judgement and estimates are utilized in the determination of the decommissioning and restoration provisions in the consolidated balance sheets. Judgement is involved in determining the timing and extent of cash outflows required to satisfy constructive obligations based on the timing of site closures in the LOM plans, expected unit costs to determine cash obligations to remediate disturbances and regulatory and constructive requirements, as well as technological changes to determine the extent and timing of the remediation required. The timing of cash outflows and discount rates associated with discounting the provision are also key estimates. Changes in these estimates may result in a change in classification of the provision between non-current and current as well as material differences in the total provision recorded in the consolidated balance sheets.

- Pension and other employee benefit (notes 3j, 21 and 22) - Hudbay's post retirement obligations relate mainly to ongoing health care benefits plans. Hudbay estimates obligations related to the pension and other employee benefits plans using actuarial determinations that incorporate assumptions using management's best estimates of factors including plan performance, salary escalation, retirement dates of employees and drug cost escalation rates. Due to the complexity of the valuation, the underlying assumptions and its long term nature, the defined benefit obligation is highly sensitive to changes in these assumptions. Management reviews all assumptions at each reporting date. In determining the appropriate discount rate, Hudbay considers the interest rates on corporate bonds in the respective currency with at least an AA rating, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The mortality rate is based on publicly available mortality tables for the specific country, and Hudbay bases future salary increases and pension increases on expected future inflation rates for the respective country.

(e) Estimation uncertainty:

The Company has assessed the economic impacts of the novel coronavirus ("COVID-19") pandemic, Russia's invasion of Ukraine and heightened social unrest following a change in Peru's political leadership in early December 2022 on its consolidated financial statements. As at December 31, 2022, management has determined that the Company's ability to execute its medium and longer term plans and the economic viability of its assets (including the carrying value of its long-lived assets and inventory valuations) are not materially impacted.

In making this judgment, the Company has assessed various criteria including, but not limited to, existing laws, regulations, orders, disruptions and potential disruptions in our supply chain, disruptions in the markets for our products, commodity prices and foreign exchange prices and the actions that the Company has taken at its operations to protect the health and safety of its workforce and local community.

3. Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and by all Hudbay's entities.

(a) Basis of consolidation:

Intercompany balances and transactions are eliminated upon consolidation. When a Hudbay entity transacts with an associate or jointly controlled entity of the Company, unrealized profits and losses are eliminated to the extent of Hudbay's interest in the relevant associate or joint venture. The accounting policies of Hudbay's entities are changed when necessary to align them with the policies adopted by the Company.

 

10

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Subsidiaries

A subsidiary is an entity controlled by Hudbay. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

Business combinations and goodwill

Should Hudbay make an acquisition, it first determines whether the assets acquired and liabilities assumed constitute a business, in which case the acquisition requires accounting as a business combination. Management applies judgement in determining whether the acquiree is capable of being conducted and managed for the purpose of providing a return, considering the inputs of the acquiree and processes applied to those inputs that have the ability to create outputs.

Hudbay applies the acquisition method of accounting to business combinations, whereby the goodwill is measured at the acquisition date as the fair value of the consideration transferred including the recognized amount of any non-controlling interests in the acquiree. When the excess is negative, a bargain purchase gain is recognized immediately in the consolidated income statements. The assessment of fair values on acquisition includes those mineral reserves and resources that are able to be reliably measured. In determining these fair values, management must also apply judgement in areas including future cash flows, metal prices, exchange rates and appropriate discount rates. Changes in such estimates and assumptions could result in significant differences in the amount of goodwill recognized.

The consideration transferred is the aggregate of the fair values, at the date of the acquisition, of the sum of the assets transferred, the liabilities incurred or assumed, and the equity instruments issued by the acquirer in exchange for control of the acquiree. Acquisition-related costs are recognized in the consolidated income statements as incurred, unless they relate to issuance of debt or equity securities.

Where applicable, the consideration transferred includes any asset or liability resulting from a contingent consideration arrangement and measured at its acquisition date fair value. Subsequent changes in such fair values are adjusted against the cost of acquisition where they qualify as measurement period adjustments. All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRS. Changes in the fair value of contingent consideration classified as equity are not recognized.

Where a business combination is achieved in stages, the Company's previously held interests in the acquired entity are remeasured to fair value at the acquisition date, which is the date Hudbay attains control, and any resulting gain or loss is recognized in the consolidated income statements. Amounts previously recognized in other comprehensive income ("OCI") related to interests in the acquiree prior to the acquisition date are reclassified to the consolidated income statements, where such treatment would be appropriate if that interest were disposed of.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of Hudbay's CGUs that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Goodwill is allocated to the lowest level at which it is monitored for internal management purposes and is not larger than an operating segment before aggregation. Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the determination of any gain or loss on disposal.

Goodwill is not amortized and is tested for impairment annually and whenever there is an indication of impairment. If any such indication exists, the recoverable amount of the CGU is estimated in order to determine the extent of the impairment, if any. The recoverable amount is determined as the higher of fair value less direct costs to sell and the CGU's value in use. An impairment loss in respect of goodwill is not reversed.

Fair value for mineral interests and related goodwill is generally determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset, including any expansion prospects, and its eventual disposal, using assumptions that an independent market participant may take into account.

 

11

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Value in use is determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset in its present form and its eventual disposal. Value in use is determined by applying assumptions specific to Hudbay's continued use and cannot take into account future development.

The weighted average cost of capital of Hudbay or comparable market participants is used as a starting point for determining the discount rates, with appropriate adjustments for the risk profile of the countries in which the individual CGUs operate and the specific risks related to the development of the project.

Where the asset does not generate cash flows that are independent of other assets, Hudbay estimates the recoverable amount of the CGU to which the asset belongs. If the carrying amount of an asset or CGU exceeds its recoverable amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized as an expense in the consolidated income statements.

(b) Translation of foreign currencies:

Management determines the functional currency of each Hudbay entity as the currency of the primary economic environment in which the entity operates.

Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Hudbay's entities at exchange rates in effect at the transaction dates.

At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated to the functional currency using the closing exchange rate. Non-monetary assets and liabilities measured at fair value are translated using the exchange rates at the date when fair value was determined. Non-monetary assets and liabilities measured at historical cost in a foreign currency are translated using exchange rates that were in effect at the transaction dates. The same translations are applied when an entity prepares its financial statements from books and records maintained in a currency other than its functional currency, except revenue and expenses may be translated at monthly average exchange rates that approximate those in effect at the transaction dates.

Foreign currency gains and losses arising on period-end revaluations are recognized in the consolidated income statements, except for a financial liability designated as a hedge of a net investment in a foreign operation, or qualifying cash flow hedges, which are recognized in OCI.

Foreign operations

For the purpose of the consolidated financial statements, assets and liabilities of Hudbay's entities that have functional currencies other than the US dollar are translated to US dollars at the reporting date using the closing exchange rate. Revenue and expenses are translated at monthly average exchange rates that approximate those in effect at the transaction dates. Differences arising from these foreign currency translations are recognized in OCI and presented within equity in the foreign currency translation reserve. When a foreign operation is disposed, the relevant exchange differences accumulated in the foreign currency translation reserve are transferred to the consolidated income statements as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such amount is reattributed to non-controlling interests. On disposal of a partial investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion is reclassified to profit or loss.

Net investment in a foreign operation

Foreign currency gains and losses arising on translation of a monetary item receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur in the foreseeable future are considered to form part of a net investment in the foreign operation. Such gains and losses are recognized in OCI and presented within equity in the foreign currency translation reserve.
 

12

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(c) Revenue recognition:

Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of treatment and refining charges. Revenue from the sale of by-products is included within revenue.

Revenue is recognized when control of the goods sold has been transferred to the customer. Control is deemed to have passed to the customer when significant risk and reward of the product has passed to the customer, Hudbay has a present right to payment, and physical possession of the product has been transferred to the customer. Sales of doré are recorded when a trade confirmation is duly signed and executed between Hudbay and the end purchaser. Sale of concentrate and finished zinc frequently occur under the following terms, and management has assessed these terms in order to determine timing of transfer of control and revenue recognition as generally outlined in the following table.

Incoterms used by Hudbay Revenue recognized when goods:
Cost, Insurance and Freight (CIF) Are loaded on board the vessel
Free on Board (FOB) Are loaded on board the vessel
Delivered at place (DAP) Arrive at the named place of destination
Delivered at terminal (DAT) Arrive at the named place of destination
Free Carrier (FCA) Arrive at the named place of delivery

Sales of copper and zinc concentrate and certain other products are provisionally priced. For these contracts, sales prices are subject to final adjustment at the end of a future period after shipment, based on quoted market prices during the quotational period specified in the contract. Revenue is recognized when the above criteria are achieved, using weight and assay results and forward market prices to estimate the fair value of the total consideration receivable. Therefore, revenue is initially recorded based on an initial provisional invoice. Subsequently, at each reporting date, until the provisionally priced sale is finalized, sales receivables are marked to market, with adjustments (both gains and losses) recorded within revenue separately as "Pricing and volume adjustments" in the notes to the consolidated financial statements and in trade and other receivables on the consolidated balance sheets. As per IFRS 15 Revenue from contracts with customers, variability in price is deemed to be fair value movements on provisionally priced receivables under the scope of IFRS 9 Financial Instruments; variability in quantities is deemed to be variable consideration. The variable consideration from weights and assay changes to quantities has been assessed to be insignificant to warrant precluding revenue being recorded as a result of possible future sales reversals. An annual analysis of the accuracy of our weights and assays is completed, and if the accuracy rate falls below a certain threshold, management then evaluates whether revenue from future sales should be constrained as a result of it being highly probable that there would be a significant revenue reversal in the future.

Hudbay only includes in the transaction price an amount which is not highly likely to be subject to significant subsequent revenue reversal. Within sales contracts with customers, separate performance obligations may arise pertaining to the shipping of goods sold. If applicable, costs and the transaction price are allocated on a relative standalone selling basis to any separate performance obligations and are recognized over the period of time the goods sold are shipped, on a gross basis.

Hudbay recognizes deferred revenue in the event it receives payments from customers before a sale meets criteria for revenue recognition.

Precious metals stream contracts, which at inception of the contract are determined that they can be satisfied through the delivery of Hudbay's own production of non-financial items (i.e. gold and silver credits) rather than cash or other financial assets, are accounted for as deferred revenue. If settlement with Hudbay's own production of gold and silver is not possible, the stream transaction is recognized as a financial liability since settlement may require a cash payment. This would cause a change to the accounting treatment, resulting in the revaluation of the agreement to the fair value through the consolidated income statements on a recurring basis.

 

13

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Deferred revenue associated with precious metals stream contracts are subject to variable consideration and contain a significant financing component since funds were received in advance of the delivery of concentrate. When a significant financing component is recognized, finance expense will be higher and revenues will be higher as the larger deferred revenue balance is amortized to revenues. A market-based discount rate is utilized at the inception of each of the respective stream agreements to determine a discount rate for computing the interest charges for the significant financing component of the deferred revenue balance. As product is delivered, the deferred revenue amount including accreted interest will be drawn down. The draw down rate requires the use of proven and probable reserves and certain resources in the calculation that are beyond proven and probable reserves which management is reasonably confident will be transferable to reserves. Key estimates used in determining the significant financing component include the discount rate and the reserve and resources assumed for conversion.

(d) Cost of sales:

Cost of sales consists of those costs previously included in the measurement of inventory sold during the period, as well as certain costs not included in the measurement of inventory, such as the cost of warehousing and distribution to customers, provisional pricing adjustments related to purchased concentrates, profit sharing, royalty payments, share-based compensation expense and other indirect expenses related to producing operations.

Cost of sales also include non-cash net realizable value adjustments to inventory, one-time adjustments related to overheads incurred when not operating at normal capacity and one-time labour charges related to facilitating the production of inventories for past service pension costs, curtailment gains and severance.

(e) Cash and cash equivalents:

Cash and cash equivalents include cash, demand deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Cash equivalents have maturities of three months or less at the date of acquisition. Interest earned is included in finance income on the consolidated income statements and in investing activities on the consolidated statements of cash flows.

Amounts that are restricted from being used for at least twelve months after the reporting date are classified as non-current assets and presented in restricted cash on the consolidated balance sheets. Changes in restricted cash balances are classified as investing activities on the consolidated statements of cash flows.

(f) Inventories:

Inventories consist of stockpiles, in-process inventory (concentrates and metals), metal products and supplies. Concentrates, doré, metals and all other saleable products are valued at the lower of cost and estimated net realizable value. Net realizable value represents the estimated selling price for inventories less all estimated direct and indirect costs of completion and costs necessary to make the sale. Where the net realizable value is less than cost, the difference is charged to the consolidated income statements as an impairment charge in cost of sales. Costs associated with stripping activities in an open pit mine are capitalized to inventory and recorded through cost of sales unless the stripping activity can be shown to improve access to further quantities of ore that will be mined in future periods, in which case, the stripping costs are capitalized to property, plant and equipment.

Cost of production of concentrate inventory is determined on a weighted average cost basis and the cost of production of finished metal inventory is determined using the first in first out basis. The cost of production includes direct costs associated with conversion of production inventory based on normal production capacity: material, labour, contractor expenses, purchased concentrates, and an attributable portion of production overheads and depreciation of all property, plant and equipment involved with the mining and production process. Hudbay measures in-process inventories based on assays of material received at metallurgical plants and estimates of recoveries in the production processes. Due to significant uncertainty associated with volume and metal content, immaterial costs are not allocated to routine operating levels of stockpiled ore. Estimates and judgements are required to assess the nature of any significant changes to levels of ore stockpiles and determining whether allocation of costs is required.

 

14

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Supplies are valued at the lower of average cost and net realizable value.

(g) Exploration and evaluation expenditures:

Exploration and evaluation activity begins when Hudbay obtains legal rights to explore a specific area and involves the search for mineral reserves, the determination of technical feasibility, and the assessment of commercial viability of an identified resource. Expenditures incurred in the exploration and evaluation phase include the cost of acquiring interests in mineral rights, licenses and properties and the costs of Hudbay's exploration activities, such as researching and analyzing existing exploration data, gathering data through geological studies, exploratory drilling, trenching, sampling, and certain feasibility studies.

Hudbay expenses the cost of its exploration and evaluation activities and capitalizes the cost of acquiring interests in mineral rights, licenses and properties in business combinations, asset acquisitions or option agreements. Amounts capitalized are recognized as exploration and evaluation assets and presented in property, plant and equipment. Exploration and evaluation assets acquired as a result of an asset acquisition or option agreement are initially recognized at cost, and those acquired in a business combination are recognized at fair value on the acquisition date. They are subsequently carried at cost less accumulated impairment. No depreciation is charged during the exploration and evaluation phase. Hudbay expenses the cost of subsequent exploration and evaluation activity related to acquired exploration and evaluation assets. Cash flows associated with acquiring exploration and evaluation assets are classified as investing activities in the consolidated statements of cash flows; those associated with exploration and evaluation expenses are classified as operating activities.

Judgement is required in determining whether the respective costs are eligible for capitalization where applicable, and whether they are likely to be recoverable, which may be based on assumptions about future events and circumstances. Estimates and assumptions made may change if new information becomes available.

Hudbay monitors exploration and evaluation assets for factors that may indicate their carrying amounts are not recoverable. If such indicators are identified, the Company tests the exploration and evaluation assets or their CGUs, as applicable, for impairment. Hudbay also tests for impairment when assets reach the end of the exploration and evaluation phase.

Exploration and evaluation assets are transferred to capital works in progress within property, plant and equipment once the Company determines that probable future economic benefits will be generated as a result of the expenditures. Hudbay's determination of probable future economic benefit is based on management's evaluation of the technical feasibility and commercial viability of the geological properties of a given ore body based on information obtained through evaluation activities, including metallurgical testing, resource and reserve estimates and the economic assessment of whether the ore body can be mined economically. Tools that may be used to determine this include a preliminary feasibility study, confidence in converting resources into reserves and the probability that the property could be developed into a mine site. At that time, the property is considered to enter the development phase, and subsequent evaluation costs are capitalized.

(h) Property, plant and equipment:

Hudbay measures items of property, plant and equipment at cost less accumulated depreciation and any accumulated impairment losses.

The initial cost of an item of property, plant and equipment includes its purchase price or construction costs, including import duties and non-refundable purchase taxes, any costs directly attributable to bringing the asset into operation, and for qualifying assets, borrowing costs. The initial cost of property, plant and equipment also includes the initial estimate of the cost of dismantling and removing the item and restoring the site on which it is located, the obligation which Hudbay incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.

 

15

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Capitalization of costs ceases once an asset is in the location and condition necessary for it to be capable of operating in the manner intended by management. At this time, depreciation commences. For a new mine, this occurs upon commencement of commercial production. As a result of the early adoption of the amendments to IAS 16, since January 1, 2021, any revenues less cost to produce, earned prior to commencement of commercial production, are included in the consolidated income statements.

Carrying amounts of property, plant and equipment, including right-of-use ("ROU") assets, are depreciated to their estimated residual value over the estimated useful lives of the assets or the estimated life of the related mine or plant, if shorter. Where components of an asset have different useful lives, depreciation is calculated on each separate component. Components may be physical or non-physical, including the cost of regular major inspections and overhauls required in order to continue operating an item of property, plant and equipment.

Certain items of property, plant and equipment are depreciated on a unit-of-production basis. The unit-of-production method is based on proven and probable tonnes of ore reserves. There are numerous uncertainties inherent in estimating ore reserves, and assumptions that were valid at the reporting date may change when new information becomes available. The actual volume of ore extracted and any changes in these assumptions could affect prospective depreciation rates and carrying values.

The carrying amount of an item of property, plant and equipment is derecognized on disposal or when no future economic benefits are expected from its use or disposal. Upon derecognition of an item of property, plant and equipment, the difference between its carrying value and net sales proceeds, if any, is presented as a gain or loss in other operating income or expense in the consolidated income statements.

i. Capital works in progress:

Capital works in progress consist of items of property, plant and equipment in the course of construction or mineral properties in the course of development, including those transferred upon completion of the exploration and evaluation phase. On completion of construction or development, costs are transferred to plant and equipment and/or mining properties as appropriate. Capital works in progress are not depreciated.

ii. Mining properties:

Mining properties consist of costs transferred from capital works in progress when a mining property reaches commercial production, costs of subsequent mine and exploration development, and acquired mining properties in the production stage.

Mining properties include costs directly attributable to bringing a mineral asset into the state where it is capable of operating in the manner intended by management and includes such costs as the cost of shafts, ramps, track haulage drifts, ancillary drifts, pumps, electrical substations, refuge stations, ventilation raises, permanent manways, and ore and waste pass raises. The determination of development costs to be capitalized during the production stage of a mine operation requires the use of judgements and estimates such as estimates of tonnes of waste to be removed over the life of the mining area and economically recoverable reserves extracted as a result.

A mining property is considered to be capable of operating in a manner intended by management when it commences commercial production based on pre-established criteria. Upon commencement of commercial production, a mining property is depreciated on a unit-of-production method. Unit-of-production depreciation rates are determined based on the related proven and probable mineral reserves and associated future development costs.

 

16

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Subsequent mine development costs are capitalized to the extent they are incurred in order to access reserves mineable over more than one year. Ongoing maintenance and development expenditures are expensed as incurred and included in cost of sales in profit or loss. These include ore stope access drifts, footwall and hangingwall drifts in stopes, drawpoints, drill drifts, sublevels, slots, drill raises, stope manway access raises and definition diamond drilling.

iii. Plant and equipment:

Plant and equipment consists of buildings and fixtures, surface and underground fixed and mobile equipment and assets under lease.

Plant and equipment are depreciated on either unit-of-production or straight-line basis based on factors including the production life of assets and mineable reserves. In general, mining assets are depreciated using a unit-of-production method; equipment is depreciated using the straight-line method, based on the shorter of its useful life and that of the related mine or facility; and plants are depreciated using the straight-line method, with useful lives limited by those of related mining assets.

iv. Right-of-use lease assets:

At inception of a contract, Hudbay assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company assesses the following criteria in the determination of whether a contract conveys the right to control the use of an identified asset:

• The contract involves the use of an identified asset - this may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has substantive substitution rights, then the asset is not identified;

• Hudbay has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and

• Hudbay has the right to direct the use of the asset by means of decision making rights that are most relevant to changing how and for what purpose the asset is used. In the case where decisions about the asset's purpose is predetermined, Hudbay is deemed to have the right to direct the use of the asset if either:

▪ Hudbay has the right to operate the asset; or,

▪ Hudbay designed the asset in a way that predetermines how and for what purpose it will be used.

The Company recognizes a ROU asset and lease liability at the lease commencement date. The initial measurement of the ROU asset is on a present value basis. This is based on the calculated lease liability plus any initial direct costs incurred, an estimate of removal or restoration costs, and any payments made prior to commencement of the lease less any lease incentives received.

The right of use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of the right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is measured at the present value of the lease payments that are yet to be paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be easily determined, Hudbay's incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate for applicable leases.

 

17

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Lease payments included in the measurement of the lease liability comprise fixed payments including in substance fixed payments and variable payments that depend on an index or rate, amounts expected to be payable under a residual value guarantee and the additional costs Hudbay reasonably expects to incur due to purchase options, extension options and termination options reasonably expected to be exercised.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in the expected future cash flows of a leasing contract either due to a change in index or rate, or due to a change in terms of the contract. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset is zero.

Hudbay has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component for lease contracts of all asset classes.

The Company has elected not to recognize ROU assets and lease liabilities for short-term leases of machinery that have a lease term of 12 months or less and leases of low-value assets. Hudbay recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Hudbay does not enter into transactions where the Company acts as a lessor.

The incremental borrowing rate used for new ROU leases is a key management judgement.

v. Depreciation rates of major categories of assets:

• Capital works in progress          - not depreciated

• Mining properties                       - unit-of- production

• Mining asset                                - unit-of- production

• Plant and Equipment

◦ Equipment                     - straight-line over 1 to 20 years

◦ Other plant assets         - straight-line over 1 to 20 years/unit-of-production

• ROU Assets                                 - straight -line over 1 to 20 years

Hudbay reviews its depreciation methods, remaining useful lives and residual values at least annually and accounts for changes in estimates prospectively.

vi. Commercial production:

Commercial production is the level of activities intended by management for a mine, or a mine and mill complex, to be capable of operating in the manner intended by management. Hudbay considers a range of factors when determining the level of activity that represents commercial production for a particular project, including a predetermined percentage of design capacity for the mine and mill; achievement of continuous production, ramp-ups, or other output; or specific factors such as recoveries, grades, or inventory build-ups. In a phased mining approach, management may consider achievement of specific milestones at each phase of completion. In a non-phased mining approach, management considers average actual metrics that are at least 60% of average design capacity or plan over a continuous period. Management assesses the operation's ability to sustain production over a period of approximately one to three months, depending on the complexity related to the stability of continuous operation. Commercial production is considered to have commenced, and depreciation expense is recognized, at the beginning of the month after criteria have been met.

 

18

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

vii. Capitalized borrowing costs:

The Company capitalizes borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time, generally one year or more, to get ready for their intended use or sale. Capitalization of borrowing costs ceases once the qualifying assets commence commercial production or are otherwise ready for their intended use or sale.

Where funds are borrowed specifically to finance a project, the amount capitalized represents the actual borrowing costs incurred. Where the funds used to finance a project form part of general borrowings, the amount capitalized is calculated using a weighted average of interest rates applicable to relevant general borrowings of Hudbay during the period, to a maximum of actual borrowing costs incurred. Investment income earned by temporarily investing specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Capitalization of interest is suspended during extended periods in which active development is interrupted.

All other borrowing costs are recognized in the consolidated income statements in the period in which they are incurred.

viii. Capitalized stripping costs:

Costs associated with stripping activities in an open pit mine are capitalized to inventory and recorded through cost of sales unless the stripping activity can be shown to improve access to further quantities of ore that will be mined in future periods, in which case, the stripping costs are capitalized to property, plant and equipment. Capitalized stripping costs are included in "mining properties" within property, plant and equipment.

Capitalized stripping costs are depreciated using a units-of-production method over the expected reserves within a given phase of mine development.

(i) Impairment of non-financial assets:

At the end of each reporting period, Hudbay reviews the carrying amounts of property, plant and equipment, exploration and evaluation assets and intangible assets - computer software to determine whether there is any indication of impairment. If any such indication exists, the Company estimates the recoverable amount of the asset in order to determine the extent of the impairment loss, if any. Hudbay generally assesses impairment at the level of CGUs, which are the smallest identifiable groups of assets that generate cash inflows that are largely independent of cash inflows from other assets.

Hudbay's CGUs consist of Manitoba, Peru, Arizona and greenfield exploration assets.

The Company allocates near mine exploration and evaluation assets to CGUs based on their operating segment, geographic location and management's intended use for the property. Near mine exploration and evaluation assets are allocated to CGUs separate from those containing producing or development-phase assets, except where such exploration and evaluation assets have the potential to significantly affect the future production of producing or development-phase assets.

Goodwill, if recorded, is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Where an indicator of impairment exists, a formal estimate of the recoverable amount of the asset or CGU is made. The recoverable amount is the higher of the fair value less costs of disposal and value in use:

- Fair value less costs of disposal is the amount obtainable from the sale of the asset or CGU in an arm's length transaction between knowledgeable, willing parties, less costs of disposal. Fair value for mineral assets is often determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset, including any expansion prospects, and its eventual disposal, using assumptions that an independent market participant may take into account. These cash flows are discounted by an appropriate discount rate that reflects current market assessments of the time value of money and the risks specific to the asset to arrive at a net present value of the asset.

 

19

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

- Value in use is determined as the present value of the estimated future cash flows expected to arise from the continued use of the asset or CGU in its present form and its eventual disposal, discounted using a pre-tax rate that reflects current market assessments of the time value of money and risks specific to the asset for which estimates of future cash flows have not been adjusted. Value in use calculations apply assumptions specific to the Company's continued use and cannot take into account future development. These assumptions are different to those used in calculating fair value, and consequently the value in use calculation is likely to give a different result to a fair value calculation.

Hudbay estimates future cash flows based on estimated future recoverable mine production, expected sales prices (considering current and historical commodity prices, price trends and related factors), production levels and cash costs of production, all based on detailed engineering LOM plans. Future recoverable mine production is determined from reserves and resources after taking into account estimated dilution and recoveries during mining, and estimated losses during ore processing and treatment. Estimates of recoverable production from measured, indicated and inferred mineral resources not included in the LOM plan are assessed for economic recoverability and may also be included in the valuation of fair value less costs of disposal. Gains from the expected disposal of assets are not included in estimated future cash flows. Assumptions underlying future cash flow estimates are subject to risks and uncertainties. Changes in estimates may affect the expected recoverability of the Company's investments in mining properties.

If the carrying amount of an asset or CGU exceeds its recoverable amount, the carrying amount is reduced to the recoverable amount, and an impairment loss is recognized in the consolidated income statements in the expense category consistent with the function of the impaired asset or CGU. Hudbay presents impairment losses on the consolidated income statements as part of results from operating activities. Impairment losses recognized in respect of a CGU are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amounts of other assets in the CGU on a pro-rata basis for depreciable assets.

The Company assesses previously recognized impairment losses each reporting date for any indications that the losses have decreased or no longer exist. Such an impairment loss is reversed, in full or in part, if there have been significant changes with a positive effect on the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized for the asset in prior years. Such reversals of impairment losses are recognized in the consolidated income statements. An impairment loss recognized in relation to goodwill is not reversed for subsequent increases in the recoverable amount.

(j) Pension and other employee benefits:

Hudbay has non-contributory and contributory defined benefit programs for the majority of its Canadian employees. The defined benefit pension benefits are based on years of service and final average salary for the salaried plans and are based on a flat dollar amount combined with years of service for the hourly plans. The Company provides non pension health and other post-employment benefits to certain active employees and pensioners (post-employment benefits) and also provides disability income, health benefits and other post-employment benefits to hourly and salaried disabled employees (other long-term employee benefits).

Hudbay accrues its obligations under the defined benefit plans as the employees render the services necessary to earn the pension and post-employment benefits. The actuarial determination of the accrued benefit obligations for pensions and post-employment benefits uses the projected benefit method pro-rated on service (which incorporates management's best estimate of future salary levels, other cost escalation, retirement ages of employees and other actuarial factors). For other long-term employee benefits, the Company recognizes the full cost of the benefit obligation at the time the employee becomes disabled. Actuarial advice is provided by external consultants.

 

20

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

For the funded defined benefit plans, Hudbay recognizes the deficit or excess of the fair value of plan assets over the present value of the defined benefit obligation as a liability or an asset in the consolidated balance sheets. However, the Company recognizes an excess of assets only to the extent that it represents a future economic benefit which is available in the form of refunds from the plan or reductions in future contributions to the plan. When these criteria are not met, it is not recognized but is disclosed in the notes to the consolidated financial statements. Impacts of minimum funding requirements in relation to past service are considered when determining the balance sheet position.

Defined benefit costs are categorized as follows:

- Service costs (including current service cost, past service cost, as well as gains and losses on curtailments and settlements and administration costs),

- Net interest expense or income; and,

- Remeasurement.

The first two components of defined benefit costs shown above are recognized in the consolidated income statements. Past service cost as well as curtailment gains are recognized in the consolidated income statements in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset.

Purchases and sales of plan assets are recorded on settlement date.

Remeasurement, comprising actuarial gains and losses, the effect of changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest), is reflected immediately in the consolidated balance sheets with a gain or loss recognized in OCI in the period in which they occur. Remeasurement recognized in OCI is reflected in the remeasurement reserve and will not be reclassified to the consolidated income statements. For the other long-term employee benefits plan, remeasurements are recognized immediately in the consolidated income statements.

Actuarial determinations used in estimating obligations relating to these plans incorporate assumptions using management's best estimates of factors including plan performance, salary escalation, retirement dates of employees and healthcare cost escalation rates. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. In determining the appropriate discount rate, management considers the interest rates on corporate bonds in the respective currency with at least an AA rating, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The mortality rate is based on publicly available mortality tables for the specific country. Future salary increases and pension increases are based on expected future inflation rates for the respective country.

Hudbay also has defined contribution plans providing pension benefits for certain of its salaried employees and certain of its US employees utilizing 401K plans. The Company recognizes the cost of the defined contribution plans based on the contributions required to be made during each period.

Termination benefits are recognized as an expense when Hudbay is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Company has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. Benefits that are payable more than one year after the reporting period are discounted to their present value.
 

21

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(k) Environmental and other provisions:

Provisions are recognized when Hudbay has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made. The provisions are recorded as management's best estimate of the amount required to settle an obligation.

Provisions are stated at their present value, which is determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

Decommissioning, restoration and similar liabilities

Provisions are recorded for legal and constructive obligations associated with the future costs of rehabilitating the Company's current and previous operating and development sites. Such costs are associated with decommissioning and restoration activities such as dismantling and removing structures, rehabilitating mines and tailings, and reclamation and re-vegetation of affected areas.

The present value of estimated costs is recorded in the period in which the asset is installed or the environment is disturbed and a reasonable estimate of future costs and discount rates can be made. The provision is discounted using a risk-free rate, and estimates of future cash flows are adjusted to reflect risk.

Subsequent to the initial measurement, the obligation is adjusted to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The increase in the provision due to the passage of time is recognized as finance expense, whereas increases and decreases due to changes in the estimated future cash flows, which are not the result of current inventory production, are capitalized and depreciated over the life of the related operating asset. Actual costs incurred upon settlement of the site restoration obligation are charged against the provision to the extent the provision was established for those costs. Upon settlement of the liability, a gain or loss may be recorded. For closed sites, changes to estimated costs are recognized immediately in the consolidated income statements within other expenses.

Hudbay assesses the reasonableness of its estimates and assumptions each year and when conditions change, the estimates are revised accordingly. Judgement is required to determine the scope and timing of future decommissioning and restoration activities, as well as best available estimates and assumptions including discount rates, expected timing of decommissioning and restoration costs, inflationary factors and market risks. Changes in cost estimates, which may arise from changes in technology and pricing of the individual components of the cost may result in offsetting changes to the asset and liability and corresponding changes to the associated depreciation and finance costs. In view of the uncertainties concerning these future obligations, the ultimate timing and cost of reclamation and mine closure may differ materially from these estimates.

If the change in estimate results in a significant increase in the decommissioning liability and therefore an addition to the carrying value of the asset, the Company considers whether this is an indication of impairment of the asset as a whole and, if so, tests for impairment in accordance with IAS 36, Impairment of non-financial assets. If, for mature mines, the revised mine assets net of decommissioning and restoration liabilities exceeds the recoverable value, that portion of the increase is charged directly to expense as an impairment loss, within the gross profit / (loss) line.

In view of the uncertainties concerning environmental remediation, the ultimate cost of decommissioning and restoration liabilities could differ materially from the estimated amounts provided. The estimate of the total liability is subject to change based on amendments to laws and regulations and as new information concerning Hudbay's operations becomes available. Future changes, if any, to the estimated total liability as a result of amended requirements, laws, regulations and operating assumptions, as well as discount rates, may be significant and would be recognized prospectively as a change in accounting estimate, when applicable. Environmental laws, regulations and technology are continually evolving in all regions in which the Company operates. Hudbay is not able to determine the impact, if any, of environmental laws, regulations and technology that may be enacted in the future on its results of operations or financial position due to the uncertainty surrounding the ultimate form that such future laws and regulations may take.

 

22

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Onerous contracts

A contract is considered to be onerous when the unavoidable costs of meeting obligations under the contract exceed the economic benefits expected to be received under it. Hudbay records a provision for any onerous contracts at the lesser of costs to comply with a contract and costs to terminate it.

Restructuring provisions

A provision for restructuring is recognized when management, with appropriate authority within Hudbay, has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. Future operating costs are not provided for.

(l) Financial instruments:

Non-derivative financial instruments are initially recognized at fair value plus, in the case of a financial asset or financial liability not measured at fair value through profit or loss, directly attributable transaction costs. Measurement in subsequent periods depends on the financial instrument's classification. Hudbay uses trade date accounting for regular way purchases or sales of financial assets. The Company determines the classification of its financial instruments and non-financial derivatives at initial recognition.

Financial assets and liabilities are offset and the net amount presented in the consolidated balance sheets when, and only when, Hudbay has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

The classification of financial assets is based on the results of the contractual characteristics test and the business model assessment which will result in the financial asset being classified as either: amortized cost, fair value through profit or loss ("FVTPL") or fair value through other comprehensive income ("FVTOCI").

i. Non-derivative financial instruments - classification:

Financial assets at fair value through profit or loss

Provisionally priced copper and zinc concentrate sales receivables, warrants and investments in securities of junior mining companies are classified as financial assets at fair value through profit or loss and are measured at fair value. The gains or losses related to changes in fair value are reported in the consolidated income statements.

Amortized cost

Cash, certain receivables, other assets related to agreements with communities near the Peru operations, trade and other payables, long-term debt and restricted cash are classified as and measured at amortized cost and are carried at amortized cost using the effective interest rate method, less impairment losses, if any.

Non-derivative financial liabilities

Accounts payable and senior unsecured notes are initially recognized at fair value and subsequently accounted for at amortized cost, using the effective interest method. The amortization of senior unsecured notes issue costs is calculated using the effective interest rate method.

 

23

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

ii. Derivatives:

Derivatives are initially recognized at fair value when Hudbay becomes a party to the derivative contract and are subsequently re-measured to fair value at the end of each reporting period. The resulting gain or loss is recognized in the consolidated income statements immediately unless the derivative is designated and effective as a hedging instrument. Derivatives with positive fair value are recognized as assets; derivatives with negative fair value are recognized as liabilities.

Derivatives contracts that are entered to economically hedge a risk exposure but are not designated as a hedging instrument for hedge accounting purposes, and are physically settled, are initially and subsequently measured at fair value. Subsequent movements in fair value are recognized within the revenue line item in the consolidated income statements.

iii. Embedded derivatives:

Hudbay considers whether a contract contains an embedded derivative when it becomes a party to the contract. Derivatives embedded in other financial liabilities or other non-financial host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL.

iv. Fair value of financial instruments:

The fair value of a financial instrument is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.

Fair values of financial instruments traded in active markets are determined based on quoted market prices, where available. Bid prices are generally used for assets held or liabilities to be issued; asking prices are generally used for assets to be acquired or liabilities held.

For financial instruments not traded in an active market, fair values are determined based on appropriate valuation techniques. Such techniques may include discounted cash flow analysis, using recent arm's length market transactions, reference to the current fair value of another instrument that is substantially the same, and other valuation models.

The Company applies a hierarchy to classify valuation methods used to measure financial instruments carried at fair value. Levels 1 to 3 are defined based on the degree to which fair value inputs are observable and have a significant effect on the recorded fair value, as follows:

- Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities;

- Level 2: Valuation techniques use significant observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices), or valuations are based on quoted prices for similar instruments; and,

- Level 3: Valuation techniques use significant inputs that are not based on observable market data (unobservable inputs).

An analysis of fair values of financial instruments is provided in note 28.

v. Impairment of financial instruments:

Hudbay recognizes loss allowances for Expected Credit Losses ("ECL") for trade receivables not measured at FVTPL.

Loss allowances for trade receivables are measured at an amount equal to lifetime ECL. ECL is a probability-weighted estimate measured at the present value of all cash shortfalls including the impact of forward-looking information.

 

24

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Hudbay has established a provision based on the Company's historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

vi. Derecognition of financial instruments:

Hudbay derecognizes financial assets when the contractual rights to the cash flows from the assets expire, or when the Company transfers the rights to receive the contractual cash flows on the financial assets in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in the transferred financial assets that is created or retained by Hudbay is recognized as a separate asset or liability.

Hudbay derecognizes financial liabilities when its contractual obligations are discharged, cancelled or expire or when its terms are modified and the cash flows of the modified liability are substantially different.

(m) Taxation:

Current Tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

Hudbay is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognizes liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will affect the income tax and deferred tax provisions in the period in which such determination is made.

Additionally, future changes in tax laws in the jurisdictions in which Hudbay operates could limit the ability of the Company to obtain tax deductions in future periods.

Deferred Tax

Deferred tax is recognized using the balance sheet method in respect of temporary differences at the balance sheet date between the tax basis of assets and liabilities, and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, except:

- where the deferred income tax liability arises from the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

- in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilized, except:

 

25

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

- where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

- in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

To the extent that it is probable that taxable profit will be available to offset the deductible temporary differences, Hudbay recognizes the deferred tax asset regarding the temporary difference on decommissioning, restoration and similar liabilities and recognizes the corresponding deferred tax liability regarding the temporary difference on the related assets.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will be available to allow the deferred tax asset to be recovered.

Judgement is required in determining whether deferred tax assets are recognized on the consolidated balance sheets. Deferred tax assets, including those arising from unutilized tax losses, require management to assess the likelihood of taxable profit in future periods in order to utilize recognized deferred tax assets. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability to realize the net deferred tax assets recorded at the balance sheet date could be affected.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which the asset is realized or the liability is settled, based on tax rates and tax laws enacted or substantively enacted at the balance sheet date.

Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

Current and deferred taxes relating to items recognized outside profit or loss (whether in other comprehensive income or directly in equity) are recognized outside profit or loss and not in the consolidated income statements. Mining taxes and royalties are treated and disclosed as current and deferred taxes if they have the characteristics of an income tax.

(n) Share capital and reserves:

Transaction costs

Transaction costs directly attributable to equity transactions are recognized as a deduction from equity.

Other capital reserve

The other capital reserve is used for equity-settled share-based compensation and includes amounts for stocks options granted and not exercised.

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign operations. Exchange differences arising from the translation of the financial statements of foreign operations form part of the net investment in the foreign operation. Translation gains and losses remain in the reserve until disposal of all or a portion of the foreign operation.
 

26

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(o) Share-based compensation:

Hudbay compensates its employees in part through the use of a Deferred Share Unit ("DSU") plan for non-employee members of the Board of Directors, a Restricted Share Unit ("RSU") plan for employees, a Performance Share Unit ("PSU") plan for employees and a stock option plan for employees. These plans are included in provisions on the consolidated balance sheets and further described in note 25. Changes in the fair value of the liabilities are recorded in the consolidated income statements.

Cash-settled transactions, consisting of DSUs, RSUs and PSUs, are initially measured at fair value and recognized as an obligation at the grant date. The liabilities are remeasured to fair value at each reporting date up to and including the settlement date, with changes in fair value recognized in the consolidated income statements. Hudbay values the liabilities based on the change in the Company's share price. Additional DSUs, RSUs and PSUs are credited to reflect dividends paid on Hudbay common shares over the vesting period. The current portion of the liability reflects those grants that have vested or that are expected to vest within twelve months.

DSUs vest on the grant date and are redeemable when a participant is no longer a member of the Board of Directors. Issue and redemption prices of DSUs are based on the average closing price of the Company's common shares for the five trading days prior to issuance or redemption.

RSUs and PSUs are issued under Hudbay's Long Term Equity Plan ("LTEP Plan") and vest on or before the third anniversary of the grant. RSUs and PSUs granted under the LTEP Plan may be settled in the form of the Company's common shares or, at the option of Hudbay, the cash equivalent based on the market price of the common shares as of the vesting date. Hudbay has historically settled RSUs in cash. Except in specified circumstances, RSUs and PSUs terminate when an employee ceases to be employed by the Company. Valuations of RSUs and PSUs reflect estimated forfeitures.

Equity-settled transactions with employees relate to stock options and are measured by reference to the fair value at the earlier of the grant date and the date that the employee unconditionally became entitled to the award. Fair value is determined using a Black-Scholes option pricing model, which relies on estimates of the future risk-free interest rate, future dividend payments, future share price volatility and the expected average life of the options. Hudbay believes this model adequately captures the substantive features of the option awards and is appropriate to calculate their fair values. The fair value determined at the grant date is recognized over the vesting period in accordance with vesting terms and conditions, with a corresponding increase to other capital reserves. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met.

(p) Earnings per share:

The Company presents basic and diluted earnings (loss) per share ("EPS") data for its common shares. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all dilutive potential common shares, which previously consisted of stock options granted to employees and warrants.

When calculating earnings per share for periods where the Company has a loss, Hudbay's calculation of diluted earnings per share excludes any incremental shares from the assumed conversion of stock options as they would be anti-dilutive.
 

27

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(q) Leases:

Leases, under which substantially all the risks and rewards incidental to ownership of the leased item are transferred to Hudbay, are capitalized as assets at the inception of the lease at the lower of fair value or the present value of the minimum lease payments. Lease payments are apportioned between finance charges and the reduction of the liability so as to achieve a constant periodic rate of interest on the remaining balance of the liability. Finance charges are reflected in the consolidated income statements as finance costs.

Non-ROU lease payments are recognized as an expense in the consolidated income statements on a straight-line basis over the lease term.

(r) Segment reporting:

An operating segment is a component of the Company that engages in business activities from which it may earn revenue and incur expenses and for which discrete financial information is available. Hudbay's chief executive officer regularly reviews the operating results of each operating segment to make decisions about resources to be allocated to the segment and assess its performance. In determining operating segments, Hudbay considers location and decision-making authorities. Refer to note 32.

4. New standards

New standards issued but not yet effective

Amendment to IAS 1 - Presentation of Financial Statements

The amendments to IAS 1 clarify that only covenants with which an entity is required to comply on or before the reporting date affect the classification of a liability as current or non-current. In addition, an entity has to disclose information in the notes that enables users of financial statements to understand the risk that non-current liabilities with covenants could become repayable within twelve months. Classification is unaffected by the expectations that the entity will exercise its right to defer settlement of a liability. Lastly, the amendments clarify that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets. The amendments are effective for annual periods beginning on or after January 1, 2024. Earlier application is permitted. The Company has not yet determined the effect of adoption of this amendment on its consolidated financial statements.

5. Reclassification of comparative amounts

Certain prior period amounts have been reclassified for consistency with the current period presentation. The gold prepayment liability (note 16) has been reclassified to its own financial statement line item within the consolidated balance sheet due to the size of the balance. The balance was previously included in other financial liabilities. Re-evaluation adjustment - environmental provision has been reclassified to its own financial statement line item within the consolidated income statements due to the significant increases in this balance. This balance was previously included in other expenses. Evaluation expense has been reclassified and presented within other expenses on the consolidated income statement. This balance was previously included within exploration and evaluation expenses as well as other expenses (note 6f). Environmental obligation adjustment was previously included within Other in the operating activities section of the consolidated statements of cash flows and has now been reclassified to its own line within operating activities. Community agreement payments were previously included within acquisition of property, plant and equipment in the investing activities section of the consolidated statements of cash flows and has now been reclassified to its own line within investing activities. These reclassifications had no effect on the previous reported net loss and net equity.
 

28

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

6. Revenue and expenses

(a) Revenue

Hudbay's revenue by significant product types:

    Year ended December 31,  
    2022     2021  
Copper $ 838,126   $ 873,339  
Zinc   223,400     301,086  
Gold   325,133     246,562  
Silver   24,959     26,932  
Molybdenum   54,531     37,487  
Other   5,374     7,454  
Revenue from contracts   1,471,523     1,492,860  
Non-cash streaming arrangement items 1            
Amortization of deferred revenue - gold   35,994     37,788  
Amortization of deferred revenue - silver   36,235     33,731  
Amortization of deferred revenue - variable consideration adjustments - prior periods   959     1,617  
    73,188     73,136  
Pricing and volume adjustments 2   (14,335 )   (8,568 )
    1,530,376     1,557,428  
Treatment and refining charges   (68,936 )   (55,430 )
  $ 1,461,440   $ 1,501,998  
 
1 See note 19.
2 Pricing and volume adjustments represent mark-to-market adjustments on initial estimate of provisionally priced sales, realized and unrealized changes to fair value for fixed for floating swaps, non-hedge derivative contracts and adjustments to originally invoiced weights and assays.

Consideration from the Company's stream agreements is considered variable (note 19). Gold and silver stream revenue can be subject to cumulative adjustments when the amount of precious metals to be delivered under the contract changes. As a result of changes in the Company's mineral reserve and resource estimate in the first quarter of 2022, the amortization rate by which deferred revenue is drawn down into income was adjusted and, as required, a variable consideration adjustment was made for all prior year stream revenues since the stream agreement inception date. A variable consideration adjustment was also recorded on September 30, 2022 in Manitoba following a revised forecast for 777 in the third quarter of 2022, which indicated that substantially all of 777's precious metals reserves and inventory levels have been depleted. These variable consideration adjustments resulted in an increase of revenue of $959 for the year ended December 31, 2022 (December 31, 2021 - increase of revenue of $1,617). In the second quarter of 2021, the Company finalized an amendment with Wheaton Precious Metals ("Wheaton") related to the Peru stream agreement. The result of the amendment was a revision to the Peru gold and silver deferred revenue amortization rates and the related significant financing component. For further details refer to note 19.

 

29

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(b) Mine operating costs

During the year ended December 31, 2022, Hudbay recognized a recovery of $557 in cost of sales related to adjustments of the carrying value of Peru inventories to net realizable value (year ended December 31, 2021 - recovery of $1,446) and a non-cash write-down of Manitoba materials and supplies inventories of $4,110 (year ended December 31, 2021 - $5,445) (note 9).

During 2022, as a result of the closure of the Flin Flon operations, certain employees retired or left employment with the Company. Upon reflecting the reductions in the number of employees accruing services for both the defined benefit pension and for other employee benefit plans, this resulted in a gain of $2,384 recorded during the fourth quarter of 2022 (note 6e).

During 2021, the Company recognized a past service cost provision adjustment related to pensions for certain Manitoba employees of $4,989 (note 6e).

(c) Depreciation and amortization

Depreciation of PP&E and amortization of intangible assets are reflected in the consolidated income statements as follows:

    Year ended December 31,  
    2022     2021  
Cost of sales $ 337,615   $ 357,924  
Selling and administrative expenses   1,448     1,843  
  $ 339,063   $ 359,767  

(d) Share-based compensation expenses

Share-based compensation expenses are reflected in the consolidated income statements as follows:

    Cash-settled           Total share-
based
compensation
expense		  
  RSUs     DSUs     PSUs     Stock
options		  
Year ended December 31, 2022                              
Cost of sales $ 420   $ -   $ -   $ -   $ 420  
Selling and administrative   1,541     (849 )   (1,011 )   1,848     1,529  
Other expenses   115     -     -     -     115  
  $ 2,076   $ (849 ) $ (1,011 ) $ 1,848   $ 2,064  
Year ended December 31, 2021                              
Cost of sales $ 1,347   $ -   $ -   $ -   $ 1,347  
Selling and administrative   3,668     1,459     3,382     1,919     10,428  
Other expenses   370     -     -     -     370  
  $ 5,385   $ 1,459   $ 3,382   $ 1,919   $ 12,145  

During the year ended December 31, 2022, the Company granted 602,614 stock options (year ended December 31, 2021 - 509,385). For further details on stock options, see note 25b.

 

30

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(e) Employee benefits expense

This table presents employee benefit expense recognized in the consolidated income statements, including amounts transferred from inventory upon sale of goods:

    Year ended December 31,  
    2022     2021  
Current employee benefits $ 184,100   $ 202,694  
Profit-sharing plan expense   22,002     2,708  
Share-based compensation (notes 6d, 20, 25)            
Equity settled stock options   1,848     1,919  
Cash-settled restricted share units   2,076     5,385  
Cash-settled deferred share units   (849 )   1,459  
Cash-settled performance share units   (1,011 )   3,382  
Employee share purchase plan   1,941     1,933  
Post-employee pension benefits            
Defined benefit plans   9,737     11,433  
Defined contribution plans   2,097     2,061  
Post-employment plan curtailment (note 6b, 21, 22)   (2,384 )   -  
Past service costs (note 6b, 21)   -     4,989  
Post-employment plan attribution changes (note 22)   (3,179 )   -  
Other post-retirement employee benefits   8,894     7,526  
Termination benefits   5,092     470  
  $ 230,364   $ 245,959  

Manitoba has a profit sharing plan required by the collective bargaining agreement whereby 10% of Manitoba's after tax profit (excluding provisions or recoveries for deferred income tax and deferred mining tax) for any given fiscal year will be distributed to all eligible employees in the Flin Flon/Snow Lake operations, with the exception of executive officers and key management personnel.

Peru has a profit sharing plan required by Peruvian law whereby 8% of Peru's taxable income will be distributed to all employees within Peru's operations.

The Company has an employee share purchase plan for executives and other eligible employees where participants may contribute between 1% and 10% of their pre-tax base salary to acquire Hudbay shares. The Company makes a matching contribution of 75% of the participant's contribution.

See note 21 for a description of Hudbay's pension plans and note 22 for Hudbay's other employee benefit plans.

 

31

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(f) Other expenses

    Year ended December 31,  
    2022     2021  
Regional costs $ 4,813   $ 3,652  
(Gain) loss on disposal of PP&E and non-current assets   (3,312 )   7,038  
Amortization of community costs (other assets)   2,720     1,768  
Restructuring - Manitoba   10,609     6,947  
Care & maintenance - Manitoba   9,040     -  
Evaluation costs   7,964     13,293  
Insurance recovery   (5,698 )   -  
Change in other provisions (non-capital)   5,798     -  
Other   652     2,421  
  $ 32,586   $ 35,119  

During the year ended December 31, 2022, there were costs incurred related to the restructuring of the Manitoba operations in preparation for the closure of 777 mine, zinc plant and Flin Flon mill of $10,609 (December 31, 2021 - $6,947). These costs were related to activities performed in advance of these closures along with ongoing restructuring, closure and severance costs.

During the year ended December 31, 2022, gains on the disposition of property, plant and equipment and other non-current assets includes the disposition of Mason's Lordsburg property, along with dispositions of non-current assets as a result of the closure of our Flin Flon operations.

During the year ended December 31, 2022, a gain of $5,698 was recorded to reflect the insurance recovery claim proceeds following a shaft incident at 777 in October 2020. As of December 31, 2022, all of the proceeds have been received.

The Flin Flon concentrator and tailings impoundment has been shifted to care and maintenance to provide optionality should another mineral discovery occur in the Flin Flon area. During the year ended December 31, 2022, care & maintenance costs were $9,040.

Evaluation expenses incurred in the first half of 2022 relate primarily to preliminary economic assessment ("PEA") study costs of Arizona's Copper World Complex.

 

32

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(g) Net finance expense 

    Year ended December 31,  
    2022     2021  
Net interest expense on long-term debt            
Interest expense on long-term debt $ 67,663   $ 74,748  
Accretion on streaming arrangements (note 19)            
Additions   28,718     42,060  
Variable consideration adjustments - prior periods   (940 )   594  
    27,778     42,654  
Change in fair value of financial assets and liabilities at fair value through profit or loss            
Embedded derivatives (note 18)   -     49,754  
Gold prepayment liability (note 16)   3,426     293  
Investments   (2,484 )   4,467  
    942     54,514  
Other net finance costs            
Net foreign exchange (gain) loss   (5,384 )   1,403  
Accretion on community agreements measured at amortized cost   3,099     2,811  
Accretion on environmental provisions (note 20)   8,498     4,988  
Accretion on Wheaton refund liability   879     -  
Withholding taxes   6,092     7,727  
Premium paid on redemption of notes (note 18)   -     22,878  
Write-down of unamortized transaction costs (note 18)   -     2,480  
Loss (gain) on disposal of investments   3,648     (968 )
Other finance expense   7,885     8,781  
Interest income   (2,606 )   (997 )
    22,111     49,103  
Net finance expense $ 118,494   $ 221,019  

Other finance expense relates primarily to fees on Hudbay's revolving credit facilities and leases.

 

33

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(h) Impairment - Arizona

As a result of the PEA released for the Copper World Complex during the second quarter of 2022, which contemplates the mining of the recently discovered Copper World deposits and the East deposit (formerly referred to as the Rosemont deposit) in a two-phase mine plan, it was determined that certain capitalized costs and assets associated with the previous stand-alone development plan for the East deposit are no longer recoverable. As a result, during the second quarter of 2022, the Company recognized a pre-tax impairment loss of $94,956 related to these assets. The impairment loss was determined based on the specific identification of assets fair value less costs of disposal that are not expected to be recoverable under the Copper World Complex PEA. The Company presented the impairment losses within the Arizona segment in note 32. The fair value measurements used in the determination of impairment charges are categorized as level 2 based on the degree to which inputs are observable and have a significant effect on the recorded fair value.

(i) Impairment - Environmental Provision

During the third quarter and fourth of 2021, an impairment indicator was identified in relation to a revised Flin Flon closure plan. The revised closure plan, reflecting higher cost estimates, led to a large increase in the environmental reclamation provision and a corresponding increase to Flin Flon reclamation assets, which is recorded within PP&E. The increase in Flin Flon PP&E prompted an impairment test of these assets since the Flin Flon operation was expected to close mid-2022. Hudbay recorded an impairment to PP&E by comparing the carrying value of the Flin Flon operation to its recoverable amount using the value-in-use method for future cash flows associated with the operation until closure. The value-in-use recoverable amount is considered a level 3 valuation method incorporating assumptions for commodity prices, foreign exchange rates, remaining reserves, timing of extraction and operating costs. This resulted in an impairment loss of $193,473 for the year ended December 31, 2021.

7.      Cash

Cash balances represent demand deposits and deposits with an original maturity date of less than 3 months.

8. Trade and other receivables

    Dec. 31, 2022     Dec. 31, 2021  
Current            
Trade receivables $ 84,096   $ 166,524  
Statutory receivables   25,544     31,191  
Other receivables   3,542     6,366  
    113,182     204,081  
Non-current            
Taxes receivable   13,329     16,084  
  $ 126,511   $ 220,165  

The decrease in trade receivables during the year ended December 31, 2022 primarily relates to the receipt of payment for three shipments in early 2022 which were sold in 2021, representing 30,000 tonnes of copper concentrate.
 

34

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

9. Inventories

    Dec. 31, 2022     Dec. 31, 2021  
Current            
Stockpile $ 26,235   $ 12,768  
Work in progress   3,092     5,647  
Finished goods   64,937     78,958  
Materials and supplies   60,748     61,080  
    155,012     158,453  
Non-current            
Stockpile   42,785     34,156  
Materials and supplies   7,940     3,417  
    50,725     37,573  
  $ 205,737   $ 196,026  

The cost of inventories recognized as an expense, including depreciation, and included in cost of sales amounted to $1,062,228 for the year ended December 31, 2022 (year ended December 31, 2021 - $1,069,309).

During the year ended December 31, 2022, Hudbay recognized a recovery of $557 in cost of sales related to adjustments of the carrying value of Peru inventories to net realizable value (year ended December 31, 2021 - recovery of $1,446 ). Adjustments of  the carrying value of inventories to net realizable value were related to changes in commodity prices.

During the year ended December 31, 2022, Hudbay recognized an expense of $4,110 in cost of sales related to adjustments to the carrying value of Manitoba materials and supplies inventories to net realizable value (year ended December 31, 2021 - expense of $5,445).

10. Other financial assets

    Dec. 31, 2022     Dec. 31, 2021  
Current            
Derivative assets $ 577   $ 7,430  
Restricted cash   486     437  
    1,063     7,867  
             
Non-current            
Investments at fair value through profit or loss   9,799     11,158  
  $ 10,862   $ 19,025  

 

 

35

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

11. Intangibles and other assets

Intangibles and other assets of $49,841 (December 31, 2021 - $20,138) includes $45,074 of other assets (December 31, 2021 - $14,240) and $4,767 of intangibles (December 31, 2021 - $5,898).

Other assets represent the carrying value of certain future community costs that relate to agreements with communities near the Peru operations which allow Hudbay to extract or explore minerals over the useful life of Peru operations. The liability remaining for these costs is recorded in agreements with communities recorded at amortized cost (note 15). Amortization of the carrying amount is recorded in the consolidated income statements within other expenses (note 6f) or exploration expenses, depending on the nature of the agreement.

The increase in agreements with communities recorded at amortized cost during the year ended December 31, 2022 primarily relates to the execution of the exploration agreement with the community of Uchucarcco which provides surface rights to the Maria Reyna and Caballito satellite properties located near the Constancia operation, partially offset by amortization of the carrying amount.

Intangibles mainly represent computer software costs. The following table summarizes changes in intangibles:

    Dec. 31, 2022     Dec. 31, 2021  
Cost            
Balance, beginning of year $ 24,768   $ 23,350  
Additions   169     968  
Disposals   (1,553 )   386  
Effects of movement in exchange rates   389     64  
Balance, end of year   23,773     24,768  
             
Accumulated amortization            
Balance, beginning of year   18,870     17,941  
Additions   1,057     872  
Disposals   (1,274 )   -  
Effects of movement in exchange rates   353     57  
Balance, end of year   19,006     18,870  
             
Intangibles, net book value $ 4,767   $ 5,898  

 

 

36

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

12. Property, plant and equipment

Dec. 31, 2022   Exploration
and
evaluation
assets		     Capital
works in
progress		     Mining
properties		     Plant and
equipment		     Plant and
equipment
- ROU
assets1		     Total  
Balance, Jan. 1, 2022 $ 88,207   $ 858,230   $ 2,434,000   $ 2,983,919   $ 259,726   $ 6,624,082  
Additions   18,386     173,810     3,148     35,953     27,984     259,281  
Capitalized stripping and development   -     -     89,262     -     -     89,262  
Decommissioning and restoration   -     723     (12,583 )   (25,248 )   -     (37,108 )
Derecognition of assets - cost   -     -     (995,575 )   (422,524 )   (2,950 )   (1,421,049 )
Capitalized accretion and depreciation   -     1,607     -     (2 )   -     1,605  
Transfers and other movements   (29,395 )   (154,554 )   3,825     231,444     (51,320 )   -  
Disposals   (215 )   (1,091 )   -     (7,691 )   (28,434 )   (37,431 )
Impairment (Note 6h)   -     (94,956 )   -     -     -     (94,956 )
Effects of movements in exchange rates   (1,002 )   (4,918 )   (16,915 )   (53,234 )   (2,569 )   (78,638 )
Balance, Dec. 31, 2022   75,981     778,851     1,505,162     2,742,617     202,437     5,305,048  
                                     
Accumulated depreciation                                    
Balance, Jan. 1, 2022   -     -     1,284,369     1,445,122     153,625     2,883,116  
Depreciation for the year   -     -     155,503     169,096     22,786     347,385  
Derecognition of assets - accumulated depreciation   -     -     (995,575 )   (422,524 )   (2,950 )   (1,421,049 )
Transfers and other movements   -     -     5     25,055     (25,060 )   -  
Disposals   -     -     -     (4,094 )   (19,516 )   (23,610 )
Effects of movement in exchange rates   -     -     (151 )   (31,446 )   (1,627 )   (33,224 )
Balance, Dec. 31, 2022   -     -     444,151     1,181,209     127,258     1,752,618  
Net book value $ 75,981   $ 778,851   $ 1,061,011   $ 1,561,408   $ 75,179   $ 3,552,430  
 
1 Includes $5,413 of capital works in progress - ROU assets (costs) that relate to the Arizona business unit (December 31, 2021 - $5,112, related to the Arizona business unit).

 

 

37

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Dec. 31, 2021   Exploration
and
evaluation
assets		     Capital
works in
progress		     Mining
properties		     Plant and
equipment		     Plant and
equipment-
ROU
assets1		     Total  
Balance, Jan. 1, 2021 $ 79,059   $ 957,162   $ 2,217,461   $ 2,793,719   $ 214,303   $ 6,261,704  
Additions   9,084     268,090     1,731     17,735     49,695     346,335  
Capitalized stripping and development   -     -     79,426     -     -     79,426  
Decommissioning and restoration   -     (525 )   4,630     139,911     -     144,016  
Transfers and other movements   -     (357,381 )   128,320     229,981     (920 )   -  
Impairment (Note 6i)   -     -     (1,054 )   (192,419 )   -     (193,473 )
Disposals   -     (5,941 )   -     (10,803 )   (3,544 )   (20,288 )
Effects of movements in exchange rates   64     (3,175 )   3,486     5,795     192     6,362  
Balance, Dec. 31, 2021   88,207     858,230     2,434,000     2,983,919     259,726     6,624,082  
                                     
Accumulated depreciation                                    
Balance, Jan. 1, 2021   -     -     1,126,274     1,271,581     132,194     2,530,049  
Depreciation for the year   -     -     155,878     181,565     24,536     361,979  
Disposals   -     -     -     (8,525 )   (3,158 )   (11,683 )
Effects of movement in exchange rates   -     -     2,217     501     53     2,771  
Balance, Dec. 31, 2021   -     -     1,284,369     1,445,122     153,625     2,883,116  
Net book value $ 88,207   $ 858,230   $ 1,149,631   $ 1,538,797   $ 106,101   $ 3,740,966  

1 Includes $5,112 of capital works in progress - ROU assets (costs) that relate to the Arizona business unit.

At December 31, 2022, capital works in progress decreased compared to December 31, 2021 as a result of a pre-tax impairment charge of $94,956 related to certain capitalized costs and assets associated with the previous stand-alone development plan for the East deposit that are no longer recoverable (see note 6h).

The closure of the Flin Flon operations in the second quarter of 2022 has led to the derecognition of fully depreciated assets. This resulted in a decrease in both the cost and accumulated depreciation of the Mining Properties and Plant and Equipment categories.

An indicator of impairment was identified in the second quarter of 2022 as a result of the recently released PEA and new mine plan for the Copper World Complex in Arizona. As such, management determined that a detailed impairment evaluation as at June 30, 2022 was required for the Arizona CGU. Management determined that the fair value less cost to dispose exceeded the carrying value of the Arizona CGU, accordingly no impairment was recorded.

During the third and fourth quarter of 2021, an impairment indicator was identified in relation to a revised Flin Flon closure plan. The revised closure plan, reflecting higher cost estimates, led to a large increase in the environmental reclamation provision (note 20) and a corresponding increase to Flin Flon PP&E. The increase in Flin Flon PP&E prompted an impairment test of these assets since the Flin Flon operation was expected to close mid-2022. Hudbay recorded an impairment to PP&E by comparing the carrying value of the Flin Flon operation to its recoverable amount using the value-in-use method for future cash flows associated with the operation until closure. The value-in-use recoverable amount is considered a level 3 valuation method. This resulted in an impairment loss of $193,473 for the year ended December 31, 2021.
 

38

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

13. Trade and other payables

    Dec. 31, 2022     Dec. 31, 2021  
Trade payables $ 83,824   $ 84,279  
Accruals and payables   95,540     84,992  
Accrued interest   16,279     16,120  
Exploration and evaluation payables   229     3,788  
Statutory payables   15,595     18,598  
  $ 211,467   $ 207,777  

Accruals and payables include operational and capital costs and employee benefit amounts owing.

14. Other liabilities

    Dec. 31, 2022     Dec. 31, 2021  
             
Unearned revenue $ 15,086   $ 7,983  
Environmental and other provisions (note 20)   24,091     41,017  
Pension liability (note 21)   4,146     10,472  
Other employee benefits (note 22)   3,483     3,530  
  $ 46,806   $ 63,002  

 

15. Other financial liabilities

    Dec. 31, 2022     Dec. 31, 2021  
Current            
Derivative liabilities $ 17,995   $ 12,451  
Deferred Rosemont acquisition consideration   9,713     9,713  
Agreements with communities recorded at amortized cost   5,593     7,144  
    33,301     29,308  
             
Non-current            
Deferred Rosemont acquisition consideration   9,163     17,805  
Agreements with communities recorded at amortized cost   36,900     29,129  
Wheaton refund liability (note 19)   6,383     5,424  
    52,446     52,358  
  $ 85,747   $ 81,666  

 

 

39

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Agreements with communities recorded at amortized cost relate to agreements with communities near the Constancia operation which allow Hudbay to extract minerals over the useful life of the Constancia operation, carry out exploration and evaluation activities in the area and provide Hudbay with community support to operate in the region. The changes in agreements with communities recorded at amortized cost during the year ended December 31, 2022 primarily relates to the execution of the exploration agreement with the community of Uchucarcco which provides surface rights to the Maria Reyna and Caballito satellite properties located near the Constancia operation, partially offset by disbursements, which was primarily all paid during the year. The changes in agreements with communities recorded at amortized cost during the year ended December 31, 2021 primarily relates to the execution of the remaining land user agreements with certain community members, changes in estimates, the accretion of the liability offset by disbursements.

The following table summarizes changes in agreements with communities recorded at amortized cost:

Balance, January 1, 2021 $ 40,787  
Net additions   22,796  
Disbursements   (26,511 )
Accretion   2,811  
Effects of changes in foreign exchange   (3,610 )
Balance, December 31, 2021 $ 36,273  
Net additions   39,240  
Disbursements   (37,491 )
Accretion   3,099  
Effects of changes in foreign exchange   1,372  
Balance, December 31, 2022 $ 42,493  

 

 

40

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

16. Gold prepayment liability

Gold prepayment liabilities are reflected in the consolidated balance sheets as follows:

    Dec. 31, 2022     Dec. 31, 2021  
Current $ 71,208   $ 71,394  
Non-current   -     68,614  
  $ 71,208   $ 140,008  

The following table summarizes changes in the gold prepayment liability:

Balance, January 1, 2021 $ 137,031  
Change in fair value recorded in profit or loss   293  
Change in fair value recorded in other comprehensive income   2,684  
Balance, December 31, 2021 $ 140,008  
Change in fair value recorded in income statement (note 6g)   3,426  
Change in fair value recorded in other comprehensive income   (512 )
Repayments   (71,714 )
Balance, December 31, 2022 $ 71,208  

 

17. Lease liability

Balance, January 1, 2021 $ 63,514  
Additional capitalized leases   49,695  
Lease payments   (37,719 )
Accretion and other movements 1   2,512  
Balance, December 31, 2021 $ 78,002  
Additional capitalized leases   27,984  
Lease payments   (35,770 )
Derecognized leases   (8,918 )
Accretion and other movements   (279 )
Balance, December 31, 2022 $ 61,019  

1 Includes $1,844 of sale lease back additions to ROU leases.

Lease liabilities are reflected in the consolidated balance sheets as follows:

    Dec. 31, 2022     Dec. 31, 2021  
Current $ 16,156   $ 33,529  
Non-current   44,863     44,473  
  $ 61,019   $ 78,002  

 

 

41

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Hudbay has entered into leases which expire between 2023 and 2033. The interest rates on leases which were capitalized have interest rates between 2.50% and 7.43%, per annum. The range of interest rates utilized for discounting varies depending mostly on the Hudbay entity acting as lessee and duration of the lease. For certain leases, Hudbay has the option to purchase the equipment and vehicles leased at the end of the terms of the leases. Hudbay's obligations under these leases are secured by the lessor's title to the leased assets. The present value of applicable lease payments has been recognized as an ROU asset, which was included as a non-cash addition to property, plant and equipment, and a corresponding amount as a lease liability.

There are no restrictions placed on Hudbay by entering into these leases.

The following outlines expenses recognized within the Company's consolidated income statements, relating to leases for which a recognition exemption was applied.

    Year ended December 31,  
    2022     2021  
Short-term leases $ 25,781   $ 38,092  
Low value leases   652     407  
Variable leases   55,673     58,626  
Total $ 82,106   $ 97,125  

 

Payments made for short-term, low value and variable leases would mostly be captured as expenses in the consolidated income statements, however, certain amounts may be capitalized to PP&E for the Arizona segment during its development phase and certain amounts may be reported in inventories given the timing of sales. Variable payment leases include equipment used for heavy civil works at Constancia.

18. Long-term debt

 

Long-term debt is comprised of the following:

 

    Dec. 31, 2022     Dec. 31, 2021  
Senior unsecured notes (a) $ 1,188,132   $ 1,185,805  
Less: Unamortized transaction costs - revolving credit facilities (b)   (3,970 )   (5,531 )
  $ 1,184,162   $ 1,180,274  

 

 

42

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(a) Senior unsecured notes

Balance, January 1, 2021 $ 1,139,695  
Addition to Principal, net of $8,078 transaction costs   591,922  
Principal repayments   (600,000 )
Write-down of fair value of embedded derivative (prepayment option)   49,754  
Write-down of unamortized transaction costs   2,480  
Accretion of transaction costs and premiums   1,954  
Balance, December 31, 2021 $ 1,185,805  
Accretion of transaction costs and premiums   2,327  
Balance, December 31, 2022 $ 1,188,132  

As at December 31, 2022, $1,200,000 aggregate principal amount of senior notes were outstanding in two series: (i) a series of 4.50% senior notes due 2026 in an aggregate principal amount of $600,000 (the "2026 Notes") and (ii) a series of 6.125% senior notes due 2029 in an aggregate principal amount of $600,000 (the "2029 Notes").

2026 Notes

On March 8, 2021, Hudbay completed an offering of $600,000 aggregate principle amount of 4.50% senior unsecured notes due April 2026.

Hudbay used the proceeds of the offering, together with available cash on hand, to satisfy and discharge all of its obligations with respect to its then outstanding $600,000 aggregate principal amount of 7.625% senior unsecured notes due 2025 (the "2025 Notes").

Upon extinguishment of the 2025 Notes, the unamortized transaction costs of $2,480 were expensed in the consolidated income statements (note 6g). The 2025 Notes contained a prepayment option asset, which was previously valued at $49,754 and upon early redemption was written off and expensed in the consolidated income statements (note 6g).

The early redemption of the 2025 Notes also resulted in a call premium of $22,878 payable to the bondholders, which was expensed in the consolidated income statements (note 6g).

2029 Notes

On September 23, 2020, Hudbay completed an offering of $600,000 aggregate principal amount of 6.125% senior unsecured notes due April 2029

Hudbay used the proceeds of the offering to satisfy and discharge all of its obligations with respect to its then outstanding $400,000 aggregate principal amount of 7.25% senior unsecured notes due 2023.

The senior notes are guaranteed on a senior unsecured basis by substantially all of the Company's subsidiaries, other than HudBay (BVI) Inc. and certain excluded subsidiaries, which include the Company's subsidiaries that own an interest in the Copper World deposit, East deposit and Mason project and any newly formed or acquired subsidiaries that primarily hold or may develop non-producing mineral assets that are in the pre-construction phase of development. Hudbay's revolving credit facilities are secured against substantially all of the Company's assets, other than those associated with the Arizona business unit.

 

43

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

 

(b) Unamortized transaction costs - revolving credit facilities

Balance, January 1, 2021 $ 4,020  
Accretion of transaction costs   (2,816 )
Transaction costs   4,327  
Balance, December 31, 2021 $ 5,531  
Accretion of transaction costs   (1,761 )
Transaction costs   200  
       
Balance, December 31, 2022 1 $ 3,970  


1 Balance, representing deferred transaction costs, is in an asset position.

As at December 31, 2022, the Peru segment had nil in letters of credit issued under the Peru revolving credit facility to support its reclamation obligations and the Manitoba segment had $25,511 in letters of credit issued under the Canada revolving credit facility to support its reclamation and pension obligations. As at December 31, 2022, there were no cash advances under the credit facilities.

Surety bonds

The Arizona segment had $12,827 in surety bonds issued to support future reclamation and closure obligations. No cash collateral is required to be posted under these surety bonds.

Other letters of credit

The Peru segment had $107,556 in letters of credit issued with various Peruvian financial institutions to support future reclamation and other operating matters. No cash collateral is required to be posted under these letters of credit.

On August 22, 2022, Hudbay closed a C$130.0 million bilateral letter of credit facility ("LC Facility") with a major Canadian financial institution. As at December 31, 2022, the Manitoba segment had $56,735 in letters of credit issued under the LC Facility to support its reclamation and pension obligations.
 

44

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

19. Deferred revenue

777 Stream Agreement

For the year ended December 31, 2022, the drawdown rates for the 777 stream agreement for gold and silver were C$1,584 and C$31.28 per ounce, respectively (year ended December 31, 2021 - C$1,578 and C$30.38 per ounce, respectively). As of September 30, 2022 all of 777's precious metals reserves and inventory levels have been depleted and we expect no further drawdown of deferred revenue.

As part of the streaming agreement for the 777 mine, Hudbay must repay, with precious metals credits, the stream deposit by August 1, 2052, the expiry date of the agreement. If the stream deposit is not fully repaid with precious metals credits from 777 production by the expiry date, a payment for the remaining amount will be due at the expiry date of the agreement. As the 777 mine has concluded all mining activities following the depletion of reserves and finalized the sales of produced concentrate, Hudbay concluded that a portion of the stream deposit will not be repaid by means of precious metals credits from 777 production. The repayment amount is recorded as a refund liability (note 15), which is and will be discounted at the 9.0% rate inherent in the original 777 stream agreement and accreted over the remaining term of the agreement.

Peru Stream Agreement

During the second quarter of 2021, an amendment to the Peru gold stream was signed with Wheaton. The amendment eliminates the requirement to deliver 8,020 ounces of gold to Wheaton for not mining four million tonnes of ore from the Pampacancha deposit by June 30, 2021. In consideration for the elimination of this delivery obligation, Hudbay has agreed to increase the fixed gold recoveries that apply to Constancia ore production from 55% to 70% until December 31, 2025, which matches the fixed recovery rate that applies to Pampacancha production. In addition, Wheaton agreed that if Hudbay mined and processed four million tonnes of ore from the Pampacancha deposit by December 31, 2021, it would make an additional deposit payment of $4,000. As such, Hudbay revised its estimate of the remaining number of gold ounces expected to be delivered under the Peru streaming arrangement. Based on the nature of the amendment to the streaming agreement, it was determined that this contract modification should be treated as a termination of the existing contract and creation of a new contract. The accounting for such a modification is fully prospective.

As a result of the contract modification, the transaction price has been redetermined and the discount rate used to compute the significant financing component has been reassessed as of May 1, 2021. Under IFRS 15, the significant financing component is recognized as a financing charge at each reporting period and grosses up the deferred revenue balance to recognize the significant financing element that is inherent in the contract. Discount rates are significantly lower than compared to when the original contract was initiated which has resulted in lower amortized revenues and lower interest accretion expense from the date of modification.

As at December 31, 2021 Hudbay had mined and processed four million tonnes of ore from the Pampacancha deposit and, as such, Hudbay received an additional deposit payment of $4,000 in the fourth quarter of 2021.

For the year ended December 31, 2022, the drawdown rates for the Peru stream agreement for gold and silver were $734 and $14.95 per ounce, respectively (year ended December 31, 2021 - $791 and $17.47 per ounce, respectively).

 

45

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

The following table summarizes changes in deferred revenue:

Balance, January 1, 2021 $ 546,684  
Amortization of deferred revenue      
Liability drawdown   (71,519 )
Variable consideration adjustments - prior periods   (1,617 )
Accretion on streaming arrangements      
Current year additions   42,060  
Variable consideration adjustments - prior periods   594  
Reclass of refund liability (note 15)   (5,424 )
Stream deposit   4,000  
Effects of changes in foreign exchange   548  
Balance, December 31, 2021 $ 515,326  
Amortization of deferred revenue (note 6a)      
Liability drawdown   (72,229 )
Variable consideration adjustments - prior periods   (959 )
Accretion on streaming arrangements (note 6g)      
Current year-to-date additions   28,718  
Variable consideration adjustments - prior periods   (940 )
Effects of changes in foreign exchange   (378 )
Balance, December 31, 2022 $ 469,538  

Consideration from the Company's stream agreement is considered variable. Gold and silver stream revenue can be subject to cumulative adjustments when the number of ounces to be delivered under the contract changes. As a result of changes in the Company's mineral reserve and resource estimate in the first quarter of 2022 the amortization rate by which deferred revenue is drawn down into income was adjusted and, as required, a current period catch up adjustment was made for all prior period stream revenues since the stream agreement inception date. A variable consideration adjustment was also recorded on September 30, 2022 in Manitoba following a revised forecast for 777 in the third quarter of 2022, which indicated that substantially all of 777's precious metals reserves and inventory levels have been depleted. These variable consideration adjustments resulted in an increase in revenue of $959 and a decrease of finance expense of $940 for the year ended December 31, 2022 (December 31, 2021 - increase in revenue of $1,617 and an increase of finance expense of $594).

Deferred revenue is reflected in the consolidated balance sheets as follows:

    Dec. 31, 2022     Dec. 31, 2021  
Current $ 64,658   $ 88,963  
Non-current   404,880     426,363  
  $ 469,538   $ 515,326  

 

 

46

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

 

20. Environmental and other provisions
    Decommissioning,
restoration
and similar
liabilities		     Deferred
share
units3		     Restricted
share
units1, 3 		     Performance
share
units3		     Other2     Total  
Balance, January 1, 2022 $ 467,800   $ 8,107   $ 10,889   $ 5,402   $ 10,320   $ 502,518  
Net additional provisions made   13,440     1,184     3,866     239     3,918     22,647  
Disbursements   (15,460 )   -     (6,232 )   (1,115 )   (3,633 )   (26,440 )
Unwinding of discount (note 6g)   8,498     -     -     -     -     8,498  
Effect of change in discount rate   (184,508 )   -     -     -     -     (184,508 )
Effect of foreign exchange   (13,368 )   (386 )   (352 )   (287 )   (392 )   (14,785 )
Effect of change in share price   -     (2,033 )   (1,316 )   (1,250 )   -     (4,599 )
Balance, December 31, 2022 $ 276,402   $ 6,872   $ 6,855   $ 2,989   $ 10,213   $ 303,331  

1 Certain amounts relating to the Arizona segment are capitalized.

2 Relates primarily to restructuring costs and other non-capital provisions.

3 Please refer to note 25a for further information.

Provisions are reflected in the consolidated balance sheets as follows:

December 31, 2022   Decommissioning,
restoration
and similar
liabilities		     Deferred
share units 		    Restricted
share
units1 		     Performance
share
units 		    Other     Total  
Current (note 14) $ 4,162   $ 6,872   $ 4,836   $ 1,736   $ 6,485   $ 24,091  
Non-current   272,240     -     2,019     1,253     3,728     279,240  
  $ 276,402   $ 6,872   $ 6,855   $ 2,989   $ 10,213   $ 303,331  
 
    Decommissioning,
restoration
and similar
liabilities		     Deferred
share units
(note 25a)		     Restricted
share units1
(note 25a)		     Performance
share units
(note 25a)		     Other2     Total  
Balance, January 1, 2021 $ 343,132   $ 8,719   $ 10,449   $ 2,030   $ 1,144   $ 365,474  
Net additional provisions made   172,023     1,233     5,523     2,993     9,182     190,954  
Disbursements   (21,663 )   (2,053 )   (6,143 )   -     (5 )   (29,864 )
Unwinding of discount (note 6g)   4,988     -     -     -     -     4,988  
Effect of change in estimate to inflation rates3   (23,173 )   -     -     -     -     (23,173 )
Effect of change in discount rate   (9,982 )   -     -     -     -     (9,982 )
Effect of foreign exchange   2,475     (18 )   316     (10 )   (1 )   2,762  
Effect of change in share price   -     226     744     389     -     1,359  
Balance, December 31, 2021 $ 467,800   $ 8,107   $ 10,889   $ 5,402   $ 10,320   $ 502,518  

1 Certain amounts relating to the Arizona segment are capitalized.

2 Relates primarily to restructuring costs.

3 Represents changes in estimates of inflation rates applied to expected undiscounted cash flows.

 

47

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

December 31, 2021   Decommissioning,
restoration
and similar
liabilities		     Deferred
share units
(note 25a)		     Restricted
share units1
(note 25a)		     Performance
share units
(note 25a)		     Other     Total  
Current (note 14) $ 16,759   $ 8,107   $ 5,061   $ 4,622   $ 6,468   $ 41,017  
Non-current   451,041     -     5,828     780     3,852     461,501  
  $ 467,800   $ 8,107   $ 10,889   $ 5,402   $ 10,320   $ 502,518  

Decommissioning, restoration and similar liabilities are remeasured at each reporting date to reflect changes in discount rates, which can significantly affect the liabilities.

Decommissioning, restoration and similar liabilities ("DRO")

Hudbay's decommissioning, restoration and similar liabilities relate to the rehabilitation and closure of currently operating mines and metallurgical plants, development-phase properties and closed properties. The amount of the provision has been recorded based on estimates and assumptions that management believes are reasonable; however, actual decommissioning and restoration costs may differ from expectations.

DRO are remeasured at each reporting date to reflect changes in discount rates, inflation, exchange rates, and timing and extent of cash outflows which can significantly affect the liabilities. The amount of this provision has been recorded based on estimates and assumptions that management believes are reasonable; however, actual decommissioning and restoration costs may differ from expectations.

During the year ended December 31, 2022, the Company recorded a non-cash gain of $133,460 in the consolidated income statements mainly related to a revaluation adjustment of Flin Flon's environmental reclamation provision. This was primarily caused by a general increase in long term, risk-free discount rates during 2022 based on movements in Canadian bond yields. Typically, an operating site will reflect any revaluation adjustments of its environmental reclamation provision against its reclamation assets. However, since the Flin Flon operations closed in June 2022, the corresponding Flin Flon assets have been fully depreciated and cannot be reduced below their residual value, resulting in the remaining impact being recorded as a non-cash gain in re-evaluation adjustment - environmental provision in the consolidated income statements.

During the third quarter of 2021, following a comprehensive update to the Flin Flon closure plan, additional provisions were recognized to reflect higher estimates for closure activities in Flin Flon through to the year 2122. The increase in the environmental reclamation provision resulted in a corresponding increase in the Flin Flon reclamation asset, which is recorded within PP&E. However, in 2021, as the Flin Flon operation was approaching closure, an impairment indicator was identified in the third and fourth quarter of 2021 which led to an impairment loss of $193,473 for the year ended December 31, 2021 (note 6i).

During the year ended December 31, 2021, additional provisions were recognized mostly as a result of the aforementioned impact in Flin Flon and changes to discount rates.

Hudbay's decommissioning and restoration liabilities relate mainly to its Manitoba operations. Management has placed the remaining Flin Flon assets on care and maintenance. The majority of closure activities will occur once all mining activities in Manitoba are completed. These provisions also reflect estimated post-closure cash flows that extend to the year 2122 for ongoing monitoring and water treatment requirements. Management anticipates most decommissioning and restoration activities for the Constancia operation will occur from 2035 to 2103, which include ongoing monitoring and water treatment requirements.

These estimates have been discounted to their present value at rates ranging from 3.26% to 4.75% per annum (2021 - 0.39% to 1.94%), using pre-tax, risk-free interest rates that reflect the estimated maturity of each specific liability.
 

48

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

21. Pension obligations

Hudbay maintains non-contributory and contributory defined benefit pension plans for certain of its employees.

The Company uses a December 31 measurement date for all of its plans. For Hudbay's significant plans, the most recent actuarial valuations filed for funding purposes were performed during 2022 using the latest data available as at December 31, 2021, with the exception of more recently available data related to certain Manitoba plan members impacted by the Flin Flon closure. For these plans, the next actuarial valuation required for funding purposes will be performed during 2023 using the data as of December 31, 2022.

Movements in the present value of the defined benefit obligation in the current and previous years were as follows:

    Year ended  
    Dec. 31, 2022     Dec. 31, 2021  
Opening defined benefit obligation: $ 216,369   $ 240,354  
Current service costs   9,392     11,295  
Curtailment (note 6b, 6e)   (583 )   -  
Past service cost (note 6b, 6e)   -     4,989  
Interest cost   5,938     6,172  
Benefits paid from plan   (18,637 )   (22,546 )
Benefits paid from employer   (1,787 )   (866 )
Participant contributions   25     34  
Effects of movements in exchange rates   (16,883 )   950  
Remeasurement actuarial losses/(gains):            
Arising from changes in demographic assumptions   -     1,498  
Arising from changes in financial assumptions   (48,960 )   (24,663 )
Arising from experience adjustments   255     (848 )
Closing defined benefit obligation $ 145,129   $ 216,369  

The defined benefit obligation closing balance, by member group, is as follows:

    Dec. 31, 2022     Dec. 31, 2021  
Active members $ 112,951   $ 176,644  
Deferred members   2,439     2,538  
Retired members   29,739     37,187  
Closing defined benefit obligation $ 145,129   $ 216,369  

 
 

49

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Movements in the fair value of the pension plan assets in the current and previous years were as follows:

    Year ended  
    Dec. 31, 2022     Dec. 31, 2021  
Opening fair value of plan assets: $ 199,645   $ 203,486  
Interest income   5,667     5,387  
Remeasurement adjustment:            
Loss on plan assets (excluding amounts included in net interest expense)   (40,196 )   (306

)
Contributions from the employer   6,063     12,750  
Employer direct benefit payments   1,787     866  
Contributions from plan participants   25     34  
Benefit payment from employer   (1,787 )   (866 )
Administrative expenses paid from plan assets   (80 )   (83 )
Benefits paid   (18,637 )   (22,546 )
Effects of changes in foreign exchange rates   (14,766

)

   923  
Closing fair value of plan assets $ 137,721   $ 199,645  

The amount included in the consolidated balance sheets arising from the entity's obligation in respect of its defined benefit plans is as follows:

    Dec. 31, 2022     Dec. 31, 2021  
Present value of funded defined benefit obligation $ 131,503   $ 197,546  
Fair value of plan assets   (137,721 )   (199,645 )
Present value of unfunded defined benefit obligation   13,626     18,823  
Net liability arising from defined benefit obligation $ 7,408   $ 16,724  

Reflected in the consolidated balance sheets as follows:

    Dec. 31, 2022     Dec. 31, 2021  
Pension obligation - current (note 14) $ 4,146   $ 10,472  
Pension obligation - non-current   3,262     6,252  
Total pension obligation $ 7,408   $ 16,724  

 

 

50

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Pension expense is as follows:

    Dec. 31, 2022     Dec. 31, 2021  
Service costs:            
Current service cost $ 9,392   $ 11,295  
(Curtailment) / past service cost   (583

)

   4,989  
Total service cost   8,809     16,284  
Net interest expense   271     785  
Administration cost   80     83  
Defined benefit pension expense $ 9,160   $ 17,152  
             
Defined contribution pension expense $ 2,097   $ 2,061  

Remeasurement on the net defined benefit liability:

    Dec. 31, 2022     Dec. 31, 2021  
Loss on plan assets (excluding amounts included in net interest expense) $ 40,196   $ 306  
Actuarial losses arising from changes in demographic assumptions   -     1,498  
Actuarial gains arising from changes in financial assumptions   (48,960 )   (24,663

)
Actuarial losses (gains) arising from experience adjustments   255     (848 )
Defined benefit gain related to remeasurement $ (8,509 ) $ (23,707 )
             
Total pension cost $ 2,748   $ (4,494

)

Pension amounts recognized include those directly related to production of inventory; such amounts are recognized initially as costs of inventory and are expensed in the consolidated income statements within cost of sales upon sale of the inventory.

The current service cost, the interest cost and administration cost for the year are included in the employee benefits expense. The remeasurement of the net defined benefit liability is included in OCI.

 

51

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

The defined benefit pension plans typically expose Hudbay to actuarial risks such as: investment risk, interest rate risk, longevity risk and salary risk.

Investment risk

The present value of the liabilities for the defined benefit plans is calculated using a discount rate determined by reference to high quality corporate bond yields; if the return on plan assets is below this rate, it will create a plan deficit. Hudbay's primary quantitative investment objectives are maximization of the long term real rate of return, subject to an acceptable degree of investment risk and preservation of principal. Risk tolerance is established through consideration of several factors including past performance, current market condition and the funded status of the plan.

Interest risk

A decrease in the bond interest rate will increase the pension plan liabilities; however, this will be partially offset by an increase in the return on the plan's debt investments.

Longevity risk

The present value of the defined benefit plans liabilities is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the pension plans liabilities.

Salary risk

The present value of the defined benefit plans liabilities for some of the pension plans is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the plans' liabilities.

The principal assumptions used for the purposes of the actuarial valuations were as follows:

  2022 2021
Defined benefit cost:    
Discount rate - benefit obligations 3.09% 2.54%
Discount rate - service cost 3.21% 2.66%
Expected rate of salary increase1 2.75% 2.75%
Average longevity at retirement age for current pensioners (years)2 :    
Males 20.4 20.3
Females 23.7 23.7
Defined benefit obligation:    
Discount rate 5.22% 3.09%
Expected rate of salary increase1 3.50% 2.75%
Average longevity at retirement age for current pensioners (years)2 :    
Males 20.4 20.4
Females 23.8 23.7
Average longevity at retirement age for current employees (future pensioners) (years)2 :    
Males 22.3 22.2
Females 25.5 25.4
1 Plus merit and promotional scale based on member's age
2 Revised retirement pension plan only - CPM2014 Priv with MI-2017 projection scale with loading of 1.25 and 1.15 for males and females

 

 

52

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Hudbay reviews the assumptions used to measure pension costs (including the discount rate) on an annual basis. Economic and market conditions at the measurement date affect these assumptions from year to year. In determining the discount rate, Hudbay considers the duration of the pension plan liabilities.

Significant actuarial assumptions for the determination of the defined benefit obligation are discount rate, expected salary increase and mortality. The sensitivity analysis below has been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting periods, while holding other assumptions constant:

- If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by $10,667 (increase by $12,078).

- If the expected salary growth increases (decreases) by 1%, the defined benefit obligation would increase by $1,406 (decrease $1,267).

- If the life expectancy increases (decreases) by one year for both men and women, the defined benefit obligation would increase by $980 (decrease by $1,018).

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognized in the consolidated balance sheets.

The Company's main pension plans are registered federally with the Office of the Superintendent of Financial Institution and with the Canada Revenue Agency. The registered pension plans are governed in accordance with the Pension Benefits Standards Act and the Income Tax Act. The sponsor contributes the amount needed to maintain adequate funding as dictated by the prevailing regulations.

Expected employer contribution to the pension plans for the fiscal year ending December 31, 2022 is $4,847.

The average duration of the pension obligation at December 31, 2022 is 16.2 years (2021 - 19.2 years). This number can be broken down as follows:

- Active members: 18.3 years (2021: 21.0 years)

- Deferred members: 17.5 years (2021: 23.5 years)

- Retired members: 8.2 years (2021: 10.0 years)

Asset-Liability-Matching studies are performed periodically to analyze the investment policies in terms of risk and-return profiles.

The pension plans do not invest directly in either securities or property/real estate of the Company.

With the exception of fixed income investments and certain equity instruments, the plan assets are actively managed by investment managers, with the goal of attaining returns that potentially outperform passively managed investments. Within appropriate limits, the actual composition of the invested funds may vary from the prescribed investment mix.

 

53

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

The following is a summary of the fair value classification levels for investment:

December 31, 2022   Level 1     Level 2     Level 3     Total  
Investments:                        
Money market instruments $ 2,270   $ -   $ -   $ 2,270  
Pooled equity funds   50,107     -     -     50,107  
Pooled fixed income funds   -     64,230     -     64,230  
Alternative investment funds   -     20,908     -     20,908  
Balanced funds   -     206     -     206  
  $ 52,377   $ 85,344   $ -   $ 137,721  

 

December 31, 2021   Level 1     Level 2     Level 3     Total  
Investments:                        
Money market instruments $ 2,045   $ -   $ -   $ 2,045  
Pooled equity funds   78,092     -     -     78,092  
Pooled fixed income funds   -     97,229     -     97,229  
Alternative investment funds   -     21,983     -     21,983  
Balanced funds   -     296     -     296  
  $ 80,137   $ 119,508   $ -   $ 199,645  

 

 

54

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

22. Other employee benefits

Hudbay sponsors both other long-term employee benefit plans and non-pension post-employment benefits plans and uses a December 31 measurement date. These obligations relate mainly to commitments for post-retirement health benefits. Information about Hudbay's post-employment and other long-term employee benefits is as follows:

Movements in the present value of the defined benefit obligation in the current and previous years were:

    Year ended  
    Dec. 31, 2022     Dec. 31, 2021  
Opening defined benefit obligation $ 128,843   $ 129,616  
Current service cost1   4,656     3,861  
Past service cost   -     134  
Curtailment (note 6e)   (1,801 )   -  
Interest cost   3,940     3,531  
Attribution period changes (note 6e)   (3,179 )   -  
Effects of movements in exchange rates   (6,074 )   639  
Remeasurement actuarial losses/(gains):            
Arising from changes in demographic assumptions   -     2,601  
Arising from changes in financial assumptions   (36,058 )   (7,309 )
Arising from experience adjustments   (516 )   (1,034 )
Benefits paid   (2,595 )   (3,196 )
Closing defined benefit obligation $ 87,216   $ 128,843  

1 Includes remeasurement of other long term employee benefits

The defined benefit obligation closing balance, by group member, is as follows:

    Dec. 31, 2022     Dec. 31, 2021  
Active members $ 58,482   $ 57,775  
Inactive members   28,734     71,068  
Closing defined benefit obligation $ 87,216   $ 128,843  

Movements in the fair value of defined benefit amounts in the current and previous years were as follows:

    Dec. 31, 2022     Dec. 31, 2021  
Employer contributions $ 2,595   $ 3,196  
Benefits paid   (2,595 )   (3,196 )
Closing fair value of assets $ -   $ -  

The non-pension employee benefit plan obligations are unfunded.

 

55

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Reconciliation of assets and liabilities recognized in the consolidated balance sheets:

    Dec. 31, 2022     Dec. 31, 2021  
Unfunded benefit obligation $ 87,216   $ 128,843  
Vacation accrual and other - non-current   2,607     3,275  
Net liability $ 89,823   $ 132,118  

Reflected in the consolidated balance sheets as follows:

    Dec. 31, 2022     Dec. 31, 2021  
Other employee benefits liability - current (note 14) $ 3,483   $ 3,530  
Other employee benefits liability - non-current   86,340     128,588  
Net liability $ 89,823   $ 132,118  

Other employee future benefit expense includes the following:

    Dec. 31, 2022     Dec. 31, 2021  
Current service cost 1 $ 2,855   $ 3,995  
Net interest cost   3,940     3,531  
Components recognized in consolidated income statements $ 6,795   $ 7,526  
   
1 Includes remeasurement of other long term employee benefit and curtailment  
    Dec. 31, 2022     Dec. 31, 2021  
Remeasurement on the net defined benefit liability:            
Actuarial losses arising from changes in demographic assumptions $ -   $ 2,601  
Actuarial gains arising from changes in financial assumptions   (36,058 )   (7,309 )
Actuarial gains arising from changes experience adjustments   (516 )   (1,034 )
Components recognized in statements of comprehensive income $ (36,574 ) $ (5,742 )
             
Total other employee future benefit cost $ 29,779   $ 1,784  

Other employee benefit amounts recognized include those directly related to production of inventory; such amounts are recognized initially as costs of inventory and are expensed in the consolidated income statements within cost of sales upon sale of the inventory.

 

56

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

 

  Dec. 31, 2022 Dec. 31, 2021
Defined benefit cost:    
Discount rate 3.30% 2.76%
Initial weighted average health care trend rate 6.00% 5.66%
Ultimate weighted average health care trend rate 4.00% 4.00%
Average longevity at retirement age for current pensioners (years)1 :    
Males 20.4    20.3   
Females 23.7    23.7   
 
  Dec. 31, 2022 Dec. 31, 2021
Defined benefit obligation:    
Discount rate 5.27% 3.30%
Initial weighted average health care trend rate 5.92% 6.00%
Ultimate weighted average health care trend rate 4.00% 4.00%
Average longevity at retirement age for current pensioners (years)1 :    
Males 20.4    20.4   
Females 23.8    23.7   
Average longevity at retirement age for current employees (future pensioners) (years)1 :    
Males 22.3    22.3   
Females 25.5    25.4   

1 CPM2014 Priv with CPM-B projection scale

Hudbay reviews the assumptions used to measure other employee benefit costs (including the discount rate) on an annual basis.

The other employee benefit costs typically expose Hudbay to actuarial risks such as: interest rate risk, health care cost inflation risk and longevity risk.

Interest risk A decrease in the bond interest rate will increase the plan liabilities.
Health care cost inflation risk The majority of the plan's benefit obligations are linked to health care cost inflation and higher inflation will lead to higher liabilities.
Longevity risk The majority of the plans' benefit liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the plans' liabilities. This is particularly significant for benefits subject to health care cost inflation where increases in inflation result in higher sensitivity to changes in life expectancy.

 

 

57

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding other assumptions constant:

- If the discount rate is 50 basis points higher (lower), the defined benefit obligation would decrease by $6,070 (increase by $6,843).

- If the health care cost assumption increases (decreases) by 1%, the defined benefit obligation would increase by $13,940 (decrease by $11,188).

- If the life expectancy increases (decreases) by one year for both men and women, the defined benefit obligations would increase by $2,888 (decrease by $2,885).

The average duration of the non-pension post-employment obligation at December 31, 2022 is 15.0 years (2021: 18.6 years).

This number can be broken down as follows:

- Active members: 21.9 years (2021: 25.4 years)

- Inactive members: 11.6 years (2021: 13.2 years)

23. Income and mining taxes

(a) Tax recoveries:

The tax expense (recoveries) is applicable as follows:

    Year ended
December 31,		  
    2022     2021  
Current:            
Income taxes $ 10,940   $ 25,570  
Mining taxes   10,673     20,830  
Adjustments in respect of prior years   (704 )   -  
    20,909     46,400  
Deferred:            
Income tax expense (recoveries) - origination, revaluation and/or reversal of temporary differences   218     (17,772 )
             
Mining tax expense - origination, revaluation and/or reversal of temporary difference   5,464     4,235  
Adjustments in respect of prior years   (1,158 )   8,744  
    4,524     (4,793 )
  $ 25,433   $ 41,607  

Adjustments in respect of prior years refers to amounts changing due to the filing of tax returns and assessments from government authorities as well as any change identified that would result in a difference to our current or deferred tax balances as reported in the prior fiscal year end.

 

58

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(b) Deferred tax assets and liabilities as represented on the consolidated balance sheets:

    Dec. 31, 2022     Dec. 31, 2021  
Deferred income tax asset $ 125,638   $ 133,584  
             
Deferred income tax liability   (233,730 )   (249,638 )
Deferred mining tax liability   (17,564 )   (12,126 )
    (251,294 )   (261,764 )
Net deferred tax liability balance, end of year $ (125,656 ) $ (128,180 )

(c) Changes in deferred tax assets and liabilities:

    Year ended
Dec. 31, 2022		     Year ended
Dec. 31, 2021		  
Net deferred tax liability balance, beginning of year $ (128,180 ) $ (127,534 )
Deferred tax (expense) recovery (note 23a)   (4,524 )   4,793  
OCI transactions   (2,384 )   (5,474 )
Foreign currency translation on the deferred tax liability   9,432     35  
Net deferred tax liability balance, end of year $ (125,656 ) $ (128,180 )

 

 

59

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(d) Reconciliation to statutory tax rate:

As a result of its mining operations, the Company is subject to both income and mining taxes. Generally, most expenditures incurred are deductible in computing income tax, whereas mining tax legislation, although based on a measure of profitability from carrying on mining operations, is more restrictive in respect of the deductions permitted in computing income subject to mining tax. These restrictions include costs unrelated to mining operations as well as deductions for financing expenses, such as interest and royalties. In addition, income unrelated to carrying on mining operations is not subject to mining tax.

A reconciliation between tax expense and the product of accounting profit multiplied by the Company's statutory income tax rate for the years ended December 31, 2022 and 2021 is as follows:

    Year ended December 31,  
    2022     2021  
Statutory tax rate   26.3%     26.4%  
             
Tax expense (recovery) at statutory rate $ 25,199   $ (53,526 )
Effect of:            
Deductions related to mining taxes   (3,249 )   (5,491 )
Adjusted income taxes   21,950     (59,017 )
Mining tax expense   15,959     32,034  
    37,909     (26,983 )
             
Permanent differences related to:            
Capital items   (321 )   716  
Other income tax permanent differences   3,839     2,775  
Impact of remeasurement on decommissioning liability   (38,950 )   33,731  
Temporary income tax differences not recognized   (509 )   4,483  
Recognition of previously unrecognized deferred tax assets   (3,943 )   -  
Impact related to differences in tax rates in foreign operations   15,339     21,201  
Impact of changes to statutory tax rates   958     (706 )
Foreign exchange on non-monetary items   13,094     4,593  
Impact related to tax assessments and tax return amendments   (1,983 )   1,797  
Tax expense $ 25,433   $ 41,607  

 

 

60

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(e) Income tax effect of temporary differences - recognized:

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2022 and 2021 are as follows:

    Balance sheet  
    Dec. 31, 2022     Dec. 31, 2021  
Deferred income tax (liability) asset            
Property, plant and equipment $ (44,029 ) $ (40,491 )
Pension obligation   2,121     4,369  
Other employee benefits   25,395     27,191  
Decommissioning and restoration provision   20,454     29,870  
Non-capital losses   104,481     93,892  
Share issuance and debt cost   6,283     17,984  
Deferred revenue   1,195     1,661  
Other   9,738     (892 )
Deferred income tax asset   125,638     133,584  
             
Deferred income tax liability (asset)            
Property, plant and equipment   311,499     322,325  
Other employee benefits   (1,024 )   (654 )
Decommissioning and restoration provision   (8,376 )   (9,609 )
Non-capital losses   (71,532 )   (58,777 )
Other   3,163     (3,647 )
Deferred income tax liability   233,730     249,638  
             
Deferred income tax liability $ (108,092 ) $ (116,054 )

The above reconciling items are disclosed at the tax rates that apply in the jurisdiction where they have arisen.

(f) Income tax temporary differences - not recognized:

The Company has not recognized a deferred tax asset on $44.5 million of non-capital losses (December 31, 2021 - $23.5 million), $154.6 million of capital losses (December 31, 2021 - $170.8 million) and $255.9 million (December 31, 2021 - $586.8 million) of other deductible temporary differences since the realization of any related tax benefit through future taxable profits is not probable. The capital losses have no expiry dates and the other deductible temporary differences do not expire under current tax legislation.
 
The Canadian non-capital losses were incurred between 2008 and 2022 and have a twenty-year carry forward period. The United States net operating losses were incurred between 2004 and 2022 and have a twenty-year carry forward period.   
 
 

61

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(g) Mining tax effect of temporary differences:

The tax effects of temporary differences that give rise to significant portions of the deferred mining tax assets and liabilities at December 31, 2022 and 2021 are as follows:

Canada   Dec. 31, 2022     Dec. 31, 2021  
Property, plant and equipment $ (4,996 ) $ (278 )
             
             
Peru   Dec. 31, 2022     Dec. 31, 2021  
Property, plant and equipment $ (12,568 ) $ (11,848 )

For the year ended December 31, 2022, Hudbay had unrecognized deferred mining tax assets of approximately $10,198 (December 31, 2021 - $18,159).

(h) Unrecognized taxable temporary differences associated with investments:

There are no taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, for which a deferred tax liability has not been recognized.

(i) Taxes receivable/payable:

The timing of payments results in significant variances in period-to-period comparisons of the tax receivable and tax payable balances.

(j) Other disclosure:

The tax rules and regulations applicable to mining companies are highly complex and subject to interpretation. The Company may be subject in the future to a review of its historic income and other tax filings and, in connection with such reviews, disputes can arise with tax authorities over the interpretation or application of certain tax rules and regulations in respect of the Company's business. These reviews may alter the timing or amount of taxable income or deductions. The amount ultimately reassessed upon resolution of issues raised may differ from the amount accrued.
 

62

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

24. Share capital

(a) Preference shares:

Authorized: Unlimited preference shares without par value.

Issued and fully paid: Nil.

(b) Common shares:

Authorized: Unlimited common shares without par value.

Issued and fully paid:

    Year ended
Dec. 31, 2022		     Year ended
Dec. 31, 2021		  
    Common shares     Amount     Common shares     Amount  
Balance, beginning of year   261,598,312   $ 1,778,848     261,272,151   $ 1,777,340  
Exercise of options   421,545     1,926     326,161     1,508  
Balance, end of year   262,019,857   $ 1,780,774     261,598,312   $ 1,778,848  

During the year ended December 31, 2022, the Company declared two semi-annual dividends of C$0.01 per share. The Company paid $2,075 and $1,972 in dividends on March 25, 2022 and September 23, 2022 to shareholders of record as of March 8, 2022 and September 2, 2022.

During the year ended December 31, 2021, the Company declared two semi-annual dividends of C$0.01 per share each. The Company paid $2,090 and $2,056 in dividends on March 26, 2021 and September 24, 2021 to shareholders of record as of March 9, 2021 and September 3, 2021.

25. Share-based compensation

(a) Cash-settled share-based compensation:

Hudbay has three cash-settled share-based compensation plans, as described below.

Deferred Share Units (DSU)

At December 31, 2022, the carrying amount and the intrinsic value of the outstanding liability related to the DSU plan was $6,872 (December 31, 2021 - $8,107) (note 20). The following table outlines information related to DSUs granted, expenses recognized and payments made during the year.

    Year ended  
    Dec. 31, 2022     Dec. 31, 2021  
Granted during the year:            
Number of units   238,627     173,929  
Weighted average price (C$/unit) $ 6.45   $ 8.85  
Expenses recognized during the year1 (notes 6d) $ 849   $ 1,459  
Payments made during the year (note 20) $ -   $ 2,053  

1 This expense relates to the grant of DSUs, as well as mark-to-market adjustments, and is presented within selling and administrative expenses on the consolidated income statements.

 

63

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Restricted Share Units (RSU)

RSUs granted under the LTEP Plan may be settled in the form of Hudbay common shares or, at the option of the Company, the cash equivalent based on the market price of the common shares as of the vesting date. RSUs may also be granted under Hudbay's Share Unit Plan, however; the RSUs granted under the Share Unit Plan may only be settled in cash. Hudbay has historically settled all RSUs in cash. The Company has determined that the appropriate accounting treatment is to classify the RSUs as cash settled transactions.

At December 31, 2022, the carrying amount of the outstanding liability related to the RSU plan was $6,855 (December 31, 2021 - $10,889) (note 20). The following table outlines information related to RSUs granted, expenses recognized and payments made in the year.

    Year ended  
    Dec. 31, 2022     Dec. 31, 2021  
Number of units, beginning of year   2,484,860     2,940.337  
Number of units granted during the year   701,050     515,727  
Credits for dividends   6,203     6,949  
Number of units forfeited during the year   (180,324 )   (133,804 )
Number of units vested   (928,799 )   (844,349 )
Number of units, end of year 1   2,082,990     2,484,860  
Weighted average price - granted (C$/unit) $ 9.64   $ 10.42  
Expenses recognized during the year2 (note 6d) $ 2,076   $ 5,385  
Payments made during the year (note 20) $ 6,232   $ 6,143  

1 Includes 778,224 units that have vested as of December 31, 2021; however, are unreleased and unpaid as of December 31, 2021.

2 This net expense reflects recognition of RSU expense over the service period, as well as mark-to-market adjustments, and is presented mainly within cost of sales and selling and administrative expenses. Certain amounts related to the Arizona segment are capitalized.

 

64

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Performance Share Units (PSU)

PSUs granted under the LTEP Plan may be settled in the form of Hudbay common shares or, at the option of the Company, the cash equivalent based on the market price of the common shares as of the vesting date. Hudbay has historically settled similar share-based compensation units in cash. The Company has determined that the appropriate accounting treatment is to classify the PSUs as cash settled transactions. The PSUs contain a performance based multiplier element which will be computed upon vesting.

At December 31, 2022, the carrying amount of the outstanding liability related to PSU plan was $2,989 (December 31, 2021 - $5,402) (note 20). The following table outlines information related to PSUs granted, expenses recognized and payments made in the year.

    Year ended  
    Dec. 31, 2022     Dec. 31, 2021  
Number of units, beginning of year   1,506,231     1,095,615  
Number of units granted during the year   423,322     406,656  
Credits for dividends   4,598     3,960  
Number of units forfeited during the year   (285,782 )   -  
Number of units vested   (275,306 )   -  
Number of units, end of year   1,373,063     1,506,231  
Weighted average price - granted (C$/unit) $ 9.82   $ 10.42  
(Recovery) expense recognized during the year (note 6d) $ (1,011 ) $ 3,382  
Payments made during the year (note 20) $ 1,115   $ -  

(b) Equity-settled share-based compensation - stock options:

The Company's stock option plan was approved in June 2005 and amended in May 2008 (the "Plan"). Under the amended Plan, the Company may grant to employees, officers, directors or consultants of the Company or its affiliates options to purchase up to a maximum of 13 million common shares of Hudbay. The Company has determined that the appropriate accounting treatment is to classify the stock options as equity settled transactions.

During the year ended December 31, 2022, the Company granted 602,614 stock options (year ended December 31, 2021 - 509,385).

The following table outlines the changes in the number of stock options outstanding:

    Year ended     Year ended  
    Dec. 31, 2022     Dec. 31, 2021  
    Number of
shares subject
to option		     Weighted-
average
exercise price
C$		     Number of
shares subject
to option		     Weighted
average
exercise price
C$		  
Balance, beginning of year   1,659,288   $ 5.71     1,563,189   $ 3.77  
Number of units granted during the year   602,614   $ 9.77     509,385   $ 10.42  
Exercised   (421,545 ) $ 3.80     (326,161 ) $ 3.76  
Forfeited   (311,597 ) $ 7.94     (87,125 ) $ 5.79  
Balance, end of year   1,528,760   $ 7.38     1,659,288   $ 5.71  

 

 

65

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

The following table presents the weighted average fair value assumptions used in the Black-Scholes valuation of these options:

For options granted during the year ended   Dec. 31, 2022     Dec. 31, 2021  
Weighted average share price at grant date (CAD) $ 9.77   $ 10.42  
Risk-free rate   1.81%     1.02%  
Expected dividend yield   0.2%     0.2%  
Expected stock price volatility (based on historical volatility)   55.9%     60.5%  
Expected life of option (months)   84     84  
Weighted average per share fair value of stock options granted (CAD) $ 5.45   $ 6.06  

The following table outlines stock options outstanding and exercisable:

Dec. 31, 2022  
Range of
exercise prices
C$		   Number of
options
outstanding		     Weighted average
remaining
contractual life
(years)		     Weighted
average
exercise price
C$		     Number of
options
exercisable 		    Weighted
average share
price at exercise
date C$		  
$3.76 - $3.92   644,983     4.15   $ 3.76     264,553   $ 3.76  
$3.93 - $9.00   30,283     5.85   $ 6.92     9,194   $ 7.04  
$9.01 - $9.92   487,005     6.16   $ 9.92     -   $ -  
$9.92 - $10.42   366,489     5.15   $ 10.42     122,628   $ 10.42  
 
Dec. 31, 2021  
Range of
exercise prices
C$		   Number of
options
outstanding		     Weighted average
remaining
contractual life
(years)		     Weighted
average exercise
price C$		     Number of
options
exercisable		     Weighted
average share
price at exercise
date C$		  
$3.76 - $3.92   1,176,399     5.15   $ 3.78     191,651   $ 3.79  
$10.42 - $10.42   482,889     6.15   $ 10.42     -   $ -  

Hudbay estimates expected life of options and expected volatility based on historical data, which may differ from actual outcomes.
 

66

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

26. Earnings per share

    Year ended December 31,  
    2022     2021  
Weighted average common shares outstanding            
Basic   261,858,531     261,462,323  
Plus net incremental shares from:            
Assumed conversion: stock options   358,997     -  
Diluted weighted average common shares outstanding   262,217,528     261,462,323  

For periods where Hudbay records a loss, Hudbay calculates diluted loss per share using the basic weighted average number of shares. If the diluted weighted average number of shares were used, the result would be a reduction in the loss, which would be anti-dilutive.

The determination of the diluted weighted-average number of common shares excludes the impact of 640,089 weighted-average stock options outstanding that were anti-dilutive for the year ended December 31, 2021 as the Company recorded a loss in the financial periods being reported. For the year ended December 31, 2022, Hudbay calculated diluted loss per share using 262,217,528 common shares (for the year ended December 31, 2021 - 261,462,323).

27. Capital management

The Company's definition of capital includes total equity and long-term debt. Hudbay's long-term debt balance as at December 31, 2022 was $1,184,162 (December 31, 2021 - $1,180,274).

The Company's objectives when managing capital are to maintain a strong capital base in order to:

- Advance Hudbay's corporate strategies to create long-term value for its stakeholders; and,

- Sustain Hudbay's operations and growth throughout metals and materials cycles.

Hudbay monitors its capital and capital structure on an ongoing basis to ensure they are sufficient to achieve the Company's short-term and long-term strategic objectives in a capital intensive industry. Hudbay faces several risks, including volatile metals prices, inflationary pressures on costs, access to capital, and risk of delays and cost escalation associated with major capital projects. The Company continually assesses the adequacy of its capital structure to ensure its objectives are met. Hudbay monitors its cash, which were $225,665 as at December 31, 2022 (2021 - $270,989), together with availability under its committed credit facilities. Hudbay invests its cash primarily in Canadian bankers' acceptances, deposits at major Canadian and Peruvian banks, or treasury bills issued by the federal or provincial governments. In addition to the requirement to maintain sufficient cash balances to fund continuing operations, Hudbay must maintain sufficient cash to fund the interest expense on the long-term debt outstanding (note 18). As part of the Company's capital management activities, Hudbay monitors interest coverage ratios and leverage ratios.
 

67

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

28. Financial instruments

(a)     Fair value and carrying value of financial instruments:

The following presents the fair value ("FV") and carrying value ("CV") of Hudbay's financial instruments and non-financial derivatives:

    Dec. 31, 2022     Dec. 31, 2021  
    FV     CV     FV     CV  
Financial assets at amortized cost                        
Cash1 $ 225,665   $ 225,665   $ 270,989   $ 270,989  
Restricted cash1   486     486     437     437  
Fair value through profit or loss                        
Trade and other receivables 1, 2, 3   87,638     87,638     172,890     172,890  
Non-hedge derivative assets 4   577     577     7,430     7,430  
Investments 5   9,799     9,799     11,158     11,158  
Total financial assets $ 324,165   $ 324,165   $ 462,904   $ 462,904  
Financial liabilities at amortized cost                        
Trade and other payables1, 2   195,872     195,872     189,179     189,179  
Deferred Rosemont acquisition consideration 8   18,876     18,876     27,518     27,518  
Agreements with communities 6   35,870     42,493     33,947     36,273  
Wheaton refund liability10   7,744     6,383     5,424     5,424  
Senior unsecured notes 7   1,094,988     1,188,132     1,239,018     1,185,805  
Fair value through profit or loss                        
Gold prepayment liability 9   71,208     71,208     140,008     140,008  
Non-hedge derivative liabilities 4   17,995     17,995     12,451     12,451  
Total financial liabilities $ 1,442,553   $ 1,540,959   $ 1,647,545   $ 1,596,658  


1 Cash, restricted cash, trade and other receivables and trade and other payables are recorded at carrying value, which approximates fair value due to their short-term nature and generally negligible credit losses.

2 Excludes tax and other statutory amounts.

3 Trade and other receivables contain receivables including provisionally priced receivables classified as FVTPL and various other items at amortized cost. The fair value of provisionally priced receivables is determined using forward metals prices which is a level 2 valuation method.

4 Derivatives are carried at their fair value, which is determined based on internal valuation models that reflect observable forward market commodity prices, currency exchange rates, and discount factors based on market US dollar interest rates adjusted for credit risk.

5 All investments are carried at their fair value, which is determined using quoted market bid prices in active markets for listed shares.

6 These financial liabilities relate to agreements with communities near the Constancia project in Peru (note 15). Fair values have been determined using a discounted cash flow analysis based on expected cash flows and a credit adjusted discount rate.

7 Fair value of the senior unsecured notes (note 18) has been determined using the quoted market price at period end.

8 Discounted value based on a risk adjusted discount rate.

9 The gold prepayment liability (note 16) is designated as fair value through profit or loss under the fair value option. Gains and losses related to the Company's own credit risk have been recorded at fair value through other comprehensive income. The fair value adjustment recorded in other comprehensive income for the year ended December 31, 2022 was a gain of $512 (year ended December 31, 2021 was a loss of $2,684).
10 Discounted value based on a market rate at inception of the applicable Wheaton contract for carrying value (note 19) and current market rate at period end for fair value.

 

68

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Fair value hierarchy

The table below provides an analysis by valuation method of financial instruments that are measured at fair value subsequent to recognition as well as financial instruments not measured at fair value but for which a fair value is disclosed. Levels 1 to 3 are defined based on the degree to which fair value inputs are observable and have a significant effect on the recorded fair value, as follows:

- Level 1: Quoted prices in active markets for identical assets or liabilities;

- Level 2: Valuation techniques use significant observable inputs, either directly or indirectly, or valuations are based on quoted prices for similar instruments; and,

-            Level 3: Valuation techniques use significant inputs that are not based on observable market data.

December 31, 2022   Level 1     Level 2     Level 3     Total  
Financial assets measured at fair value                        
Financial assets at FVTPL:                        
Non-hedge derivatives $ -   $ 577   $ -   $ 577  
Investments   9,799     -     -     9,799  
  $ 9,799   $ 577   $ -   $ 10,376  
Financial liabilities measured at fair value                        
Financial liabilities at FVTPL:                        
Non-hedge derivatives $ -   $ 17,995   $ -   $ 17,995  
Gold prepayment liability   -     71,208     -     71,208  
Financial liabilities at amortized cost:                        
Agreements with communities   -     -     35,870     35,870  
Wheaton refund liability   -     -     7,744     7,744  
Senior unsecured notes   1,094,988     -     -     1,094,988  
  $ 1,094,988   $ 89,203   $ 43,614   $ 1,227,805  
 
December 31, 2021   Level 1     Level 2     Level 3     Total  
Financial assets measured at fair value                        
Financial assets at FVTPL:                        
Non-hedge derivatives $ -   $ 7,430   $ -   $ 7,430  
Investments   11,158     -     -     11,158  
  $ 11,158   $ 7,430   $ -   $ 18,588  
Financial liabilities measured at fair value                        
Financial liabilities at FVTPL:                        
Non-hedge derivatives $ -   $ 12,451   $ -   $ 12,451  
Gold prepayment liability   -     140,008     -     140,008  
Financial liabilities at amortized cost:                        
Agreements with communities   -     -     33,947     33,947  
Wheaton refund liability   -     -     5,424     5,424  
Senior unsecured notes   1,239,018     -     -     1,239,018  
  $ 1,239,018   $ 152,459   $ 39,371   $ 1,430,848  

 

 

69

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

The Company's policy is to recognize transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. During the year ended December 31, 2022 and December 31, 2021, Hudbay did not make any such transfers.

The following valuation techniques are used for instruments categorized in Levels 2 and 3:

- Non-hedge derivatives (Level 2) - These contracts have been fair valued using observable forward commodity prices corresponding to the maturity of the contract.

- Gold prepayment liability (Level 2) - This contract have been fair valued using observable gold forward prices corresponding to the delivery date of gold ounces in the contract along with an estimate of credit risk for similar instruments.

- Agreements with communities (Level 3) - These contracts have been fair valued using an applicable credit-risk adjusted discount rate and foreign exchange rates.

- Wheaton refund liability (Level 3) - This liability has been fair valued using an applicable credit-risk adjusted discount rate.

Reasonable changes to inputs of financial instruments categorized as Level 3 were insignificant.

(b) Derivatives and hedging:

Copper fixed for floating swaps

Hudbay enters into copper fixed for floating swaps in order to manage the risk associated with provisional pricing terms in copper concentrate sales agreements. As at December 31, 2022, Hudbay had 89.7 million pounds of net copper swaps outstanding at an effective average price of $3.61/lb and settling across January to May 2023. As at December 31, 2021, Hudbay had 72.8 million pounds of net copper swaps outstanding at an effective average price of $4.34/lb and settling across January to April 2022. The aggregate fair value of the transactions at December 31, 2022 was a liability of $17,269 (December 31, 2021 - a liability position of $5,440).

Zinc fixed for floating swaps
 

Hudbay enters into zinc fixed for floating swaps in order to manage the risk associated with provisional pricing terms in zinc concentrate sales agreements. As at December 31, 2022, Hudbay had 17.5 million pounds of net zinc swaps outstanding at an effective average price of $1.32/lb and settling across January to March 2023. The aggregate fair value of the transactions at December 31, 2022 was a liability of $149. As at December 31, 2021, Hudbay held no zinc fixed for floating swaps.

Transactions involving derivatives are with large multi-national financial institutions that Hudbay believes to be credit worthy.

Non-hedge derivative zinc contracts

In the past, Hudbay entered into future dated fixed price sales contracts with refined zinc customers and, to ensure that the Company continued to receive a floating or unhedged realized zinc price, Hudbay entered into forward zinc purchase contracts that effectively offset the fixed price sales contracts. Hudbay held no forward zinc purchase contracts as at December 31, 2022. As at December 31, 2021, Hudbay held 3.1 million pounds of forward zinc purchase contracts with a price range of $1.44/lb to $1.52/lb. The aggregate fair value of the transactions at December 31, 2022 was nil. The aggregate fair value position at December 31, 2021 was an asset position of $419.

 

70

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(c) Provisionally priced receivables

Changes in fair value of provisionally priced receivables

Hudbay records changes in fair value of provisionally priced receivables related to provisional pricing in concentrate purchase, concentrate sale and certain other sale contracts. Under the terms of these contracts, prices are subject to final adjustment at the end of a future period after title transfers based on quoted market prices during the quotation period specified in the contract. The period between provisional pricing and final pricing is typically up to three months.

Changes in fair value of provisionally priced receivables are presented in trade and other receivables when they relate to sales contracts and in trade and other payables when they relate to purchase contracts. At each reporting date, provisionally priced metals are marked-to-market based on the forward market price for the quotation period stipulated in the contract, with changes in fair value recognized in revenue for sales contracts and in inventory or cost of sales for purchase concentrate contracts. Cash flows related to changes in fair value of provisionally priced receivables are classified in operating activities.

As at December 31, 2022 and 2021, Hudbay's net position consisted of contracts awaiting final pricing which are as indicated below:

Metal in
concentrate		     Sales awaiting final pricing     Average YTD price ($/unit)  
Unit   Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Copper pounds
(in thousands) 		  79,833     75,681     3.80     4.42  
Gold troy ounces   22,079     27,304     1,823     1,828  
Silver troy ounces   71,809     125,800     23.91     23.33  
Zinc
Concentrate		 pounds
(in thousands)		   18,145     -     1.35     -  
                           

The aggregate fair value of provisionally priced receivables within the copper and zinc concentrate and refined zinc sales contracts at December 31, 2022, was an asset position of $20,285 (December 31, 2021 - an asset position of $6,500).

(d) Other financial liabilities

Gold prepayment liability

The gold prepayment liability (note 16) requires settlement by physical delivery of gold ounces or equivalent gold credits. The fair value of the financial liability at December 31, 2022 was a liability of $71,208 (December 31, 2021 - a liability of $140,008).

(e) Financial risk management

Hudbay's financial risk management activities are governed by Board-approved policies addressing risk identification, hedging authorization procedures and limits and reporting. The Company's policy objective, when hedging activities are undertaken, is to reduce the volatility of future profit and cash flow within the strategic and economic goals of Hudbay. From time to time, the Company employs derivative financial instruments, including forward and option contracts, to manage risk originating from exposures to commodity price risk, foreign exchange risk and interest rate risk. Significant derivative transactions are approved by the Board of Directors, and hedge accounting is applied when certain criteria have been met. Hudbay does not use derivative financial instruments for trading or speculation purposes. The following is a discussion of the Company's risk exposures.

 

71

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(i) Market risk

Market risk is the risk that changes in market prices, including foreign exchange rates, commodity prices, share prices, and interest rates will cause fluctuations in the fair value or future cash flows of a financial instrument.

Foreign currency risk

Hudbay's primary exposure to foreign currency risk arises from:

- Translation of Canadian dollar denominated costs and, to a lesser extent, Peruvian soles cost into US dollars. Substantially all of the Company's revenue are denominated in US dollars, while the majority of its operating costs are denominated in either the Canadian dollar or Peruvian sol. Generally, with gross profit, appreciation of the US dollar relative to the Canadian dollar will increase Hudbay's profit.

- Translation of foreign currency denominated cash, trade and other receivables, trade and other payables, as well as other financial liabilities. Appreciation of the US dollar relative to a foreign currency will decrease the net asset value of these balances once they have been translated to US dollars, resulting in foreign currency translation losses on foreign currency denominated assets and gains on foreign currency denominated liabilities.

The Manitoba segment's primary financial instrument foreign currency exposure is on US denominated cash, trade and other receivables and other financial liabilities. The Peru segment's primary financial instrument foreign currency exposure is on Peruvian soles cash, trade and other payables and other financial liabilities.

The Company's exposure to foreign currency risk was as follows based on notional financial instrument amounts stated in US equivalent dollars:

    Dec. 31, 2022     Dec. 31, 2021  
    CAD1     USD2     PEN3     CAD1     USD2     PEN3  
Cash $ 9,833   $ 26,749   $ 11,067   $ 10,627   $ 34,439   $ 6,992  
Trade and other receivables   58     20,520     634     595     71,458     36,470  
Other financial assets   9,799     -     -     11,158     -     -  
Trade and other payables   (5,626 )   (113 )   (29,587 )   (6,347 )   (3,001 )   (17,006 )
Other financial liabilities   -     -     (42,493 )   -     -     (36,273 )
  $ 14,064   $ 47,156   $ (60,379 ) $ 16,033   $ 102,896   $ (9,817 )

1 HMI is exposed to foreign currency risk on CAD.

2 The Manitoba segment is exposed to foreign currency risk on USD.

3 The Peru segment is exposed to foreign currency risk on PEN.

The following sensitivity analysis for foreign currency risk relates solely to financial instruments and non-financial derivatives that were outstanding as at the year-end date; each sensitivity calculation assumes all other variables are held constant. This analysis is based on values as at December 31, 2022 and does not reflect the overall effect that changes in market variables would have on the Company's operating results.

 

72

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

December 31, 2022 Change of:   Would have changed
2022 after-tax profit by:		  
USD/CAD exchange rate1 + 10% $ 1.5     million  
USD/CAD exchange rate1 - 10%   (1.8 )   million  
USD/PEN exchange rate2 + 10%   3.5     million  
USD/PEN exchange rate2 - 10%   (4.3 )   million  
December 31, 2021 Change of:   Would have changed
2021 after-tax profit by:		  
USD/CAD exchange rate1 + 10% $ 4.8     million  
USD/CAD exchange rate1 - 10%   (5.7 )   million  
USD/PEN exchange rate2 + 10%   0.6     million  
USD/PEN exchange rate2 - 10%   (0.7 )   million  

1 Effect on profit due to foreign currency remeasurements of balances denominated in a currency different from a Hudbay subsidiary's functional currency.
2 Effect on profit due to foreign currency remeasurement of balances denominated in Peruvian Sol.

Commodity price risk

Hudbay is exposed to market risk from prices for the commodities the Company produces and sells, such as copper, zinc, gold and silver. From time to time, Hudbay maintains price protection programs and conducts commodity price risk management through the use of derivative contracts. The following sensitivity analysis for commodity price risk relates solely to financial instruments and non-financial derivatives that were outstanding as at the year-end date; each sensitivity calculation assumes all other variables are held constant. This analysis is based on values as at December 31, 2022 and does not reflect the overall effect that changes in market variables would have on the Company's operating results.

December 31, 2022   Change of:   Would have changed
2022 after-tax profit by:		  
Copper prices ($/lb)1  

+

  $0.30   $ (1.8

)

   million  
Copper prices ($/lb)1  

-

  $0.30     1.8     million  
Zinc prices ($/lb)2  

+

  $0.10     -     million  
Zinc prices ($/lb)2  

-

  $0.10     -     million  
December 31, 2021   Change of:     Would have changed
2021 after-tax profit by:		  
Copper prices ($/lb)1  

+

 $0.30   $ 0.5     million  
Copper prices ($/lb)1  

-

  $0.30     (0.5

)

   million  
Zinc prices ($/lb)2  

+

 $0.10     0.2     million  
Zinc prices ($/lb)2  

-

  $0.10     (0.2 )   million  

1 Effect on profit due to provisional pricing derivatives (note 28c) and copper fixed for floating swaps (note 28b).
2 Effect on profit due to provisional pricing derivatives (note 28c), non-hedge zinc derivatives and zinc fixed for floating swaps (note 28b).

 

73

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Share price risk

Hudbay is exposed to market risk from share prices of the Company's investments in listed Canadian metals and mining entities. These investments are made to foster strategic relationships, in connection with joint venture agreements and for investment purposes. Management monitors the value of these investments for the purposes of determining whether to add or reduce Hudbay's positions. The following sensitivity analysis of share price risk relates solely to financial instruments that were outstanding as at the year-end date; each sensitivity calculation assumes all other variables are held constant. This analysis is based on values as at December 31, 2022 and does not reflect the overall effect that changes in market variables would have on the Company's finance expenses.

December 31, 2022   Change of:   Would have changed 2022
after-tax profit by:		  
Share prices  

+

 25%   $ 2.4     million  
Share prices  

-

  25%     (2.4 )   million  
December 31, 2021   Change of:     Would have changed 2021
after-tax profit by:		  
Share prices  

+

  25%   $ 2.8     million  
Share prices  

-

 25%     (2.8 )   million  

Interest rate risk

Hudbay is exposed to the following interest rate risks:

- cash flow interest rate risk on its cash and cash equivalents; and,

- interest rate risk on its senior secured revolving credit facilities.

The only relevant risks at December 31, 2022 is interest rate risk on cash. The senior secured revolving credit facilities remain undrawn as at December 31, 2022. Neither the 2026 Notes nor the 2029 Notes contain embedded derivatives that require bifurcation from the host contract.

This analysis only quantifies the impact of the interest rate risk on cash based on balances held as at December 31, 2022 and 2021 and does not reflect the overall effect that changes in market variables would have on the Company's finance expenses.

December 31, 2022   Change of:   Would have changed
2022 after-tax profit by:		  
Interest rates  

+

 2.00%   $ 4.5     million  
Interest rates  

-

  2.00%     (4.5 )   million  
December 31, 2021   Change of:     Would have changed
2021 after-tax profit by:		  
Interest rates  

+

  2.00%   $ 5.4     million  
Interest rates  

-

 2.00%     (5.4

)

   million  

 

 

74

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(ii) Credit risk

Credit risk is the risk of financial loss to Hudbay if a customer or counterparty to a financial instrument fails to meet its obligations. The Company's maximum exposure to credit risk at the reporting date is represented by the carrying amount, net of any impairment losses recognized, of financial assets and non-financial derivative assets recorded on the consolidated balance sheets. Refer to note 28a.

A large portion of Hudbay's cash are on deposits with major Schedule 1 Canadian banks. Deposits with Schedule 1 Canadian banks represented 64% of total cash as at December 31, 2022 (2021 - 76%). Hudbay's investment policy requires it to comply with a list of approved investments, concentration and maturity limits, as well as credit quality. Credit concentrations in the Company's short-term investments are monitored on an ongoing basis.

Transactions involving derivatives are with counterparties Hudbay believes to be creditworthy.

At December 31, 2022, approximately 86% of Hudbay's trade receivables were insured or payable by letters of credit (2021 - 96% were insured or payable by letters of credit). Insured receivables have a credit insurance deductible of 10%. The deductible and any additional exposure to credit risk is monitored and approved on an ongoing basis. Expected credit losses on trade and other receivables at December 31, 2022 and December 31, 2021, are insignificant.

Two customers accounted for approximately 18% and 14% of total trade receivables as at December 31, 2022 (2021 - two customers accounted for approximately 29% and 23% of total trade receivables). Credit risk for these customers is assessed as medium to low. As at December 31, 2022, none of the Company's trade receivables were aged more than 30 days (2021 - nil).

(iii) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial liabilities. Hudbay's objective is to maintain sufficient liquid resources to meet operational and investing requirements.

The following summarizes the contractual undiscounted cash flows of the Company's non-derivative and derivative financial liabilities, including any interest payments, by remaining contractual maturity and financial assets used to manage liquidity risk. The table includes all instruments held at the reporting date for which payments had been contractually agreed at the reporting date. The undiscounted amounts shown are gross amounts, unless the liabilities will be settled net. Amounts in foreign currency are translated at the closing rate at the reporting date. When a counterparty has a choice of when an amount is paid, the liability is allocated to the earliest possible time period.

 

75

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Dec. 31, 2022   Carrying
amount		     Contractual
cash flows		     12 months
or less		     13 - 36
months		     37 - 60
months		     More than
60 months		  
Assets used to manage liquidity risk                          
Cash $ 225,665   $ 225,665   $ 225,665   $ -   $ -   $ -  
Restricted cash   486     486     486     -     -     -  
Trade and other receivables   87,638     87,638     87,638     -     -     -  
Non-hedge derivative assets   577     577     577     -     -     -  
  $ 314,366   $ 314,366   $ 314,366   $ -   $ -   $ -  
Non-derivative financial liabilities                          
Trade and other payables, including embedded derivatives $ (195,872 ) $ (195,872 ) $ (195,872 ) $ -   $ -   $ -  
Agreements with communities 1   (42,493 )   (67,662 )   (8,421 )   (8,591 )   (7,688 )   (42,962 )
Deferred Rosemont acquisition consideration   (18,876 )   (20,000 )   (10,000 )   (10,000 )   -     -  
Long-term debt   1,188,132     (1,541,669 )   (66,692 )   (132,852 )   (687,000 )   (655,125 )
Gold prepayment obligation 2   (71,208 )   (71,208 )   (71,208 )   -     -     -  
Wheaton refund liability   6,383     (79,232 )   -     -     -     (79,232 )
  $ 866,066   $ (1,975,643 ) $ (352,193 ) $ (151,443 ) $ (694,688 ) $ (777,319 )
Derivative financial liabilities                          
Non hedge derivative contracts $ (17,995 ) $ (17,995 ) $ (17,995 ) $ -   $ -   $ -  
  $ (17,995 ) $ (17,995 ) $ (17,995 ) $ -   $ -   $ -  

1 Represents the Peru community agreement obligation, excluding interest.
2 Discounted.

 

76

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

Dec. 31, 2021   Carrying
amount		     Contractual
cash flows		     12 months or
less		     13 - 36
months		     37 - 60
months		     More than 60
months		  
Assets used to manage liquidity risk                          
Cash $ 270,989   $ 270,989   $ 270,989   $ -   $ -   $ -  
Restricted cash   437     437     437                    
Trade and other receivables   172,890     172,890     172,890     -     -     -  
Non-hedge derivative assets   7,430     7,430     7,430     -     -     -  
  $ 451,746   $ 451,746   $ 451,746   $ -   $ -   $ -  
Non-derivative financial liabilities                          
Trade and other payables, including embedded derivatives $ (189,179 ) $ (189,179 ) $ (189,179 ) $ -   $ -   $ -  
Agreements with communities 1   (36,273 )   (52,497 )   (9,282 )   (9,719 )   (5,220 )   (28,276 )
Deferred Rosemont acquisition consideration   (27,518 )   (30,000 )   (10,000 )   (20,000 )   -     -  
Long-term debt, including embedded derivatives   (1,185,805 )   (1,614,686 )   (68,348 )   (136,696 )   (717,767 )   (691,875 )
Gold prepayment obligation 2   (140,008 )   (140,008 )   (71,394 )   (68,614 )   -     -  
Wheaton refund liability   (5,424 )   (78,500 )   -     -     -     (78,500 )
  $ (1,584,207 ) $ (2,104,870 ) $ (348,203 ) $ (235,029 ) $ (722,987 ) $ (798,651 )
Derivative financial liabilities                          
Non-hedge derivative contracts $ (12,451 ) $ (12,451 ) $ (12,451 ) $ -   $ -   $ -  
  $ (12,451 ) $ (12,451 ) $ (12,451 ) $ -   $ -   $ -  

1 Represents the Peru community agreement obligation, excluding interest.
2 Discounted.

29. Commitments

(a) Capital commitments

As at December 31, 2022, Hudbay had outstanding capital commitments in Canada of approximately $9,703 of which $8,668 can be terminated, approximately $27,128 in Peru, all of which can be terminated, and approximately $43,093 in Arizona, primarily related to the Copper World Complex, of which approximately $7,180 can be terminated by Hudbay.

(b) Non capitalized lease commitments

Hudbay has entered into various non-capitalized lease commitments for facilities and equipment. The leases expire in periods ranging from one to two years. There are no restrictions placed on the Company by entering into these leases. Future minimum lease payments under such cancellable leases recognized within results from operating activities at December 31 are:

    2022     2021  
Within one year $ 21,016   $ 19,092  
After one year but not more than five years   25,574     2,631  
More than five years   4,962     -  
  $ 51,552   $ 21,723  

 

 

77

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(c)  Contingent liabilities

Hudbay is involved in various claims, litigation and other matters arising in the ordinary course and conduct of business. While it is not possible to determine the ultimate outcome of such actions at this time, and inherent uncertainties exist in predicting such outcomes, it is Hudbay's belief that the ultimate resolution of such actions is not reasonably likely to have a material adverse effect on its consolidated financial position or results of operations. The assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events. As a result of the assessment, management believes that no significant contingent liabilities exist.

30. Related parties

(a) Group companies

The financial statements include the financial statements of the Company and the following significant subsidiaries:

        Beneficial
ownership of
ultimate
controlling
party (Hudbay
Minerals Inc.)
Name Jurisdiction Business Entity's Parent 2022 2021
HudBay Marketing & Sales Inc. Canada Marketing and sales HMI 100% 100%
HudBay Peru Inc. British Columbia Holding company HMI 100% 100%
HudBay Peru S.A.C. Peru Exploration/development HudBay Peru Inc. 100% 100%
HudBay (BVI) Inc. British Virgin Islands Precious metals sales HudBay Peru Inc. 100% 100%
Hudbay Arizona Inc. British Columbia Holding company HMI 100% 100%
Copper World, Inc. Arizona Exploration/development HudBay Arizona (US) Holding Corporation 100% 100%

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.

 

78

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(b) Compensation of key management personnel

The Company's key management includes members of the Board of Directors, Hudbay's Chief Executive Officer, Hudbay's senior vice presidents and vice presidents. Total compensation to key management personnel was as follows:

    Year ended December 31,  
    2022     2021  
Short-term employee benefits1 $ 9,915   $ 10,283  
Post-employment benefits   959     837  
Termination benefits   2,287     -  
Long-term share-based awards   6,646     6,737  
  $ 19,807   $ 17,857  

1 Such as salaries and social security contributions, paid annual leave and paid sick leave, profit-sharing, termination benefits, bonuses and non-monetary benefits (such as medical care, housing, cars and free or subsidized goods or services) for current employees.

31. Supplementary cash flow information

(a) Other cash (used in) / generated from operating activities:

    Year ended December 31,  
    2022     2021  
Changes in non-current assets $ (1,577 ) $ 7,038  
Amortization of community agreements   5,129     -  
Share based compensation paid   (6,647 )   (6,782 )
Restructuring - Manitoba   (4,524 )   6,947  
Other   5,576     565  
  $ (2,043 ) $ 7,768  

(b) Change in non-cash working capital:

    Year ended December 31,  
    2022     2021  
Change in:            
Trade and other receivables $ 88,482   $ (60,978 )
Other financial assets/liabilities   11,977     (7,758 )
Inventories   (13,032 )   (32,752 )
Prepaid expenses   (5,377 )   1,663  
Trade and other payables   2,449     (11,549 )
Provisions and other liabilities   11,575     8,583  
  $ 96,074   $ (102,791 )

 

 

79

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

(c) Non-cash transactions:

During the year ended December 31, 2022 and 2021, Hudbay entered into the following non-cash investing and financing activities which are not reflected in the consolidated statements of cash flows:

- Remeasurement of Hudbay's decommissioning and restoration liabilities led to a net decrease in related property, plant and equipment assets of $37,108 (December 31, 2021 - a net increase of $144,016), mainly related to changes to real discount rates associated with remeasurement of the liabilities.

- Property, plant and equipment included $27,984 (December 31, 2021 - $49,695) of capital additions related to the recognition of ROU assets. Property, plant and equipment and other assets include $39,240 of capital additions related to agreements with communities (December 31, 2021 - $22,796).
 

80

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

32. Segmented information

Hudbay is an integrated metals producer. When making decisions on expansions, opening or closing mines, as well as day to day operations, management evaluates the results from operating activities of the Company. Hudbay's main mining operations are located in Manitoba and Saskatchewan (Canada) and Cusco (Peru) and are included in the Manitoba segment and Peru segment, respectively. The Manitoba and Peru segments generate Hudbay's revenue. The Manitoba segment sells copper concentrate (containing copper, gold and silver), silver/gold doré, zinc concentrate (containing zinc and gold) and other products. The Peru segment consists of Hudbay's Constancia operation and sells copper concentrate and molybdenum concentrate. Hudbay's Arizona segment consists of the Copper World project located in Arizona. Corporate and other activities include the Company's exploration activities in Chile and Nevada. The exploration entities are not individually significant, as they do not meet the minimum quantitative thresholds. Corporate activities are not considered a segment and are included as a reconciliation to total consolidated results. Accounting policies for each reported segment are the same as those of the Company. Results from operating activities represents the profit earned by each segment without allocation of corporate costs. This is the measure reported to the chief operating decision-maker, Hudbay's President and Chief Executive Officer, for the purposes of resource allocation and the assessment of segment performance. Total assets and liabilities do not reflect intercompany balances, which have been eliminated on consolidation.

Year ended December 31, 2022  
    Manitoba     Peru     Arizona     Corporate
and other
activities		     Total  
Revenue from external customers $ 633,290   $ 828,150   $ -   $ -   $ 1,461,440  
Cost of sales                              
Mine operating costs   427,402     419,535     -     -     846,937  
Depreciation and amortization   126,572     211,043     -     -     337,615  
Gross profit   79,316     197,572     -     -     276,888  
Selling and administrative expenses   -     -     -     33,986     33,986  
Exploration expenses   10,644     13,359     8,657     1,851     34,511  
Other expenses (income)   10,981     16,016     6,047     (458 )   32,586  
Re-evaluation adjustment - environmental provision   (133,460 )   -     -     -     (133,460 )
Impairment - Arizona   -     -     94,956     -     94,956  
Results from operating activities $ 191,151   $ 168,197   $ (109,660 ) $ (35,379 ) $ 214,309  
Net interest expense on long term debt     67,663  
Accretion on streaming arrangements     27,778  
Change in fair value of financial instruments     942  
Other net finance costs     22,111  
Profit before tax     95,815  
Tax expense     25,433  
Profit for the year   $ 70,382  

 

 

81

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

   
Year ended December 31, 2021  
    Manitoba     Peru     Arizona     Corporate
and other
activities		     Total  
Revenue from external customers $ 740,454   $ 761,544   $ -   $ -   $ 1,501,998  
Cost of sales                              
Mine operating costs   459,399     360,183     -     -     819,582  
Depreciation and amortization   163,516     194,408     -     -     357,924  
Impairment - environmental provision   193,473     -     -     -     193,473  
Gross (loss) profit   (75,934 )   206,953     -     -     131,019  
Selling and administrative expenses   -     -     -     43,011     43,011  
Exploration expenses   5,031     9,218     24,935     39     39,223  
Other expenses (income)   15,960     10,491     13,399     (4,731 )   35,119  
Re-evaluation adjustment - environmental provision   (4,602 )   -     -     -     (4,602 )
Results from operating activities $ (92,323 ) $ 187,244   $ (38,334 ) $ (38,319 ) $ 18,268  
Net interest expense on long term debt     74,748  
Accretion on streaming arrangements     42,654  
Change in fair value of financial instruments     54,514  
Other net finance costs     49,103  
Loss before tax     (202,751 )
Tax expense     41,607  
Loss for the year   $ (244,358 )

 

December 31, 2022  
    Manitoba     Peru     Arizona     Corporate
and other
activities		     Total  
Total assets $ 690,403   $ 2,532,750   $ 713,567   $ 389,223   $ 4,325,943  
Total liabilities   427,107     974,184     36,131     1,316,712     2,754,134  
Property, plant and equipment1   691,836     2,115,495     704,472     40,627     3,552,430  
   
1Included in Corporate and Other activities is $27.4 million of property, plant and equipment that is located in Nevada.  
December 31, 2022  
    Manitoba     Peru     Arizona     Corporate
and other
activities		     Total  
Additions to property, plant and equipment $ 161,849   $ 123,288   $ 63,238   $ 168   $ 348,543  

 

 

82

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

   
December 31, 2021  
    Manitoba     Peru     Arizona     Corporate
and other
activities		     Total  
Total assets $ 812,137   $ 2,624,251   $ 745,371   $ 434,472   $ 4,616,231  
Total liabilities   655,095     1,023,186     75,782     1,385,340     3,139,403  
Property, plant and equipment1   706,330     2,256,687     735,127     42,822     3,740,966  

1Included in Corporate and Other activities is $28.3 million of property, plant and equipment that is located in Nevada.

December 31, 2021  
    Manitoba     Peru     Arizona     Corporate
and other
activities		     Total  
Additions to property, plant and equipment $ 224,300   $ 163,604   $ 25,982   $ 11,875   $ 425,761  
 

 

 

83

 

HUDBAY MINERALS INC.
Notes to Audited Consolidated Financial Statements
(in thousands of US dollars, except where otherwise noted)
Years ended December 31, 2022 and 2021

 

 Geographical Segments

The following tables represent revenue information regarding Hudbay's geographical segments for the years ended December 31, 2022 and 2021:

    2022     2021  
Revenue by customer location 1            
Canada $ 593,397   $ 515,967  
Switzerland   251,963     166,261  
China   247,880     349,143  
United States   168,470     219,853  
Singapore   65,750     80,668  
Hong Kong   62,608     -  
Philippines   34,389     4,050  
Chile   33,557     10,773  
United Kingdom   3,356     -  
Japan   66     20,524  
Peru   -     82,598  
Germany   -     37,335  
Other   4     14,826  
  $ 1,461,440   $ 1,501,998  

1 Presented based on the ultimate destination of the product if known. If the eventual destination of the product sold through traders is not known then revenue is allocated to the location of the customer's business office and not the ultimate destination of the product.

During the year ended December 31, 2022, five customers accounted for approximately 26%, 11%, 8%, 5%, and 5% respectively, of total revenue during the year. Revenue from these customers has been presented in the Manitoba and Peru operating segments.

During the year ended December 31, 2021, five customers accounted for approximately 28%, 11%, 5%, 5% and 5% respectively, of total revenue during the year. Revenue from these customers has been presented in the Manitoba and Peru operating segments.

84

 

 

Management's Discussion and Analysis of

Results of Operations and Financial Condition

For the year ended

December 31, 2022

February 23, 2023

TABLE OF CONTENTS

Page

 
Introduction 1
Our Business 1
Strategy 1
Summary of Results 4
Key Financial Results 8
Key Production Results 9
Key Costs Results 10
Recent Developments 10
Peru Operations Review 13
Manitoba Operations Review 18
Outlook 26
Financial Review 34
Liquidity and Capital Resources 44
Financial Risk Management 49
Trend Analysis and Quarterly Review 51
Non-IFRS Financial Performance Measures 54
Accounting Changes 66
Critical Accounting Judgments and Estimates 66
Disclosure Controls and Procedures and Internal Controls Over Financial Reporting 68
Notes to Reader 69
Summary of Historical Results 72

INTRODUCTION

This Management's Discussion and Analysis ("MD&A") dated February 23, 2023 is intended to supplement Hudbay Minerals Inc.'s audited consolidated financial statements and related notes for the year ended December 31, 2022 and 2021 (the "consolidated financial statements"). The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB").

References to "Hudbay", the "Company", "we", "us", "our" or similar terms refer to Hudbay Minerals Inc. and its direct and indirect subsidiaries as at December 31, 2022.

Readers should be aware that:

- This MD&A contains certain "forward-looking statements" and "forward-looking information" (collectively, "forward-looking information") that are subject to risk factors set out in a cautionary note contained in this MD&A.

- This MD&A has been prepared in accordance with the requirements of the securities laws in effect in Canada, which may differ materially from the requirements of United States securities laws applicable to US issuers.

- We use a number of non-IFRS financial performance measures in this MD&A. Please see the discussion under the "Non-IFRS Financial Performance Measures" section herein.

- The technical and scientific information in this MD&A has been approved by qualified persons based on a variety of assumptions and estimates.

For a discussion of each of the above matters, readers are urged to review the "Notes to Reader" discussion beginning on page 69 of this MD&A.

Additional information regarding Hudbay, including the risks related to our business and those that are reasonably likely to affect our consolidated financial statements in the future, is contained in our continuous disclosure materials, including our most recent Annual Information Form ("AIF"), consolidated financial statements and Management Information Circular available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

All amounts are in US dollars unless otherwise noted.

OUR BUSINESS

We are a diversified mining company with long-life assets in North and South America. Our Constancia operations in Cusco (Peru) produce copper with gold, silver and molybdenum by-products. Our Snow Lake operations in Manitoba (Canada) produce gold with copper, zinc and silver by-products. We have an organic pipeline that includes the Copper World project in Arizona and the Mason project in Nevada (United States), and our growth strategy is focused on the exploration, development, operation, and optimization of properties we already control, as well as other mineral assets we may acquire that fit our strategic criteria. We are governed by the Canada Business Corporations Act and our shares are listed under the symbol "HBM" on the Toronto Stock Exchange, New York Stock Exchange and Bolsa de Valores de Lima.

STRATEGY

Our 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 we operate benefit from our presence.

We believe that copper is the commodity with the best long-term supply/demand fundamentals and offers shareholders the greatest opportunity for sustained risk-adjusted returns. Through the discovery and successful development of economic mineral deposits, and through highly efficient low-cost operations to extract the metals, we believe sustainable value will be created for all stakeholders.

1

Hudbay's successful development, ramp-up and operation of the Constancia open-pit mine in Peru, our long history of underground mining and full life-cycle experience in northern Manitoba, and our track record of reserve expansion through effective exploration, and our organic pipeline of copper development projects including Copper World, Mason and Llaguen, provide us with a competitive advantage relative to other mining companies of similar scale.

Over the past decade, we have built a world-class asset portfolio by executing a consistent long-term growth strategy focused on copper. We continuously work to generate strong free cash flow and optimize the value of our producing assets through exploration, brownfield expansion projects and efficient and safe operations. Furthermore, we intend to sustainably grow Hudbay through the exploration and development of our robust project pipeline, as well as through the acquisition of other properties that fit our stringent strategic criteria.

To ensure that any investment in our existing assets or acquisition of other mineral assets is consistent with our mission and creates sustainable value for stakeholders, we have established a number of criteria for evaluating these opportunities. The criteria include the following:

- Sustainability: We are focused on jurisdictions that support responsible mining activity. Our current geographic focus is on select investment grade countries in the Americas, with strong rule of law and respect for human rights consistent with our long-standing focus on environmental, social and governance ("ESG") principles;

- Copper Focus: We believe copper is the commodity with the best long-term supply/demand fundamentals. Global copper mine supply is challenged due to declining industry grades, limited exploration success and an insufficient pipeline of development-ready projects while demand will continue to increase through global decarbonization initiatives. We believe this long-term supply/demand gap will create opportunities for increased risk-adjusted returns. While our primary focus is on copper, we recognize the polymetallic nature of copper deposits and, in particular, the counter-cyclical nature of gold in our portfolio;

- Quality: We are focused on investing in long-life, low-cost, expandable, high-quality assets that can capture peak pricing of multiple commodity price cycles and can generate free cash flow through the trough of price cycles;

- Potential: We consider the full spectrum of acquisition and investment opportunities, from early-stage exploration to producing assets, that offer significant incremental potential for exploration, development, expansion and optimization beyond the stated resources and mine plan;

- Process: We develop a clear understanding of how an investment or acquisition can create value through our robust due diligence and capital allocation process that applies our technical, social, operational and project execution expertise;

- Operatorship: We believe value is created through leveraging Hudbay's competitive advantages in safe and efficient operations and effective exploration and project development and community relations. While operatorship is a key criterion, we are open to joint venture and partnerships that de-risk our portfolio and increase risk-adjusted returns; and

- Capital Allocation: We pursue investments and acquisitions that are accretive to Hudbay on a per share basis. Given that our strategic focus includes allocating capital to assets at various stages of development, when evaluating accretion, we will consider measures such as internal rate of return ("IRR"), return on invested capital ("ROIC"), net asset value per share and the contained value of reserves and resources per share.

2

Our key objectives for 2023 are to:

- Deliver copper and gold production growth with low cash costs driven by efficient operations;

- Position Hudbay to unlock its copper development pipeline through generating cash flow, managing discretionary spending, deleveraging and achieving strong returns on invested capital;

- De-risk the Copper World project through the completion of pre-feasibility studies, state permitting activities, evaluating a bulk sampling program and a potential joint venture partnership;

- Progress Constancia's leading efficiency metrics by applying smart technologies to continuously improve operating performance, including sensor-based ore sorting and the mill recovery improvement project;

- Advance plans to drill the prospective Maria Reyna and Caballito properties near Constancia;

- Continue to navigate the complex environment in Peru while maintaining aligned and supportive relationships with local communities;

- Execute expansion opportunities in Snow Lake with the completion of the Stall mill recovery improvement program and the ramp up beyond 4,650 tonnes per day at Lalor;

- Test the down-dip extensions at Lalor where the gold and copper zones remain open at depth and have the potential to expand Snow Lake gold mineralization beyond the current 2.4 million ounces of reserves and 1.7 million ounces of resources;

- Investigate opportunities to utilize the operating infrastructure in Snow Lake for potential future tailings reprocessing;

- Assess opportunities to reduce greenhouse gas emissions in alignment with our climate change commitments and global decarbonization goals;

- Prudently advance the three pre-requisites plan required for Copper World sanctioning; and

- Evaluate and execute growth opportunities that meet our stringent strategic criteria and allocate capital to pursue those opportunities that create sustainable value for the company and our stakeholders.

3

SUMMARY

Fourth Quarter and Full Year Operating and Financial Results

- Achieved 2022 consolidated production guidance for all metals and consolidated cash cost and sustaining cash cost guidance.

- Full year consolidated copper production of 104,173 tonnes, consolidated gold production of 219,700 ounces and consolidated silver production of 3,161,294 increased by 5%, 13% and 4%, respectively, in 2022 compared to 2021.

- The Peru operations delivered strong performance in the fourth quarter with a 21% increase in copper production and a 64% increase in gold production, compared to the third quarter of 2022, as grades and recoveries improved. The fourth quarter of 2022 was a record quarter for gold production in Peru. Peru's cash cost per pound of copper produced, net of by-product credits1, improved to $1.34 in the fourth quarter, representing a 20% decline compared to the third quarter of 2022.

- The Manitoba operations saw a 6% increase in Lalor's ore production in the fourth quarter compared to the third quarter of 2022, and the Lalor mine continues to ramp up following the transition of Flin Flon employees to Snow Lake. Manitoba's full year gold cash cost per ounce of gold produced, net of by-product credits1, was 1% below the low end of the annual guidance range.

- Full year consolidated cash cost and sustaining cash cost per pound of copper produced, net of by-product credits1, were $0.86 and $2.07, respectively, and similar to 2021 levels, despite inflationary cost pressures which were offset by higher copper production and higher by-product credits.

- Fourth quarter net loss and loss per share were $17.4 million and $0.07, respectively. After adjusting for a non-cash loss of $13.5 million related to a quarterly revaluation of the Flin Flon environmental reclamation provision due to changes in real, long-term risk-free discount rates, and an $8.0 million revaluation loss related to the gold prepayment liability, among other items, fourth quarter adjusted earnings1 per share were $0.01.

- Operating cash flow before change in non-cash working capital was $109.1 million and adjusted EBITDA1 was $124.7 million in the fourth quarter, an increase of 34% and 26%, respectively, over the third quarter of 2022, benefiting from higher copper sales volumes and higher molybdenum prices and sales volumes, but negatively impacted by a temporary buildup of unsold inventory in Peru.

- Constancia continued to operate throughout nation-wide road blockades in Peru in December and while the company was successful in completing two port shipments in December, inventory of approximately 25,000 wet metric tonnes of copper concentrate in Peru was unsold at the end of the quarter.

Executing on Growth Initiatives and Disciplined Capital Allocation

- Successful completion of recent brownfield investment program in 2022 with the Pampacancha satellite deposit contributing higher grade feed to Constancia and the New Britannia mill operating at targeted capacity.

- Invested approximately $80 million in 2022 to successfully execute a new strategy at Copper World focused on project de-risking. The pre-feasibility study for Phase I of Copper World is well-advanced with the main facility engineering completed and metallurgical test work being analyzed as part of the concentrate leaching trade off evaluations.

- Reached a community exploration agreement in 2022 to access the Maria Reyna and Caballito satellite properties located north of Constancia in Peru. Completed the surface investigation work needed to support drill permit applications.

- Initiated deep drilling at Lalor in January 2023 to test the down-dip gold and copper extensions and potentially unlock further value in Snow Lake.

- The Stall recovery improvement program is well-advanced and remains on track for completion in early 2023 with higher gold and copper recoveries expected to commence in the second quarter of 2023.

- Reinvigorated focus on free cash flow and delivered on discretionary spending reduction targets by reducing 2022 growth capital and exploration spending by approximately $30 million in Arizona, Manitoba and Peru.

- Reduced 2023 discretionary spending by more than $50 million primarily related to the deferral of the Copper World definitive feasibility study and the pebble crusher in Peru.

- Repaid approximately 50% of the original gold prepayment liability in 2022 and we remain focused on reducing net debt throughout 2023.

4

- Prudent approach to capital allocation demonstrated with the introduction of three prerequisites for sanctioning Copper World, including a prudent financing strategy with multi-faceted financial targets focused on a minimum cash balance, a stated maximum leverage, limited non-recourse project level debt and committed financial partners.

2023 Annual Guidance and Outlook

- Consolidated copper production is forecast to increase by approximately 10%2 to 114,0002 tonnes in 2023, compared to 2022, with higher grades from the Pampacancha deposit in Peru.

- Consolidated gold production is forecast to increase by 30%2 to 285,5002 ounces, compared to 2022, due to significantly higher gold production in Peru and Manitoba.

- Consolidated copper and gold production is expected to further increase in 2024, similar to the previously issued guidance, and 2025 copper and gold production is expected to benefit from an extension of mining activities at Pampacancha into the first half of 2025.

- Consolidated cash cost, net of by-product credits1, in 2023 is expected to decline by 30%2 and be within a range of $0.40 and $0.80 per pound of copper as a result of higher copper production and gold by-product credits.

- Approximately $65 million reduction in growth capital expenditures and exploration spending is expected in 2023 compared to 2022.

- Total capital expenditures are expected to decline by approximately 13% year-over-year to $300 million in 2023.

- Exploration expenditures are expected to decline by approximately 61% in 2023 as activities are focused on areas with high potential for new discovery and mineral reserve and resource expansion.

Summary of Fourth Quarter Results

Cash generated from operating activities in the fourth quarter of 2022 decreased to $86.4 million compared to $97.1 million in the same quarter of 2021. Peru operations were impacted by increasing tensions, protests, and social unrest following a change in political leadership in December 2022. Constancia has continued to operate throughout these disruptions but our ability to steadily receive critical supplies, such as fuel, and to transport concentrates has been impacted. Operating cash flow before change in non-cash working capital was $109.1 million during the fourth quarter of 2022, reflecting a decrease of $47.8 million compared to the same period of 2021. The decrease was primarily the result of lower copper prices, lower zinc and gold sales volumes, inflationary cost pressures on mine operating costs and higher treatment and refining charges, partially offset by higher molybdenum prices and sales volumes and higher copper sales volumes. Zinc and gold sales volumes were lower than the prior year primarily due to the planned closure of the Company's 777 mine in June 2022.

Production in the fourth quarter of 2022 did not include any production from the 777 mine, which closed, as planned, in June 2022. The comparison in this paragraph excludes the production from the 777 mine in the fourth quarter of 2021 to illustrate the comparative performance of our current operations. Consolidated copper production in the fourth quarter of 2022 increased by 14% compared to the same period in 2021 primarily due to higher copper grades in Peru. Consolidated gold production in the fourth quarter of 2022 decreased by 2% compared to the fourth quarter of 2021, due to lower throughput in Manitoba and Peru resulting from planned maintenance programs, partially offset by higher recoveries in Peru, higher Lalor gold grades and higher recoveries at Stall. Consolidated zinc production in the fourth quarter decreased by 55%, versus the comparative 2021 quarter due to the transition of mining toward the gold lenses at Lalor and a corresponding decrease of production from the base metal zones. Consolidated silver production in the fourth quarter decreased by 1% compared to the same period in 2021, due to lower Manitoba and Peru throughput and silver grades at Lalor, partially offset by higher recoveries. For a comprehensive comparison to the prior period (which includes production from the 777 mine), please refer to "Manitoba Operations Review" section.

Net loss and loss per share in the fourth quarter of 2022 were $17.4 million and $0.07, respectively, compared to a net loss and loss per share of $10.5 million and $0.04, respectively, in the fourth quarter of 2021. The 2022 fourth quarter results were negatively impacted by a non-cash loss of $13.5 million related to the quarterly revaluation of our Flin Flon environmental reclamation provision due to changes in real, long-term discount rates, an $8.0 million revaluation loss related to the gold prepayment liability and a $5.8 million loss on changes to other provisions. These costs were offset by a $2.4 million Manitoba post-employment plan curtailment gain.

5

Adjusted net earnings1 and adjusted net earnings per share1 in the fourth quarter of 2022 were $2.6 million and $0.01 per share, respectively, after adjusting for the non-cash revaluation loss of the environmental reclamation provision and the revaluation loss on the gold prepayment liability, among other items. This compares to adjusted net earnings and adjusted net earnings per share of $32.7 million, and $0.13 in the same period of 2021. Fourth quarter adjusted EBITDA1 was $124.7 million, compared to $180.8 million in the same period of 2021.

In the fourth quarter of 2022, consolidated cash cost per pound of copper produced, net of by-product credits1, was $1.08, compared to $0.51 in the same period in 2021. This increase was a result of lower precious metal by-product credits, inflationary cost pressures on operating costs and higher freight, treatment and refining charges, partially offset by slightly higher copper production. Consolidated sustaining cash cost per pound of copper produced, net of by-product credits1, was $2.21 in the fourth quarter of 2022 compared to $1.95 in the same period in 2021. This increase was primarily due to the same reasons outlined above, slightly offset by lower cash sustaining capital expenditures in Peru.

Consolidated all-in sustaining cash cost per pound of copper produced, net of by-product credits1, was $2.41 in the fourth quarter of 2022, higher than $2.20 in the same period in 2021, due to the same reasons outlined above partially offset by lower corporate selling and administrative expenses.

As at December 31, 2022, our liquidity includes $225.7 million in cash as well as undrawn availability of $354.3 million under our revolving credit facilities. We expect that our current liquidity combined with cash flow from operations, will be sufficient to meet our liquidity needs for the foreseeable future.

Summary of Full Year Results

We achieved our 2022 consolidated production guidance for all metals. However, production of copper and gold was at the lower end of the guidance range primarily due to lower-than-planned grades in the fourth quarter in Peru caused by short-term mine plan changes that were implemented to mitigate the risks associated with logistical and supply chain disruptions in Peru.

Cash generated from operating activities increased to $487.8 million in 2022 from $385.1 million in 2021. A portion of the increase is due to changes in non-cash working capital caused primarily by timing and changes in provisionally priced receivables and changes to other financial assets, liabilities and inventories. Operating cash flow before changes in non-cash working capital decreased to $391.7 million from $483.9 million in 2021. The decrease is the result of lower copper prices, lower zinc sales volumes and inflationary cost pressures on mine operating costs, partially offset by higher zinc prices and higher gold sales volumes. Zinc sales volumes were lower than the prior year due to the planned closure of the 777 mine in June 2022.

Excluding production from 777, consolidated copper, gold and silver production in the full year 2022 increased by 14%, 36% and 13%, respectively, compared to the same period in 2021 primarily due to higher throughput in Peru and Manitoba as well as higher overall copper and gold grades.

Net earnings and earnings per share for 2022 were $70.4 million and $0.27, respectively, compared to a net loss and loss per share of $244.4 million and $0.93, respectively, in 2021. The prior period results were negatively impacted by a $193.5 million revaluation of our Flin Flon environmental reclamation provision resulting in an impairment charge of the same amount as well as a $66.7 million in mark-to-market loss mostly from $49.8 million of write-offs for a non-cash embedded derivative on the early redemption option associated with our extinguished senior unsecured notes. Full year 2022 net earnings benefited from a non-cash gain of $133.5 million related to the revaluation of our Flin Flon environmental reclamation provision. The full year 2022 financial results were negatively impacted by a $95.0 million pre-tax impairment loss related to certain specific capitalized costs and assets associated with the previous stand-alone development plan for the Rosemont deposit, which were determined to no longer be recoverable.

Consolidated cash costs per pound of copper produced, net of by-product credits, in 2022 was $0.86 compared to $0.74 in 2021 and consolidated sustaining cash cost per pound of copper produced, net of by-product credits, in 2022 remained unchanged from 2021 at $2.07. Both measures remained in line with our 2022 guidance ranges.

6

* Mining activities at 777 were completed in June 2022

 

1 Adjusted net earnings (loss) and adjusted net earnings (loss) per share, adjusted EBITDA, cash cost, sustaining cash cost, all-in sustaining cash cost per pound of copper produced, net of by-product credits, cash cost, sustaining cash cost per ounce of gold produced, net of by-product credits, combined unit cost and net debt are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.

2 Calculated using the mid-point of the guidance range.

7

KEY FINANCIAL RESULTS

Financial Condition   Dec. 31, 2022     Dec. 31, 2021  
(in $ thousands)            
Cash $ 225,665   $ 270,989  
Total long-term debt   1,184,162     1,180,274  
Net debt1   958,497     909,285  
Working capital2   76,534     147,512  
Total assets   4,325,943     4,616,231  
Equity   1,571,809     1,476,828  
1 Net debt is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation, please see discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.
2 Working capital is determined as total current assets less total current liabilities as defined under IFRS and disclosed on the consolidated financial statements.

Financial Performance   Three months ended     Year ended  
(in $ thousands, except per share amounts or
as noted below)		   Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Revenue $ 321,196   $ 425,170   $ 1,461,440   $ 1,501,998  
Cost of sales   251,520     343,426     1,184,552     1,370,979  
(Loss) earnings before tax   (14,287 )   (149 )   95,815     (202,751 )
Net (loss) earnings   (17,441 )   (10,453 )   70,382     (244,358 )
Basic and diluted (loss) earnings per share   (0.07 )   (0.04 )   0.27     (0.93 )
Adjusted earnings per share1   0.01     0.13     0.10     0.09  
Operating cash flow before changes in non-cash working capital2   109.1     156.9     391.7     483.9  
Adjusted EBITDA1,2   124.7     180.8     475.9     547.8  
1 Adjusted earnings per share and adjusted EBITDA are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.
2 In $ millions.

8

KEY PRODUCTION RESULTS

    Three months ended     Three months ended  
  Dec. 31, 2022     Dec. 31, 2021  
  Peru     Manitoba     Total     Peru     Manitoba     Total  
Contained metal in concentrate and doré produced 1                          
Copper tonnes   27,047     2,258     29,305     22,856     5,342     28,198  
Gold oz   20,860     33,060     53,920     17,917     46,242     64,159  
Silver oz   655,257     139,758     795,015     578,140     321,573     899,713  
Zinc tonnes   -     6,326     6,326     -     23,207     23,207  
Molybdenum tonnes   344     -     344     275     -     275  
Payable metal sold                                    
Copper tonnes   23,789     1,626     25,415     20,551     4,408     24,959  
Gold2 oz   15,116     32,140     47,256     16,304     40,623     56,927  
Silver2 oz   411,129     148,177     559,306     380,712     257,928     638,640  
Zinc3 tonnes   -     8,230     8,230     -     21,112     21,112  
Molybdenum tonnes   421     -     421     245     -     245  
1 Metal reported in concentrate is prior to deductions associated with smelter contract terms.
2 Includes total payable gold and silver in concentrate and in doré sold.
3 Includes refined zinc metal and payable zinc in concentrate sold.

    Year ended     Year ended  
  Dec. 31, 2022     Dec. 31, 2021  
  Peru     Manitoba     Total     Peru     Manitoba     Total  
Contained metal in concentrate produced 1                                
Copper tonnes   89,395     14,778     104,173     77,813     21,657     99,470  
Gold oz   58,229     161,471     219,700     50,306     143,477     193,783  
Silver oz   2,309,352     851,942     3,161,294     1,972,949     1,072,532     3,045,481  
Zinc tonnes   -     55,381     55,381     -     93,529     93,529  
Molybdenum tonnes   1,377     -     1,377     1,146     -     1,146  
Payable metal sold                                    
Copper tonnes   79,805     14,668     94,473     71,398     20,802     92,200  
Gold2 oz   49,968     163,447     213,415     41,807     126,551     168,358  
Silver2 oz   2,045,678     932,807     2,978,485     1,490,651     936,857     2,427,508  
Zinc3 tonnes   -     59,043     59,043     -     96,435     96,435  
Molybdenum tonnes   1,352     -     1,352     1,098     -     1,098  
1 Metal reported in concentrate is prior to deductions associated with smelter contract terms.
2 Includes total payable gold and silver in concentrate and in doré sold.
3 Includes refined zinc metal and payable zinc in concentrate sold.


9


KEY COST RESULTS

      Three months ended     Year ended     Guidance  
      Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		     Annual
2022		  
Peru cash cost per pound of copper produced                    
Cash cost 1 $/lb   1.34     1.28     1.58     1.54     1.10 - 1.40  
Sustaining cash cost 1 $/lb   2.09     2.46     2.35     2.46        
Manitoba cash cost per ounce of gold produced                    
Cash cost 1,2 $/oz   922     -     297     -     300 - 550  
Sustaining cash cost 1,2 $/oz   1,795     -     1,091     -        
Consolidated cash cost per pound of copper produced                    
Cash cost 1 $/lb   1.08     0.51     0.86     0.74     0.60 - 1.05  
Sustaining cash cost 1 $/lb   2.21     1.95     2.07     2.07     1.60 - 2.25  
All-in sustaining cash cost1 $/lb   2.41     2.20     2.26     2.30        
1 Cash cost, sustaining cash cost, all-in sustaining cash cost per pound of copper produced, net of by-product credits, gold cash cost, sustaining cash cost per ounce of gold produced, net of by-product credits, and unit operating cost are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.
2 Cash cost and sustaining cash cost per ounce of gold produced, net of by-product credits were introduced in 2022 and do not have a published comparative.

RECENT DEVELOPMENTS

Commitment to Climate Change Initiatives

On December 12, 2022, we announced our commitment to achieve net zero greenhouse gas ("GHG") emissions by 2050 and the adoption of interim 2030 GHG reduction targets to support this commitment. We have initiated a roadmap to further identify and manage risks associated with climate change, and opportunities to reduce GHG emissions in alignment with global decarbonization goals.

While our operations are well-positioned in the lower half of the global GHG emissions curve for copper operations, we recognize our role in mitigating climate change. Hudbay's GHG emissions reduction plan includes the following initiatives:

• Pursuing a 50% reduction in absolute Scope 1 and Scope 2 emissions from existing operations by 2030 (compared to 2021)

• Achieving net zero total emissions by 2050

• Reporting on material Scope 3 emissions in the near-term

• Assessing acquisitions and new projects against corporate emissions targets

• Continuing to be transparent with GHG performance data disclosure, including reporting total GHG emissions and GHG intensity

Hudbay's efforts have been focused on improving operating efficiencies to reduce the GHG emissions intensity at our mines through initiatives such as ore sorting and recovery improvement programs. We have identified multiple opportunities to achieve further reductions in emissions, including grid decarbonization in Peru, fleet and heating electrification and fuel switching in mobile equipment. We will continue to monitor and evaluate existing and new technologies as they become financially viable to implement at our operations. We will also consider emissions reduction opportunities in the design of our brownfield and greenfield growth projects. All initiatives will balance emissions and economic targets as part of our disciplined capital allocation strategy.

10

Advancing Activities to Prudently De-risk Copper World

In 2022, we invested approximately $80 million at Copper World to successfully execute a new strategy focused on a two-phase mine plan with the first phase located on private land claims. This strategy involved significant drilling campaigns to delineate seven newly discovered deposits adjacent to the known East deposit, the expansion of our private land package to over 4,500 acres, and the completion of a robust preliminary economic assessment for Copper World demonstrating a 16-year mine plan for Phase I, requiring only state level permits, and an expansion to a 44 year operation in Phase II with the utilization of federal lands.

Hudbay continues to advance pre-feasibility activities for Phase I of the Copper World project, which is expected to support the conversion of mineral resources to mineral reserves and optimize the layout and sequencing of the mineral processing facilities, in addition to evaluating other upside opportunities. Pre-feasibility level engineering of the main processing facility was completed by year-end together with geotechnical and hydrogeological site investigation activities. Metallurgical test work activities continued into 2023 and the results are being analyzed as part of concentrate leaching trade off evaluations. A pre-feasibility study for Phase I of the Copper World project is expected to be released in the second quarter of 2023.

In late 2022, Hudbay submitted the applications for an Aquifer Protection Permit and an Air Quality Permit to the Arizona Department of Environmental Quality ("ADEQ"). Hudbay continues to expect to receive these two remaining state permits in 2023. The other key state permit, the Mined Land Reclamation Plan, was received in 2022.In January 2023, Hudbay received an approved right-of-way from the State Land Department that will allow for infrastructure, such as roads, pipelines and powerlines, to connect between the properties in our private land package at Copper World.

Upon receipt of the state level permits, the company expects to conduct a bulk sampling program at Copper World to continue to de-risk the project by testing grade continuity, variable cut-off effectiveness and metallurgical strategies. Hudbay also intends to initiate a minority joint venture partner process following receipt of permits, which will allow the potential joint venture partner to participate in and help fund the definitive feasibility study activities in 2024.

Continued Focus on Cost Reductions and Capital Discipline

With a focus on generating positive cash flow, we delivered on our discretionary spending reduction targets by reducing 2022 growth capital and exploration spending by approximately $30 million in Arizona, Manitoba and Peru. We also reduced planned 2023 discretionary spending by more than $50 million primarily related to the deferral of the Copper World definitive feasibility study and the pebble crusher in Peru. Furthermore, planned 2023 growth and exploration expenditures are expected to be approximately $65 million lower than 2022 levels.

As an additional prudent measure intended to ensure positive cash flow generation and continued financial discipline, Hudbay expects to extend its existing quotational period hedging program, to cover approximately 13,000 tonnes of contained copper in the unsold concentrate inventory in Peru to lock in current copper prices.

We expect spending on our Copper World project in 2023 will be limited to de-risking activities, including the completion of the pre-feasibility study and state level permitting. The opportunity to sanction Copper World is not expected until 2025 based on current estimated timelines. This, together with our 2023 discretionary spending reductions, reflects a conservative approach to capital spending at Copper World over the next two years. As part of our disciplined financial planning approach to Copper World, we identified three specific prerequisites that would need to be achieved prior to making an investment decision in the project:

1. Permits - receipt of all state level permits required for Phase I;

2. Plan - completion of a definitive feasibility study with an internal rate of return of greater than 15%; and,

3. Prudent Financing Strategy - multi-faceted financial targets focused on a minimum cash balance, a stated maximum leverage, limited non-recourse project level debt and committed financial partners.

11

Exploration Update

Peru Regional Exploration

Hudbay controls a large, contiguous block of mineral rights with the potential to host mineral deposits within trucking distance of the Constancia processing facility, including the past producing Caballito property and the highly prospective Maria Reyna property. Following the execution of a surface rights exploration agreement with the community of Uchucarcco in August 2022, the company has commenced early exploration activities at the Maria Reyna and Caballito properties. Surface investigation activities together with baseline environmental and archaeological activities necessary to support drill permit applications for the Maria Reyna and Caballito prospects have been completed. Ground geophysical surveys commenced in the fourth quarter of 2022 and will continue once the Peruvian social situation improves. Field evidence confirms that both Caballito and Maria Reyna host sulfide and oxide rich copper mineralization in skarns, hydrothermal breccias and large porphyry intrusive bodies.

Recent activities at the Llaguen copper-molybdenum porphyry deposit in the Otuzco province in northern Peru have been focused on initiating metallurgical test work.

Manitoba Regional Exploration

Hudbay commenced a winter drill program in January 2023 with four drill rigs testing the down-dip gold and copper extensions of the Lalor deposit, which is the first time we have completed step-out drilling in the deeper zones at Lalor since the initial discovery of the gold and copper-gold zones in 2009 and 2010. One additional drill rig is testing a target located to the north of Lalor.

Arizona Regional Exploration

Recent drilling activities at Copper World have focused on close spaced infill drilling to support potential future bulk sampling programs. This drilling is now completed, and no additional drilling is planned for 2023.

Nevada Regional Exploration

A conductivity-resistivity IP ground survey commenced in the fourth quarter of 2022 on Hudbay's private land claims near the Mason project. This work, in combination with a re-interpretation of geological data from past operating mines and previous exploration data, will be used to finalize a future drill plan to test high grade skarn targets.

Dividend Declared

A semi-annual dividend of C$0.01 per share was declared on February 23, 2023. The dividend will be paid out on March 24, 2023 to shareholders of record as of March 7, 2023.

12

PERU OPERATIONS REVIEW

    Three months ended     Year ended     Guidance  
  Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021     Annual  
  2022  
Constancia ore mined 1 tonnes   5,614,918     7,742,469     25,840,435     29,714,327        
Copper %   0.40     0.33     0.35     0.31        
Gold g/tonne   0.04     0.04     0.04     0.04        
Silver g/tonne   3.48     2.81     3.40     2.88        
Molybdenum %   0.01     0.01     0.01     0.01        
Pampacancha ore mined 1 tonnes   3,771,629     2,107,196     8,319,250     5,141,001        
Copper %   0.37     0.27     0.33     0.27        
Gold g/tonne   0.29     0.34     0.29     0.30        
Silver g/tonne   3.84     4.26     4.06     4.02        
Molybdenum %   0.01     0.01     0.01     0.01        
Total ore mined tonnes   9,386,547     9,849,665     34,159,685     34,855,328        
Strip ratio 2     0.97     0.95     1.13     1.02        
Ore milled tonnes   7,795,735     8,048,925     30,522,294     28,809,755        
Copper %   0.41     0.33     0.34     0.32        
Gold g/tonne   0.12     0.11     0.09     0.08        
Silver g/tonne   3.93     3.67     3.58     3.35        
Molybdenum %   0.01     0.01     0.01     0.01        
Copper concentrate tonnes   117,980     96,123     393,255     335,490        
Concentrate grade % Cu   22.93     23.78     22.73     23.19        
Copper recovery %   85.1     86.0     85.0     84.6        
Gold recovery %   69.6     63.6     63.6     64.6        
Silver recovery %   66.5     60.8     65.7     63.7        
Molybdenum recovery %   37.7     26.7     34.8     31.5        
Combined unit operating costs 3,4,5 $/tonne   13.64     9.96     12.78     10.70     10.10 - 12.90 6  
1 Reported tonnes and grade for ore mined are estimates based on mine plan assumptions and may not reconcile fully to ore milled.
2 Strip ratio is calculated as waste mined divided by ore mined.
3 Reflects combined mine, mill and general and administrative ("G&A") costs per tonne of ore milled. Reflects the deduction of expected capitalized stripping costs.
4 Combined unit costs is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.
5 Excludes approximately $0.7 million, or $0.09 per tonne and $5.2 million, or $0.17 per tonne, of COVID-19 related costs during the three and twelve months ended December 31, 2022 respectively and $4.1 million, or $0.51 per tonne and $19.8 million or $0.69 per tonne, of COVID-19 related costs during the three and twelve months ended December 31, 2021.
6 Combined unit cost guidance for 2022 excludes COVID-19 related costs.

Total ore mined in the fourth quarter of 2022 decreased by 5% compared to the same period in 2021 due, in part, to a short-term change in mine plan where the company prioritized the processing of lower grade stockpiles and shorter haulage distance ore from the Constancia pit in order to ration fuel during a period of nation-wide social unrest and road blockades following a change in Peru's political leadership in early December 2022. This short-term change in mine plan ensured the plant continued to operate uninterrupted.

Ore milled during the fourth quarter of 2022 was 3% lower than the same period in 2021 due to a previously announced plant maintenance program in November 2022. Milled copper grades increased by 24% in the fourth quarter of 2022 compared to the same period in 2021 due to higher head grades from both Pampacancha and Constancia.

13

Full year 2022 ore mined was 2% lower than the same period in 2021. Full year 2022 copper and gold grades milled were 6% and 13% higher, respectively, than the comparative 2021 period due to higher head grades from both Pampacancha and Constancia.

Copper recoveries in the fourth quarter of 2022 were in line with the comparative 2021 period. Gold and silver recoveries in the fourth quarter were both 9% higher than the comparative 2021 period due to higher milled gold and silver grades. Peru achieved a record quarterly gold recovery of 70% in the fourth quarter of 2022.

Full year 2022 recoveries for copper, gold and silver were relatively consistent with the comparable period of 2021.

Combined mine, mill and G&A unit operating costs in the fourth quarter of 2022 were 37% higher than the same period in 2021 primarily due to incremental costs associated with the fourth quarter planned mill maintenance, higher mining costs associated with mining more ore from Pampacancha, as well as inflationary pressures on fuel, consumables and energy costs. Full year combined mine, mill and G&A unit operating costs for 2022 were 19% higher than the same period in 2021 due to the same factors as the quarterly variance partially offset by higher ore milled.

Contained metal in
concentrate
produced		   Three months ended     Year ended     Guidance  
  Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		     Annual  
  2022     2023  
Copper tonnes   27,047     22,856     89,395     77,813     89,000 - 115,000     91,000 - 116,000  
Gold oz   20,860     17,917     58,229     50,306     70,000 - 90,000     83,000 - 108,000  
Silver oz   655,257     578,140     2,309,352     1,972,949     1,620,000 - 2,100,000     2,210,000 - 2,650,000  
Molybdenum tonnes   344     275     1,377     1,146     1,100 - 1,400     1,300 - 1,600  

Fourth quarter 2022 production of molybdenum, copper, gold and silver was 25%, 18%, 16% and 13% higher, respectively, than the comparative period in 2021 due to higher copper and precious metal grades and higher precious metal and molybdenum recoveries. The fourth quarter of 2022 was a record quarter for gold production in Peru. Full year 2022 production of copper, gold, silver and molybdenum was 15%, 16%, 17% and 20% higher, respectively, than the comparative period in 2021 due to higher throughput, higher copper and precious metal grades and higher copper, silver and molybdenum recoveries.

Full year 2022 production of copper increased by 15% year-over-year to 89,395 tonnes, within the guidance range. Similarly, full year 2022 production of gold, silver and molybdenum increased by 16%, 17% and 20%, respectively, compared to 2021 due to higher throughput, higher copper and precious metal grades and higher copper, silver and molybdenum recoveries. Molybdenum production was in line with our annual guidance range, whereas silver production exceeded the top end of our annual guidance range by 10%. Gold production fell short of the annual guidance range primarily due to lower-than-planned grades from the Pampacancha pit in the fourth quarter of 2022 as a result of short-term changes in the mine plan.

14

 

         

15

Peru Cash Cost and Sustaining Cash Cost

    Three months ended     Year ended     Guidance  
  Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		     Annual
2022		     Annual
2023		  
Cash cost per pound of copper produced, net of by-product credits1 $/lb   1.34     1.28     1.58     1.54     1.10 - 1.40     1.05 - 1.30  
Sustaining cash cost per pound of copper produced, net of by-product credits1 $/lb   2.09     2.46     2.35     2.46              
1 Cash cost and sustaining cash costs per pound of copper produced, net of by-product credits, are not recognized under IFRS. For more detail on these non-IFRS financial performance measures, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.

Cash cost per pound of copper produced, net of by-product credits, in the fourth quarter of 2022 was $1.34, an increase of 5% compared to the same period in 2021 due to inflationary pressures on fuel, consumables and energy costs driving higher mining and milling costs, partially offset by lower general and administrative costs, higher molybdenum by-product credits and higher copper production. However, cash cost per pound of copper produced, net of by-product credits, in the fourth quarter of 2022 was below the run rate for the first nine months of the year primarily due to higher copper, gold and silver grades in the fourth quarter. Full year cash cost per pound of copper produced, net of by-product credits, was $1.58, a slight increase of 3% compared to the same period of 2021. This exceeded the upper end of our 2022 guidance range primarily due to higher mining and milling costs from input cost inflation and lower than expected by-product credits due to lower-than-expected gold grades from Pampacancha in the fourth quarter of 2022, as described above.

Sustaining cash cost per pound of copper produced, net of by-product credits, for the fourth quarter and full year 2022 were 15% and 4% lower, respectively, than the comparative 2021 periods due to lower sustaining capital expenditures and higher copper and gold production, offset, in part, by higher mining and milling costs from input cost inflation.

16

Metal Sold

    Three months ended     Year ended  
  Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Payable metal in concentrate                          
Copper tonnes   23,789     20,551     79,805     71,398  
Gold oz   15,116     16,304     49,968     41,807  
Silver oz   411,129     380,712     2,045,678     1,490,651  
Molybdenum tonnes   421     245     1,352     1,098  

While we were able to complete two copper concentrate shipments from the Matarani port during December, Peru's copper, gold and silver sales in the fourth quarter of 2022 were impacted by higher-than-normal unsold copper concentrate inventory levels of approximately 25,000 wet metric tonnes as at December 31, 2022, due to the nation-wide road blockades in early December. We have been able to steadily operate the Constancia mill throughout the recent road blockades, and despite completing three copper concentrate shipments from the port in January 2023, Peru's unsold copper concentrate inventory levels reached a peak of approximately 47,000 wet metric tonnes in mid-February when transportation of concentrate resumed with the assistance of the community-based concentrate trucking companies.We expect concentrate inventory levels to normalize over the next several months.

17

MANITOBA OPERATIONS REVIEW

Mines

    Three months ended     Year ended  
  Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Lalor                          
Ore tonnes   369,453     422,208     1,516,203     1,593,141  
Copper %   0.73     0.78     0.73     0.71  
Zinc %   2.17     4.19     3.14     4.23  
Gold g/tonne   4.00     3.92     4.00     3.41  
Silver g/tonne   19.37     30.35     21.96     24.66  
777                          
Ore tonnes   -     266,744     484,355     1,053,710  
Copper %   -     1.13     1.12     1.28  
Zinc %   -     4.16     3.83     3.91  
Gold g/tonne   -     1.80     1.66     2.03  
Silver g/tonne   -     25.02     20.85     25.25  
Total Mines                          
Ore tonnes   369,453     688,952     2,000,558     2,646,851  
Copper %   0.73     0.91     0.83     0.94  
Zinc %   2.17     4.18     3.31     4.10  
Gold g/tonne   4.00     3.10     3.43     2.86  
Silver g/tonne   19.37     28.29     21.69     24.90  
                           

Unit Operating Costs 1   Three months ended     Year ended  
  Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Mines                          
Lalor C$/tonne   140.10     112.34     136.71     114.95  
777 C$/tonne   -     100.34     87.50     91.12  
Total Mines C$/tonne   140.10     107.69     124.80     105.46  
1 Reflects costs per tonne of ore mined.  

During the fourth quarter of 2022, the Manitoba team continued to focus on integrating our Flin Flon employees and equipment into the Snow Lake operations in order to significantly reduce our reliance on higher cost contractors. Lalor's ore production during the quarter was impacted by a planned maintenance program to replace surface ore chutes as well as various other pre-winter maintenance activities including the muck circuit, hoist drive and electrical maintenance. We continue to advance several key initiatives to support higher production levels at Lalor, including building longhole inventory, improving stope muck fragmentation, optimizing the development drift size and focusing on shaft availability improvements to enable more ore to be hoisted to surface while reducing inefficient trucking of ore via the ramp.

Ore mined at our Manitoba operations during the fourth quarter of 2022 was 46% lower than the same period in 2021 mainly due to the planned closure of 777 in June 2022 which resulted in a significant decline in ore mined in the fourth quarter compared to the prior year period which benefited from the full contribution of 777 mine production. Excluding 777 production, Lalor mined ore in the fourth quarter was 12% lower than the same period in 2021 due to the above noted transition and the planned maintenance program impacting operations. Gold grades mined during the fourth quarter of 2022 were 2% higher than the same period in 2021. Copper, zinc and silver grades mined at Lalor during the fourth quarter of 2022 were 6%, 48% and 36% lower, respectively, compared to the same period in 2021. 

18

Ore mined at our Manitoba operations for the full year 2022 was 24% lower than 2021 mainly due to the closure of 777 in June 2022 as mentioned above. Ore mined at Lalor for the full year 2022 was 5% lower than 2021 while copper and gold grades mined at Lalor during 2022 were 3% and 17% higher, respectively. The zinc and silver grades at Lalor were 26% and 11% lower, respectively, compared to the same period in 2021, mainly due to an increased focus on mining of gold and copper-gold stopes and a corresponding decrease of production from the base metal zones.

Total mine unit operating costs during the fourth quarter of 2022 increased by 30%, reflecting the standalone cost structure of Lalor compared to the same period in 2021 which included operating costs for both Lalor and the lower cost 777 mine. Operating costs were also impacted by inflationary cost pressures for bulk commodities, fuel, and contractor costs compared to the same period in 2021, in addition to lower ore production volumes as mentioned above.

Total mine unit operating costs during the full year 2022 increased by 18% compared to the same period in 2021 due to the factors mentioned above and higher propane usage early in the year caused by a colder winter.

19

Processing Facilities

    Three months ended     Year ended  
  Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Stall & New Britannia Concentrator Combined                        
Ore tonnes   345,492     419,727     1,510,907     1,506,756  
Copper %   0.73     0.75     0.75     0.72  
Zinc %   2.31     4.12     3.30     4.30  
Gold g/tonne   3.98     3.90     4.08     3.42  
Silver g/tonne   20.40     30.07     22.15     24.95  
Copper concentrate tonnes   14,201     17,494     58,276     57,291  
Concentrate grade % Cu   15.90     15.92     17.12     16.43  
Zinc concentrate tonnes   12,706     27,672     77,806     111,370  
Concentrate grade % Zn   49.79     51.02     50.63     50.56  
Copper recovery - concentrate %   89.2     88.7     88.6     86.8  
Zinc recovery - concentrate (Stall) %   90.1     87.4     86.6     88.9  
Gold recovery - concentrate %   58.8     54.6     59.2     54.9  
Silver recovery - concentrate %   56.1     53.9     58.1     54.4  
Contained metal in concentrate produced                    
Copper tonnes   2,258     2,785     9,977     9,415  
Zinc tonnes   6,326     14,119     39,395     56,310  
Gold oz   25,961     28,720     117,526     90,911  
Silver oz   127,099     218,679     625,145     656,847  
Metal in doré produced                    
Gold oz   7,099     8,598     28,707     9,002  
Silver oz   12,659     6,519     52,834     6,529  
Flin Flon Concentrator                          
Ore tonnes   -     262,565     497,344     1,133,516  
Copper %   -     1.12     1.11     1.23  
Zinc %   -     4.16     3.87     3.95  
Gold g/tonne   -     1.78     1.67     2.04  
Silver g/tonne   -     25.04     21.00     24.90  
Copper concentrate tonnes   -     12,554     22,602     56,646  
Concentrate grade % Cu   -     20.37     21.24     21.61  
Zinc concentrate tonnes   -     18,353     31,602     73,974  
Concentrate grade % Zn   -     49.51     50.59     50.31  
Copper recovery %   -     86.7     86.7     87.7  
Zinc recovery %   -     83.1     83.0     83.0  
Gold recovery %   -     59.2     57.1     58.5  
Silver recovery %   -     45.6     51.8     45.1  
Contained metal in concentrate produced                    
Copper tonnes   -     2,557     4,801     12,242  
Zinc tonnes   -     9,088     15,986     37,219  
Gold oz   -     8,924     15,238     43,564  
Silver oz   -     96,375     173,963     409,156  

20


Unit Operating Costs 1   Three months ended     Year ended     Guidance  
  Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		     Annual  
  2022  
Concentrators                                
Stall & New Britannia C$/tonne   58.49     47.67     54.16     31.17        
Flin Flon C$/tonne   -     30.33     28.14     28.27        
Combined mine/mill unit operating costs 2,3                    
Manitoba C$/tonne   241     168     195     154     170 - 185  
1 Reflects costs per tonne of milled ore.
2 Reflects combined mine, mill and G&A costs per tonne of milled ore.
3 Combined unit costs is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.

The combined Stall and New Britannia mills processed 18% less ore in the fourth quarter of 2022 compared to the same period in 2021, mainly due to the above noted transition and planned maintenance program impacting Lalor and the milling operations. Stall recoveries were consistent with the metallurgical model for the head grades delivered. Compared to the same period in 2021, unit operating costs at the Stall and New Britannia mills were higher in the fourth quarter of 2022 as a result of higher costs at New Britannia and inflationary cost pressures.

Ore processed at the combined Stall and New Britannia mills during the full year 2022 was in line with the same period in 2021. Stall recoveries were consistent with the metallurgical model for the head grades delivered. Compared to the same period in 2021, unit operating costs at the Stall and New Britannia mills were higher in 2022 for the same reasons outlined in the fourth quarter variance as well as scheduled mill maintenance at New Britannia early in the year and baseline effects as New Britannia was not yet fully operational in the comparative period.

The New Britannia mill continued to achieve consistent production in the fourth quarter, averaging approximately 1,530 tonnes per day. Metal recoveries have now stabilized near our targeted levels for the mill. Additional improvement initiatives will continue to be advanced in the upcoming quarters with a focus on reducing reagent and grinding media consumption that has contributed to higher operating costs than planned. These initiatives require minimal capital expenditures and will further improve overall metal recoveries and copper concentrate grades.

Combined mine, mill and G&A unit operating costs in the fourth quarter of 2022 and full year 2022 increased by 43% and 27%, respectively, compared to the same periods in 2021 reflecting inflationary cost pressures for bulk commodities, fuel, and contractor costs and the standalone cost structure of Lalor compared to the same period in 2021, which included operating costs for both Lalor and the lower cost 777 mine.

21


      Three months ended     Year ended     Guidance  
Contained
metal in
concentrate
produced 1		   Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021     Annual  
  2022     2023  
Copper tonnes   2,258     5,342     14,778     21,657     12,000 - 16,000     9,000 - 12,000  
Gold 2 oz   25,961     37,644     132,764     134,475     -     -  
Silver 3 oz   127,099     315,054     799,108     1,066,003     -     -  
Zinc tonnes   6,326     23,207     55,381     93,529     50,000 - 70,000     28,000 - 36,000  
Metal in doré produced 1                    
Gold 2 oz   7,099     8,598     28,707     9,002     -     -  
Silver 3 oz   12,659     6,519     52,834     6,529     -     -  
Contained metal in concentrate and doré produced              
Gold 2 oz   33,060     46,242     161,471     143,477     150,000 - 185,000     175,000 - 205,000  
Silver 3 oz   139,758     321,573     851,942     1,072,532     800,000 - 1,100,000     750,000 - 1,000,000  
1 Metal reported in concentrate is prior to deductions associated with smelter terms.
2 Gold production guidance includes gold contained in concentrate produced and gold in doré.
3 Silver production guidance includes silver contained in concentrate produced and silver in doré.

Manitoba's production of copper, gold, silver and zinc in the fourth quarter of 2022 was lower by 58%, 29%, 57% and 73%, respectively, than the comparative 2021 period following the planned closure of the 777 mine in June 2022, partially offset by higher metal recoveries. Full year 2022 metal production was similarly impacted by the planned closure of 777, resulting in a decrease in copper, zinc and silver production, while 2022 gold production increased by 13% as New Britannia ramped up to full production.

Full year production of all metals in Manitoba achieved our 2022 annual guidance ranges.

22

* Mining activities at 777 were completed in June 2022

   

23

Zinc Plant

Zinc Production   Three months ended     Year ended  
  Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Zinc Concentrate Treated                    
Domestic tonnes   -     45,143     76,223     191,283  
Refined Metal Produced                    
Domestic tonnes   -     20,783     37,894     89,568  

Unit Operating Costs   Three months ended     Year ended  
  Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		  
Zinc Plant 1,2 C$/lb   -     0.63     0.60     0.55  
1 Zinc unit operating costs include G&A costs.
2 Zinc unit costs is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.

The zinc plant ceased operations on June 30, 2022 and, as such, had no production during the second half of 2022. Closure activities commenced in the third quarter of 2022 and progressed safely during the fourth quarter of 2022.

Manitoba Cash Cost and Sustaining Cash Cost

    Three months ended     Year ended     Guidance  
                          Annual  
  Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		     2022     2023  
Cost per pound of gold produced                                    
Cash cost per ounce of gold produced, net of by-product credits 1, 2 $/oz   922     -     297     -     300 - 550     500 - 800  
Sustaining cash cost per ounce of gold produced, net of by-product credits 1, 2 $/oz   1,795     -     1,091     -              
1 Cash cost and sustaining cash cost per ounce of gold produced, net of by-product credits, are not recognized under IFRS. For more detail on this non-IFRS financial performance measure, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.
2Cash cost and sustaining cash cost per ounce of gold produced, net of by-product credits were introduced in 2022 and do not have a published comparative.

Cash cost per ounce of gold produced, net of by-product credits, in the fourth quarter was $922, higher than the third quarter of 2022, primarily due to lower by-product credits and lower gold production. This was partially offset by lower mining, milling and general and administrative costs as well as lower treatment, refining and freight costs. However, full year 2022 cash cost per ounce of gold produced, net of by-product credits, was $297, 1% below the low end of our 2022 guidance range.

Sustaining cash cost per ounce of gold produced, net of by-product credits, in the fourth quarter was $1,795, higher than the third quarter of 2022, primarily due to the same factors affecting cash cost, partially offset by lower sustaining capital expenditures.

24

Metal Sold

    Three months ended     Year ended  
  Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Payable metal in concentrate and doré                          
Copper tonnes   1,626     4,408     14,668     20,802  
Gold oz   32,140     40,623     163,447     126,551  
Silver oz   148,177     257,928     932,807     936,857  
Zinc 1 tonnes   8,230     21,112     59,043     96,435  
1 Includes refined zinc metal and payable zinc in concentrate sold.  

Sales of copper and zinc during the three and twelve months ended December 31, 2022 were lower than the comparable periods in 2021 due to the same factors affecting production noted above. Gold sales during 2022 were 29% higher than 2021 as New Britannia only reached commercial production in September 2021.

25

OUTLOOK

This outlook includes forward-looking information about our operations and financial expectations based on our expectations and outlook as of February 23, 2023.

This outlook, including expected results and targets, is subject to various risks, uncertainties and assumptions, which may impact future performance and our achievement of the results and targets discussed in this section. For additional information on forward-looking information, refer to the "Forward-Looking Information" section of this MD&A. We may update our outlook depending on changes in metals prices and other factors, as per our "Commodity Markets" and "Sensitivity Analysis" discussions below. In addition to this section, refer to the "Operations Review", "Financial Review" and "Liquidity and Capital Resources" sections for additional details on our outlook for 2023.

Material Assumptions

Our annual production and operating cost guidance, along with our annual capital and exploration expenditure forecasts are discussed in detail below.

Production Guidance

Contained Metal in
Concentrate and Doré1

2023 Guidance

Year ended

Dec. 31, 2022

2022 Guidance

Peru

 

 

 

 

Copper

tonnes

91,000 - 116,000

89,395

89,000 - 115,000

Gold

oz

83,000 - 108,000

58,229

70,000 - 90,000

Silver

oz

2,210,000 - 2,650,000

2,309,352

1,620,000 - 2,100,000

Molybdenum

tonnes

1,300 - 1,600

1,377

1,100 - 1,400

 

 

 

 

 

Manitoba

 

 

 

 

Gold

oz

175,000 - 205,000

161,471

150,000 - 185,000

Zinc

tonnes

28,000 - 36,000

55,381

50,000 - 70,000

Copper

tonnes

9,000 - 12,000

14,778

12,000 - 16,000

Silver

oz

750,000 - 1,000,000

851,942

800,000 - 1,100,000

 

 

 

 

 

Total

 

 

 

 

Copper

tonnes

100,000 - 128,000

104,173

101,000 - 131,000

Gold

oz

258,000 - 313,000

219,700

220,000 - 275,000

Zinc

tonnes

28,000 - 36,000

55,381

50,000 - 70,000

Silver

oz

2,960,000 - 3,650,000

3,161,294

2,420,000 - 3,200,000

Molybdenum

tonnes

1,300 - 1,600

1,377

1,100 - 1,400

1 Metal reported in concentrate and doré is prior to refining losses or deductions associated with smelter terms.

On a consolidated basis, we met 2022 production guidance for all metals. Consolidated copper and gold production was on the lower end of the guidance range primarily due to lower-than-planned grades in the fourth quarter of 2022 in Peru due to short-term mine plan changes that were implemented to mitigate the risks associated with logistical and supply chain disruptions in Peru.

In 2023, consolidated copper production is forecast to increase to 114,0001 tonnes, an increase of approximately 10%1 compared to 2022 levels, primarily as a result of higher expected copper production in Peru, with higher planned copper grades from the Pampacancha pit more than offsetting lower copper production in Manitoba. Consolidated gold production in 2023 is expected to increase by 30%1 to 285,5001 ounces year-over-year, due to significantly higher gold production in both Peru and Manitoba.

26

In early 2023, the mine plan for Peru was adjusted to prioritize the processing of lower grade stockpiles and shorter haulage distance ore to manage through the regional logistical challenges and ensure steady operation of the plant. This is expected to result in more ore being mined from the Constancia pit and less from the Pampacancha pit in the early part of the year, as well as lower recoveries due to the varying ore types present in the stockpiles. Despite these mine plan changes, 2023 copper and gold production in Peru is expected to be 103,5001 tonnes and 95,5001 ounces, representing year-over-year increases of 16%1 and 64%1, respectively. The revised mine plan for 2023 reflects a period of higher stripping activities in the Pampacancha pit from March to June with significantly higher copper and gold grades expected to be mined in the second half of 2023. Peru's production guidance also reflects regularly scheduled semi-annual mill maintenance shutdowns at Constancia during the second and fourth quarters of 2023.

In Manitoba, 2023 gold production is expected to increase by 18%1 to 190,0001 ounces compared to 2022 due to higher gold grades and a 10% increase in ore throughput at the Lalor mine. The 2023 mine plan at Lalor reflects higher production from the gold and copper-gold zones as those zones are expected to be prioritized over the base metal zones. The production guidance reflects a 10% increase in New Britannia mill throughput in 2023 given the mill has been consistently operating above its 1,500 tonnes per day nameplate capacity. The 2023 mine plan achieves gold production levels consistent with the most recent mine plan for Snow Lake but without the full ramp up to 5,300 tonnes per day as it maximizes value per tonne of ore at Lalor by prioritizing the mining of the gold-rich zones over the zinc-rich base metal zones and reflects higher throughput at the New Britannia mill. Year-over-year zinc production is expected to decline by 42%1 primarily as a result of the closure of the 777 mine in June 2022 and prioritizing the mining of the gold-rich zones over the zinc-rich base metal zones at Lalor. Manitoba's production guidance reflects regularly scheduled maintenance programs at the Lalor mine during the second and fourth quarters of 2023.

Given the short-term mine plan changes implemented at Constancia in early 2023 and the Lalor ramp-up strategy, as mentioned above, the company is examining the potential impact of these changes to 2024 and 2025 production. We expect our 2024 production guidance to be similar to the previously issued guidance on February 23, 2022, reflecting a further increase in copper production in Peru and gold production in Manitoba from 2023 levels. As a result of the 2023 mine plan changes in Peru, we now expect mining activities at the Pampacancha deposit to continue into the first half of 2025, which is expected to result in higher copper and gold production from Peru in 2025 beyond the levels shown in the most recent technical report for Constancia, dated March 29, 2021. We expect to release our new three-year production outlook together with our annual mineral reserve and resource update at the end of March 2023.

27

Capital Expenditure Guidance

Capital Expenditures1
(in $ millions)		 2023 Guidance3,4 Year ended
Dec. 31, 2022		 2022 Guidance
Sustaining capital      
Peru2 160.0 101.4 105.0
Manitoba 75.0 125.1 115.0
Total sustaining capital 235.0 226.5 220.0
Growth capital      
Peru 10.0 4.3 10.0
Manitoba 15.0 33.4 50.0
Arizona5 30.0 36.2 40.0
Total growth capital 55.0 73.9 100.0
Capitalized exploration 10.0 42.3 40.0
Total 300.0 342.7 360.0
1 Excludes capitalized costs not considered to be sustaining or growth capital expenditures.
2 Includes capitalized stripping costs.
3 2023 capital expenditure guidance excludes right-of-use lease additions.
4 2023 capital expenditure guidance is converted into U.S. dollars using an exchange rate of 1.35 C$/US$.
5 2022 guidance reflects revised Arizona spending guidance issued on June 8, 2022, which includes $5 million in additional growth expenditures and $15 million in additional capitalized exploration related to Copper World.

2022 total capital expenditures were 5% below guidance expectations as a result of the discretionary capital reductions across the business, partially offset by higher sustaining capital expenditures in Manitoba primarily due inflationary cost pressures and lease additions that were not originally contemplated in guidance.

We expect to continue to reduce discretionary spending with an approximately 13% year-over-year decline in total capital expenditures to $300 million in 2023, primarily due to lower discretionary growth spending and capitalized exploration in 2023.

Peru's sustaining capital expenditures in 2023 are expected to increase from 2022 levels primarily due to higher costs associated with heavy civil works for the completion of a tailings dam raise in 2023 and higher capitalized stripping costs as a result of the mine plan resequencing in 2023.  Peru's growth capital spending of $10 million in 2023 includes costs associated with mill recovery improvement initiatives targeted to increase copper and molybdenum recoveries.

Manitoba's sustaining capital expenditures in 2023 are expected to be lower than 2022 primarily due to lower equipment spending at Lalor and in the mills after the Snow Lake transition and ramp up period in 2022. Manitoba's growth capital spending of $15 million in 2023 relates to the costs for the completion of the Stall mill recovery improvement project, which is expected to involve several flow sheet enhancements to increase gold and copper recoveries starting in the second quarter of 2023. These low-capital brownfield growth projects are expected to generate attractive returns and are part of our continuous improvement efforts.

The Manitoba spending guidance excludes approximately $20 million of annual care and maintenance costs related to the Flin Flon facilities in 2023, which are expected to be recorded as other operating expenses.

Arizona's growth capital spending of $30 million includes approximately $20 million in annual carrying and permitting costs for the Copper World and Mason projects and approximately $10 million for economic studies and site works in 2023.

28

Exploration Guidance

 

(in $ millions)

 

Year ended

 

2023 Guidance1

Dec. 31, 2022

2022 Guidance

Peru

15.0

25.1

25.0

Manitoba

15.0

14.2

15.0

Arizona and other 2

-

37.5

40.0

Total exploration expenditures

30.0

76.8

80.0

Capitalized spending

(10.0)

(42.3)

(40.0)

Total exploration expense

20.0

34.5

40.0

1 2023 exploration guidance excludes $5 million of non-cash amortization of community agreements for exploration properties.

2 2022 guidance reflects an additional $15 million in capitalized exploration at Copper World announced on June 8, 2022.

Total expected exploration expenditures of $30 million in 2023 are 61% lower than 2022 levels due to our continued focus on discretionary spending reductions. 2023 exploration activities are focused on areas with high potential for new discovery and mineral reserve and resource expansion.

In Peru, 2023 exploration activities will focus on permitting and drill preparation for the Maria Reyna and Caballito properties near Constancia. We also expect to complete a limited drill program at Pampacancha in 2023 to test the potential to add an incremental phase at depth to the reserve pit. In Manitoba, we have initiated a winter drill program focused on testing the deep extensions of the gold and copper zones at Lalor and a target to the north of Lalor.

Cash Cost Guidance

Copper remains the primary revenue contributor on a consolidated basis, and therefore, consolidated cost guidance has been presented as cash cost per pound of copper produced. We have also provided cash cost guidance for each of our operations based on their respective primary metal contributors. We expect combined unit operating costs in both Peru and Manitoba to trend lower in 2023, as we no longer plan to issue combined unit operating cost guidance, as we believe cash cost is a more common metric used to measure operating performance.

Cash cost 1

2023 Guidance

Year ended

Dec. 31, 2022

2022 Guidance

Peru cash cost per pound of copper2

$/lb

1.05 - 1.30

1.58

1.10 - 1.40

Manitoba cash cost per ounce of gold3

$/oz

500 - 800

297

300-550

 

 

 

 

 

Consolidated cash cost per pound of copper2

$/lb

0.40 - 0.80

0.86

0.60 - 1.05

Consolidated sustaining cash cost per pound of copper2

$/lb

1.35 - 2.05

2.07

1.60 - 2.25

1 Cash cost, net of by-product credits, per pound of copper produced is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.

2 Peru and consolidated cash cost, net of by-product credits, per pound of copper contained in concentrate and by-product credits are calculated using the gold and silver deferred revenue drawdown rates for the streamed ounces in Peru in effect on December 31, 2022 and the following commodity prices: $1,800 per ounce gold, $21.00 per ounce silver and $25.00 per pound molybdenum, $1.40 per pound zinc and an exchange rate of 1.35 C$/US$.

3 Manitoba cash cost, net of by-product credits, per ounce of gold contained in concentrate and doré and by-product credits are calculated using the following commodity prices: $3.75 per pound copper, $21.00 per ounce silver, $1.40 per pound zinc and an exchange rate of 1.35 C$/US$.

Copper cash cost in Peru is expected to decline by 26%1 in 2023 versus 2022, primarily due to higher gold by-product credits and higher copper production.

29

Gold cash cost in Manitoba is expected to increase in 2023 compared to 2022 as a result of the transition to a primary gold operation with lower by-product credits after the closure of the 777 mine in June 2022.

Consolidated copper cash cost in 2023 is expected to decline by 30%1 compared to 2022 levels due to the expected increase in copper production and higher expected gold by-product credits from the increase in annual gold production. Consolidated sustaining cash cost in 2023 is expected to be 18%1 lower than 2022 levels due to the same factors affecting consolidated cash cost, partially offset by slightly higher sustaining capital expenditures.

Metal production in any given quarter may vary from the annual guidance rate based on variations in grades and recoveries due to mine sequencing in the quarter, the timing of planned maintenance, and other factors. Cash cost and sustaining cash cost in any particular quarter can vary from the annual guidance ranges based on a variety of factors, including the scheduling of maintenance events, the prevailing commodity prices affecting by-product credits, the impact of social and political tensions in Peru, and seasonal heating requirements, particularly in Manitoba.

 

1 Year-over-year forecast changes assume the mid-point of the respective guidance range is achieved.

30

Commodity Markets

Our 2023 operational and financial performance will be influenced by a number of factors. At the macro-level, the general performance of the Chinese, North American and global economies will influence the demand for copper and zinc, while interest rates, inflation, the performance of financial markets and the level of economic uncertainty will influence the investment demand for gold. The recent relaxation of China's zero COVID policy has improved market sentiment and recent metal prices and may continue to provide commodity price tailwind should demand from China surprise to the upside. However, hawkish comments from the US Federal Reserve have contributed to a less dramatic price response to China's reopening. Recently, Peru has experienced heightened tensions and social unrest following a change in the country's political leadership which has contributed to reductions in the country's copper production, while inventory levels of many base metals are already low by historical standards. Challenges remain from the macro-economic and political side for both supply and demand which is likely to result in future price volatility for metal prices as we look ahead to 2023. However, the combination of China reopening and global supply challenges represents a net positive for global metal market fundamentals.

The realized prices we achieve in the commodity markets significantly affect our financial performance. Our general expectations regarding metals prices and foreign exchange rates are included below and in the "Sensitivity Analysis" section of this MD&A.

In addition to our production volumes, our financial performance is directly affected by a number of factors, including metals prices, foreign exchange rates, and input costs, including energy prices. Copper and zinc prices were under pressure in 2022, trending downward during the second half of the year. At the start of 2022, prices for copper and zinc remained well above the 10-year trailing average due to a strong rebound in demand for physical metal and lingering supply issues related to COVID-19. However, in the second half of the year, prices trended downwards amid growing recession fears in many parts of the world driven by central bank rate increases and the war in the Ukraine.

We have developed the following market analysis from various information sources including analyst and industry experts and our own market intelligence.

Copper

In 2022, the London Metal Exchange ("LME") copper price averaged approximately $4.00 per pound, ranging from an all-time high of $4.87 in March 2022 to a low of $3.18 per pound at the start of the second half of the year. Copper prices slowly recovered during the fourth quarter of 2022 ending the year at $3.80 per pound.

Copper prices faced headwinds during 2022 primarily due to growing recession fears and measures taken to tackle rising inflation. During the fourth quarter of 2022, following China's easing of pandemic related restrictions, prices started to recover.

Copper consumption grew by approximately 1% in 2022, approximating the growth in refined production and keeping the physical market relatively balanced and stocks at historically low levels.

Volatility in the short-term for copper is expected, however, strong future demand for copper will necessitate the development of intrinsically higher cost greenfield mines from the world's existing inventory of undeveloped deposits, at a time when existing mines are seeing significant cost inflation due to higher energy costs, consumables costs and taxes. This combination of market factors will likely result in significantly higher long term copper prices.

Improving prices of late are also an indication that investors are seeing beyond potential short term price volatility, to the structural copper metal deficit emerging mid-decade.

Zinc

In 2022, the LME zinc price averaged $1.58 per pound, with prices ranging from $1.22 per pound to $2.05 per pound. Zinc demand fell by 1.4% in 2022 after surging by 6.2% in 2021. The decrease in demand was primarily due to growing recession fears and policies aimed at controlling a resurgence in COVID-19. This lower demand growth was more than offset by reduced zinc supply, such that 2022 represented another year of metal deficits reducing already depleted global inventories.

31

The 2023 zinc metal market is projected to be the third consecutive year of global deficits. Supply chain inventories, as reflected by extreme metal premiums, are already critically low. Consequently, 2023 prices are expected to be supported by constructive supply/demand fundamentals.

Gold

In 2022, the London Gold Bullion Market price for gold averaged $1,803 per ounce, which remained relatively consistent with the average gold price of $1,799 per ounce in 2021. Gold prices traded between $1,622 per ounce and $2,051 per ounce during the year responding primarily to changing market sentiments on the direction of inflation and interest rates and the projected impact of the COVID-19 pandemic on the world economy.

The physical supply and demand for gold is not an arbitrator of future prices as it is with base metals because most of the gold ever mined is stored in bank vaults. Gold is an investment that has traditionally provided a safe haven for investors during uncertain economic times, as well as a hedge against inflation, future currency devaluation and declining values of other riskier asset classes. Concerns regarding the effect of COVID-19 on the global economic growth as governments taper monetary stimulus combined with record-high inflation and political instability in many regions of the world bodes well for the price of gold price in 2023. However, market expectations for increases in interest rates and a stronger US dollar may keep gold range bound between $1,800 and $1,900 per ounce.

Treatment Charges, Refining Charges, Zinc Metal Premiums and Freight Costs

Hudbay's operating margins are affected by a variety of marketing related costs and premiums related to the products that we produce. For the copper, zinc and molybdenum concentrates that we produce, we pay freight costs to deliver these products from our facilities to our customers and depending on the destination, we incur various combinations of truck, rail or ocean freight costs along with warehousing and loading fees. We also pay treatment and refining charges ("TC/RCs") to our customers who process our concentrates. For precious metal doré we produce, we incur transportation costs to ship to our customers.

A significant portion of our copper concentrate sales are made under multiyear contracts with an annual benchmark reference for TC/RCs. The annual benchmark for 2023 was established earlier this year at $88/8.8¢, compared to $65/6.5¢ in 2022. However since the benchmark was established, the global concentrate market has tightened, reflecting various mine production challenges in Central and South America.

Hudbay was also exposed to zinc concentrate treatment charges this year due to the closure of the Flin Flon smelter mid-year. The 2023 zinc concentrate benchmark has not yet been established, but will likely be agreed within the next 45 days. This year's benchmark is expected to exceed 2022's level of $230/dmt. However smelter curtailments in Europe are expected to be reversed to a degree this year, reducing the level of concentrate surplus previously anticipated.

Zinc metal premiums, applicable to metal sold from the Flin Flon zinc plant prior to its mid-year closure, reached record levels in North America, with spot premiums exceeding 30 cents. Power induced zinc smelter closures in Europe contributed to the market tightness in North America. Hudbay's combination of long term and spot sales resulted in record realizations prior to closure.

Bulk ocean freight rates were volatile in 2022, but remained elevated by historical standards. Hudbay's exposure to this market dynamic was limited due to previously agreed multiyear Contracts of Affreightment ("COA"), which covered the majority of our ocean freight requirements. Toward the end of 2022, spot ocean freights corrected, approaching $55/wmt for shipments from Peru to China. This afforded Hudbay, and other miners globally, an opportunity to enter into new COA's for production post 2022.

Container rates, which spiked more dramatically than bulk rates prior to the start of 2022, fell even more significantly in 2022, ending the year at approximately half the rates that prevailed at the start of the year for certain routes. This will positively impact shipment costs of molybdenum concentrate.

32

Sensitivity Analysis

The following table displays the estimated impact of changes in metals prices and foreign exchange rates on our 2023 net profit, earnings per share and operating cash flow, assuming that our operational performance is consistent with the mid-point of our guidance for 2023. The effects of a given change in an assumption are calculated in isolation.

 

2023

Change of 10%

Impact on

Impact on

Impact on Operating CF

 

Base

represented by:

Profit

EPS1

before WC changes

Metals Prices

 

 

 

 

 

Copper price2

$3.75/lb

+/-  $0.38/lb

+/-  $49M

+/-  $0.19

+/-  $77M

Zinc price

$1.40/lb

+/-  $0.14/lb

+/-  $5M

+/-  $0.02

+/-  $8M

Gold price3

$1,800/oz

+/-  $180/oz 

+/-  $23M

+/-  $0.09

+/-  $38M
           

Exchange Rates 4

 

 

 

 

 

C$/US$

1.35

+/-0.14

+/-  $26M

+/-  $0.10

+/-  $32M

1 Based on 262.0 million common shares outstanding as at December 31, 2022.

2 Quotational period hedging program neutralizes provisional pricing adjustments.

3 Gold price sensitivity also includes an impact of a +/- 10% change in the silver price (2023 assumption: $21.00/oz of silver).

4 Change in profit from operational performance only, does not include change in profit arising from translation of balance sheet accounts.

33

FINANCIAL REVIEW

Financial Results

In the fourth quarter of 2022, we recorded a net loss of $17.4 million compared to a net loss of $10.5 million in the fourth quarter of 2021, representing an increase in loss of $6.9 million. For the full year, we recorded a net profit of $70.4 million compared to a net loss of $244.4 million for the same period in 2021, representing an increase in profit of $314.8 million.

The following table provides further details on these variances:

(in $ millions)   Three months ended
December 31, 2022		     Year ended
December 31, 2022		  
Increase (decrease) in components of profit or loss:            
Revenues   (104.0 )   (40.6 )
Cost of sales            
Mine operating costs   35.2     (27.3 )
Depreciation and amortization   10.5     20.3  
Impairment - environmental obligation   46.2     193.5  
Selling and administrative expenses   3.7     9.0  
Exploration expenses   7.8     4.7  
Re-evaluation adjustment - environmental obligation   (13.2 )   128.9  
Other expenses   (2.2 )   2.6  
Impairment loss   -     (95.0 )
Net finance expense   1.9     102.5  
Tax expense   7.2     16.2  
(Increase in loss) / increase in profit for the period   (6.9 )   314.8  

Revenue

Revenue for the fourth quarter of 2022 was $321.2 million, $104.0 million lower than the same period in 2021, primarily as a result of lower copper prices, lower zinc and gold sales volumes, higher treatment and refining charges, partially offset by higher molybdenum prices and sales volumes and higher copper sales volumes. Zinc and gold sales volumes were lower than prior year due to the planned closure of 777 in June 2022.

Full year revenue in 2022 was $1,461.4 million, $40.6 million lower than the same period in 2021, mainly due to lower zinc sales, due to the same reasons as the quarter-to-date variances described above, and lower copper and precious metal prices. Offsetting these decreases were higher realized zinc and molybdenum prices as well as higher copper, precious metal and molybdenum sales volumes.

34

The following table provides further details on these variances:

(in $ millions)   Three months ended
December 31, 2022		     Year ended
December 31, 2022		  
             
Metals prices1            
Lower copper prices   (40.7 )   (51.3 )
(Lower) higher zinc prices   (4.9 )   38.6  
Lower gold prices   (6.4 )   (14.1 )
Lower silver prices   (3.6 )   (13.1 )
Sales volumes            
Higher copper sales volumes   4.3     21.0  
Lower zinc sales volumes   (44.7 )   (116.7 )
(Lower) higher gold sales volumes   (17.0 )   77.6  
(Lower) higher silver sales volumes   (1.8 )   14.0  
Other            
Change in derivative mark-to-market on zinc   (0.2 )   (0.2 )
Molybdenum and other volume and pricing differences   17.2     17.7  
Variable consideration adjustments   -     (0.6 )
Effect of higher treatment and refining charges   (6.2 )   (13.5 )
Decrease in revenue in 2022 compared to 2021   (104.0 )   (40.6 )
1 See discussion below for further information regarding metals prices.  

Our revenue by significant product type is summarized below:

    Three months ended     Year ended  
(in $ millions)   Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Copper   203.6     247.8     838.1     873.3  
Zinc   24.1     73.9     223.4     301.1  
Gold   67.4     84.5     325.1     246.6  
Silver   2.8     7.3     24.9     26.9  
Molybdenum   17.6     10.6     54.5     37.5  
Other metals   0.7     1.4     5.4     7.5  
Revenue from contracts   316.2     425.5     1,471.4     1,492.9  
Amortization of deferred revenue - gold   4.4     10.1     36.0     37.8  
Amortization of deferred revenue - silver   6.0     7.2     36.2     33.7  
Amortization of deferred revenue - variable consideration adjustments - prior periods   -     -     1.0     1.6  
Pricing and volume adjustments1   14.5     (3.9 )   (14.3 )   (8.6 )
Treatment and refining charges   (19.9 )   (13.7 )   (68.9 )   (55.4 )
Revenue   321.2     425.2     1,461.4     1,502.0  
1 Pricing and volume adjustments represents mark-to-market adjustments on provisionally prices sales, realized and unrealized changes to fair value for non-hedge derivative contracts and adjustments to originally invoiced weights and assays.

For further detail on variable consideration adjustments, refer to note 19 of our consolidated financial statements.

Realized sales prices

35

This measure is intended to enable management and investors to understand the average realized price of metals sold to third parties in each reporting period. The average realized price per unit sold does not have any standardized meaning prescribed by IFRS, is unlikely to be comparable to similar measures presented by other issuers and should not be considered in isolation or a substitute for measures of performance prepared in accordance with IFRS.

For sales of copper, zinc, gold and silver we may enter into non-hedge derivatives ("QP hedges") which are intended to manage the provisional pricing risk arising from quotational period terms in concentrate sales agreements. The gains and losses on QP hedges are included in the calculation of realized prices. We expect that gains and losses on QP hedges will offset provisional pricing adjustments on concentrate sales contracts.

Our realized prices for the fourth quarter and full year 2022 and 2021, respectively, are summarized below:

      Realized prices1 for the     LME YTD
20222		     Realized prices1 for the  
  Three months ended     Year ended  
    LME QTD
20222		     Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		  
Prices                                      
Copper $/lb   3.63     3.61     4.34     4.00     3.94     4.19  
Zinc3 $/lb   1.36     1.36     1.60     1.57     1.72     1.42  
Gold4 $/oz         1,615     1,752           1,656     1,722  
Silver4 $/oz         16.99     23.26           20.88     25.29  
1 Realized prices exclude refining and treatment charges and are on the sale of finished metal or metal in concentrate. Realized prices include the effect of provisional pricing adjustments on prior period sales.
2 London Metal Exchange average for copper and zinc prices.
3 Includes sales of cast zinc metal and zinc concentrate. Zinc realized prices include premiums paid by customers for delivery of refined zinc metal, but exclude unrealized gains and losses related to non-hedge derivative contracts that are included in zinc revenues. Realized prices include the effect of provisional pricing adjustments on zinc concentrate.
4 Sales of gold and silver from our 777 and Constancia mines are subject to our precious metals stream agreement with Wheaton, pursuant to which we recognize deferred revenue for precious metals deliveries and also receive cash payments. Stream sales are included within realized prices and their respective deferred revenue and cash payment rates can be found on page 39 of this MD&A.

36

The following tables provide a reconciliation of average realized price per unit sold, by metal, to revenues as shown in the consolidated financial statements.

Three months ended December 31, 2022  
(in $ millions) 1   Copper     Zinc     Gold     Silver     Molybdenum     Other     Total  
Revenue from contracts 2   203.6     24.1     67.4     2.8     17.6     0.7     316.2  
Amortization of deferred revenue   -     -     4.4     6.0     -     -     10.4  
Pricing and volume adjustments 3   (1.4 )   0.6     4.5     0.7     10.1     -     14.5  
By-product credits 4   202.2     24.7     76.3     9.5     27.7     0.7     341.1  
Derivative mark-to-market 5   -     -     -     -     -     -     -  
Revenue, excluding mark-to-market on non-QP hedges   202.2     24.7     76.3     9.5     27.7     0.7     341.1  
Payable metal in concentrate sold 6   25,415     8,230     47,256     559,306     421     -     -  
Realized price 7   7,956     3,001     1,615     16.99     -     -     -  
Realized price 8   3.61     1.36     -     -     -     -     -  
Twelve months ended December 31, 2022  
(in $ millions) 1   Copper     Zinc     Gold     Silver     Molybdenum     Other     Total  
Revenue from contracts 2   838.1     223.4     325.1     24.9     54.5     5.4     1,471.4  
Amortization of deferred revenue   -     -     36.0     36.2     -     -     72.2  
Pricing and volume adjustments 3   (17.0 )   0.6     (7.6 )   1.1     8.6     -     (14.3 )
By-product credits 4   821.1     224.0     353.5     62.2     63.1     5.4     1,529.3  
Derivative mark-to-market 5   -     0.4     -     -     -     -     0.4  
Revenue, excluding mark-to-market
on non-QP hedges		   821.1     224.4     353.5     62.2     63.1     5.4     1,529.7  
Payable metal in concentrate sold 6   94,473     59,043     213,415     2,978,485     1,352     -     -  
Realized price 7   8,691     3,801     1,656     20.88     -     -     -  
Realized price 8   3.94     1.72     -     -     -     -     -  
1 Average realized price per unit sold may not calculate based on amounts presented in this table due to rounding.
2 As per financial statements.
3 Pricing and volume adjustments represents mark-to-market adjustments on provisionally priced sales, realized and unrealized changes to fair value for non-hedge derivative contracts and adjustments to originally invoiced weights and assays.
4 By-product credits subtotal is used in the calculated of cash cost per pound of copper and zinc produced, net of by-product credits. Cash cost per pound of copper and per ounce of gold produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.
5 Derivative mark-to-market excludes mark-to-market on QP hedges.
6 Copper, zinc and molybdenum shown in metric tonnes and gold and silver shown in ounces.
7 Realized price for copper, zinc and molybdenum in $/metric tonne and realized price for gold and silver in $/oz.
8 Realized price for copper and zinc in $/lb.

The price, quantity and mix of metals sold, affect our revenue, operating cash flow and profit. Revenue from metals sales can vary from quarter to quarter due to production levels, shipping volumes and transfer of risk and title to customers.

37


Three months ended December 31, 2021  
(in $ millions) 1   Copper     Zinc     Gold     Silver     Molybdenum     Other     Total  
Revenue from contracts 2   247.8     73.9     84.5     7.3     10.6     1.4     425.5  
Amortization of deferred revenue   -     -     10.1     7.2     -     -     17.3  
Pricing and volume adjustments 3   (9.2 )   0.6     5.1     0.4     (0.8 )   -     (3.9 )
By-product credits 4   238.6     74.5     99.7     14.9     9.8     1.4     438.9  
Derivative mark-to-market 5   -     (0.2 )   -     -     -     -     (0.2 )
Revenue, excluding mark-to-market on non-QP hedges   238.6     74.3     99.7     14.9     9.8     1.4     438.7  
Payable metal in concentrate sold 6   24,959     21,112     56,927     638,640     245     -     -  
Realized price 7   9,559     3,523     1,752     23.26     -     -     -  
Realized price 8   4.34     1.60     -     -     -     -     -  
Twelve months ended December 31, 2021  
(in $ millions) 1   Copper     Zinc     Gold     Silver     Molybdenum     Other     Total  
Revenue from contracts 2   873.3     301.1     246.6     26.9     37.5     7.5     1,492.9  
Amortization of deferred revenue   -     -     37.8     33.7     -     -     71.5  
Pricing and volume adjustments 3   (21.9 )   1.2     5.6     0.7     5.8     -     (8.6 )
By-product credits 4   851.4     302.3     290.0     61.3     43.3     7.5     1,555.8  
Derivative mark-to-market 5   -     0.2     -     -     -     -     0.2  
Revenue, excluding mark-to-market on non-QP hedges   851.4     302.5     290.0     61.3     43.3     7.5     1,556.0  
Payable metal in concentrate sold 6   92,200     96,435     168,358     2,427,508     1,099     -     -  
Realized price 7   9,235     3,137     1,722     25.29     -     -     -  
Realized price 8   4.19     1.42     -     -     -     -     -  
                                           
1 Average realized price per unit sold may not calculate based on amounts presented in this table due to rounding.
2 As per financial statements.
3 Pricing and volume adjustments represents mark-to-market adjustments on provisionally priced sales, realized and unrealized changes to fair value for non-hedge derivative contracts and adjustments to originally invoiced weights and assays.
4 By-product credits subtotal is used in the calculated of cash cost per pound of copper and zinc produced, net of by-product credits. Cash cost per pound of copper and per ounce of gold produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.
5 Derivative mark-to-market excludes mark-to-market on QP hedges.
6 Copper, zinc and molybdenum shown in metric tonnes and gold and silver shown in ounces.
7 Realized price for copper, zinc and molybdenum in $/metric tonne and realized price for gold and silver in $/oz.
8 Realized price for copper and zinc in $/lb.

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Stream Sales

The following table shows stream sales included within realized prices and their respective deferred revenue and cash payment rates:

      Three months ended     Year ended  
      Dec. 31, 2022     Dec. 31, 2022  
      Manitoba     Peru 4     Manitoba     Peru 4  
Gold oz   -     6,013     11,115     30,275  
Silver oz   -     402,883     235,626     2,038,748  
Gold deferred revenue drawdown rate1,2 $/oz   -     734     1,238     734  
Gold cash rate3 $/oz   -     416     430     414  
Total gold stream realized price $/oz   -     1,150     1,668     1,148  
Silver deferred revenue drawdown rate1,2 $/oz   -     14.95     24.43     14.95  
Silver cash rate3 $/oz   -     6.14     6.34     6.11  
Total silver stream realized price $/oz   -     21.09     30.77     21.06  

    Three months ended     Year ended  
  Dec. 31, 2021     Dec. 31, 2021  
  Manitoba     Peru     Manitoba     Peru 4  
Gold oz   4,290     6,196     18,441     18,352  
Silver oz   69,472     351,004     326,056     1,476,537  
Gold deferred revenue drawdown rate1,2 $/oz   1,253     762     1,262     791  
Gold cash rate 3 $/oz   429     412     426     410  
Total gold stream realized price $/oz   1,682     1,174     1,688     1,201  
Silver deferred revenue drawdown rate1,2 $/oz   24.14     15.64     24.32     17.47  
Silver cash rate 3 $/oz   6.33     6.08     6.29     6.05  
Total silver stream realized price $/oz   30.47     21.72     30.61     23.52  
1Subsequent to the variable consideration adjustment recorded on January 1, 2022, the deferred revenue amortization is recorded in Manitoba at C$1,584/oz gold and C$31.28/oz silver (December 31, 2021 - C$1,578/oz gold and C$30.38/oz silver) and converted to US dollars at the exchange rate in effect at the time of revenue recognition. A variable consideration adjustment was recorded on September 30, 2022 in Manitoba following a revised forecast for 777 in the third quarter of 2022, which indicated that substantially all of 777's precious metals reserves and inventory levels have been depleted.
2 Deferred revenue drawdown rates for gold and silver do not include variable consideration adjustments.
3 The gold and silver cash rate for Manitoba increased by 1% from $400/oz and $5.90/oz effective August 1, 2015. Subsequently every year, on August 1, the cash rate will increase by 1% compounded. The weighted average cash rate is disclosed. The gold and silver cash rate for Peru increased by 1% from $400/oz and $5.90/oz effective August 4, 2019. Subsequently every year, on August 4, the cash rate will increase by 1% compounded. The weighted average cash rate is disclosed.
4 Subsequent to the variable consideration adjustment recorded on January 1, 2022, the deferred revenue amortization is recorded in Peru at $734/oz gold and $14.95/oz silver. Effective May 1, 2021, the drawdown rate for the Peru stream agreement for gold was $762/oz and prior to May 1, 2021, the drawdown rate for Peru gold was $990/oz. Effective May 1, 2021, the drawdown rate for the Peru stream agreement for silver was $15.64/oz and prior to May 1, 2021 the drawdown rate for Peru silver was $21.86/oz.

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Cost of Sales

Our detailed cost of sales is summarized as follows:

(in $ thousands)   Three months ended     Year ended  
  Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		  
Peru                        
Mining   41,647     27,756     137,546     98,200  
Milling   50,723     40,121     195,152     168,477  
Changes in product inventory   (15,685 )   (4,507 )   (31,348 )   (13,743 )
Depreciation and amortization   58,256     54,078     211,043     194,408  
G&A   14,912     18,496     63,092     63,876  
Inventory adjustments   -     -     (558 )   (1,446 )
Freight, royalties and other charges   17,263     12,371     55,651     44,819  
Total Peru cost of sales   167,116     148,315     630,578     554,591  
Manitoba                        
Mining   38,112     58,891     192,704     222,660  
Milling   14,868     22,193     73,903     62,995  
Zinc plant   -     19,008     32,755     72,392  
Changes in product inventory   (740 )   (11,740 )   28,223     (4,437 )
Depreciation and amortization   21,152     35,849     126,572     163,516  
Inventory adjustments   7     -     4,111     5,445  
G&A   6,847     14,345     62,782     54,063  
Post-employment plan (curtailment) / past service cost   (2,384 )   737     (2,384 )   4,965  
Freight, royalties and other charges   6,542     9,660     35,308     41,316  
Total Manitoba cost of sales   84,404     148,943     553,974     622,915  
Cost of sales   251,520     297,258     1,184,552     1,177,506  

Total cost of sales for the fourth quarter of 2022 was $251.5 million, reflecting a decrease of $45.7 million from the fourth quarter of 2021. Peru cost of sales increased by $18.8 million in the fourth quarter of 2022, compared to the same period of 2021 as a result of increases in mining, milling, depreciation and freight costs. The increases in mining and milling costs were mainly driven by a higher strip ratio as well as higher power prices and consumable costs. The increase to depreciation in the fourth quarter of 2022 was mainly driven by higher contained metal compared to the same quarter in 2021. These increases were partially offset by a buildup of copper concentrate inventory caused by logistics and supply chain disruptions from protests and social unrest in the southern Peru mining corridor. Manitoba cost of sales decreased by $64.5 million in the fourth quarter of 2022, compared to the same period of 2021 as a result of the closure of the zinc plant in June 2022, decreases in the mining, milling and depreciation costs due to the planned closure of 777 and the Flin Flon mill, a reduction of general and administrative and freight costs, a post-employment curtailment and favourable movements in the foreign exchange rate as Manitoba's costs are primarily denominated in Canadian dollars. These decreases were partially offset by a significant drawdown of copper concentrate product inventory.

Total cost of sales for 2022 was $1,184.6 million, reflecting an increase of $7.0 million from 2021. Peru cost of sales increased by $76.0 million primarily due to the same reasons outlined above for the fourth quarter variance. Manitoba cost of sales decreased by $69.0 million compared to the same period of 2021 as a result of the closure of the zinc plant in June 2022, decreases in the mining costs and depreciation due to the closure of 777, a reduction of freight costs, a post-employment curtailment gain and favourable movements in the foreign exchange rate as Manitoba's costs are primarily denominated in Canadian dollars. These decreases were partially offset by a significant drawdown of copper concentrate product inventory and increases in milling and general and administrative costs, mostly related to inflationary pressures on consumables and higher volumes of ore milled at New Britannia as well as increases in accrued employee profit sharing.

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For details on unit operating costs, refer to the respective tables in the "Operations Review" section of this MD&A.

For the fourth quarter of 2022, other significant variances in expenses from operations, compared to the same period in 2021, include the following:

- A comparative period impairment - environmental provision of $46.2 million related to a prior period increase in the valuation of the environmental reclamation provision due to lower long-term discount rates for Flin Flon operation, which was expensed in the prior period as the site was scheduled to close in 2022. No such charge occurred in 2022.

- Re-evaluation adjustment - environmental provision increased by $13.2 million due to the relative revaluation of the environmental reclamation provision on our Manitoba non-producing sites from changes in long term risk-free discount rates and inflation rates.

Given the long term nature of the reclamation cash flows, the related environmental reclamation provision is highly sensitive to changes in inflation rates and long-term risk-free discount rates and, as such, we may continue to experience significant quarterly closure cost provision revaluations.

- Exploration expenses decreased by $7.8 million compared to 2021, as previously expensed Copper World drilling costs are now capitalized.

For the year-to-date 2022, other significant variances in expenses from operations, compared to 2021, include the following:

- A comparative period impairment - environmental provision of $193.5 million related to a revised Flin Flon closure plan reflecting higher cost estimates, leading to an increase in the environmental reclamation provision which was expensed in the prior period as the site was scheduled to close in 2022. No such charge occurred in 2022.

- Re-evaluation adjustment - environmental provision decreased by $128.9 million due to the relative revaluation of the environmental reclamation provision on our Manitoba non-producing sites from changes in long term risk-free discount rates and inflation rates.

- Impairment loss of $95.0 million during 2022 for certain capitalized costs and assets associated with the previous stand-alone development plan for the Rosemont deposit, which were determined to no longer be recoverable. No such charge occurred in 2021.

- Exploration expenses decreased by $4.7 million compared to 2021, as previously expensed Copper World costs are now capitalized.

- Selling and administrative expenses decreased by $9.0 million compared to 2021. The decrease was primarily due to lower share based compensation expense as a result of the revaluation of previously issued share units to lower share prices during the current year compared to the prior year.

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Net finance expense

(in $ thousands)   Three months ended     Year ended  
  Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		  
                         
Finance costs - accrued or payable:                        
Interest expense on long-term debt   16,933     16,911     67,663     74,748  
Withholding taxes   1,528     1,846     6,092     7,727  
Tender premium on senior unsecured notes   -     -     -     22,878  
Loss (gain) on disposal of investments   516     (453 )   3,648     (968 )
Other accrued/payable costs 1   663     1,724     5,279     7,784  
Total finance costs - accrued or payable   19,640     20,028     82,682     112,169  
                         
Finance costs - non-cash:                        
Accretion on streaming agreements2   7,018     8,295     27,778     42,654  
Change in fair value of financial assets and liabilities at fair value through profit or loss   6,830     6,779     942     54,514  
Write off unamortized transaction costs   -     -     -     2,480  
Other non-cash costs3   3,240     3,545     7,092     9,202  
Total finance costs - non-cash   17,088     18,619     35,812     108,850  
Net finance expense   36,728     38,647     118,494     221,019  
1 Includes interest income and other finance expense.
2 Includes variable consideration adjustment (prior periods).
3 Includes accretion on community agreements, accretion on Wheaton refund liability, unwinding of discount on provisions, and net foreign exchange losses (gains).

Net finance expense during the fourth quarter ended December 31, 2022, decreased by $1.9 million compared to the fourth quarter of 2021 due to a $0.4 million decrease in accrued finance costs and a $1.5 million decrease in non-cash finance costs.

The overall decrease was primarily driven by a $1.3 million reduction in the accretion on streaming arrangements due to the planned closure of 777 in June 2022 and an increase of interest income. 

Net finance expense during the year ended 2022, decreased by $102.5 million compared to year ended 2021 due to a $29.5 million decrease in accrued finance costs and a $73.0 million decrease in non-cash finance costs.

The reduction in net finance expense was primarily driven by the refinancing of senior unsecured notes in the third quarter of 2021. The prior year refinancing included a $49.8 million write-off of a non-cash embedded derivative on the early redemption option associated with our extinguished senior unsecured notes as well as a call premium of $22.9 million, with no corresponding charges recorded in 2022. In addition, we also incurred a $14.9 million reduction in the accretion on streaming arrangements due to a lower interest rate following the amended Peru streaming arrangement in the second quarter of 2021 and the closure of 777 in 2022, a reduction in interest expense of $7.1 million mainly due to lower interest rates on our long term debt, a decrease of $6.9 million in revaluation losses on our equity investments and a $6.8 million relative gain on foreign exchange. Partially offsetting these increases was a $4.6 million increase in losses on the disposal of certain public investments, a $3.5 million increase in accretion on environmental provisions and a $3.1 million increase in finance expense from a change in the relative revaluation of the gold prepayment liability.

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Tax Expense (Recovery)

For the three months and year ended December 31, 2022, tax expense decreased by $7.2 million and $16.2 million, respectively, compared to the same periods in 2021. The following table provides further details:

    Three months ended     Year ended  
  Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
(in $ thousands)
Deferred tax recovery - income tax 1   (6,401 )   (7,161 )   (1,193 )   (15,995 )
Deferred tax (recovery) expense - mining tax 1   (127 )   2,179     5,717     11,202  
Total deferred tax (recovery) expense   (6,528 )   (4,982 )   4,524     (4,793 )
Current tax expense - income tax   6,517     11,503     10,667     25,570  
Current tax expense - mining tax   3,165     3,783     10,242     20,830  
Total current tax expense   9,682     15,286     20,909     46,400  
Tax expense   3,154     10,304     25,433     41,607  
1 Deferred tax expense (recovery) represents our draw down/increase of non-cash deferred income and mining tax assets/liabilities.  

Income Tax Expense/Recovery

Applying the estimated Canadian statutory income tax rate of 26.3% to our profit before taxes of $95.8 million for the year-to-date of 2022 would have resulted in a tax expense of approximately $25.2 million; however, we recorded an income tax expense of $9.5 million. The significant items causing our effective income tax rate to be different than the 26.3% estimated Canadian statutory income tax rate include:

- Deductible temporary differences with respect to Peru and Manitoba, relating to the decommissioning and restoration liabilities, were recognized as we have determined that it is probable that we will realize the recovery of these deferred tax assets based on the timing of the reversals of the deductible temporary differences and the future projected taxable profit of the Manitoba and Peru operations. This resulted in a combined deferred tax recovery of $39.0 million.

- Temporary income tax differences recognized as we have determined that it is probable that we will realize the recovery of these deferred tax assets. This resulted in a deferred tax recovery of $0.5 million.

- Foreign exchange on the translation of deferred tax balances to group currency resulted in a deferred tax expense of $13.1 million.

- The tax expense with respect to our foreign operations are recorded using an income tax rate other than the Canadian statutory income tax rate of 26.3%, resulting in a tax expense of $15.3 million.

- The recognition of previously unrecognized deferred tax assets resulted in a deferred tax recovery of $3.9 million.

Mining Tax Expense

Applying the estimated Manitoba mining tax rate of 10.0% to our profit before taxes of $95.8 million for the fourth quarter of 2022 would have resulted in a tax expense of approximately $9.6 million; however, we recorded a mining tax expense of $15.9 million. Effective mining tax rates can vary significantly based on the composition of our earnings and the expected amount of mining taxable profits. Corporate costs and other costs not related to mining operations are not deductible in computing mining profits. A brief description of how mining taxes are calculated in our various business units is discussed below.

Manitoba

The Province of Manitoba imposes mining tax on profit related to the sale of mineral products mined in the Province of Manitoba (mining taxable profit) at the following rates:

- 10% of total mining taxable profit if mining profit is C$50 million or less;

- Between mining profit of C$50 and $C55 million, mining tax is equal to a minimum of C$5 million plus mining profit less C$50 million multiplied by 65%;

- 15% of total mining taxable profit if mining profits are between C$55 million and C$100 million;

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- Between mining profit of C$100 million and C$105 million, mining tax is equal to a minimum of C$15 million plus mining profit less C$100 million multiplied by 57%; and

- 17% of total mining taxable profit if mining profits exceed C$105 million.

We estimate that the tax rate that will be applicable when temporary differences reverse will be approximately 10.0%.

Peru

The Peruvian government imposes two parallel mining tax regimes, the Special Mining Tax and the Modified Royalty, on companies' operating mining income on a sliding scale, with progressive rates ranging from 2.0% to 8.4% and 1.0% to 12.0%, respectively. Based on financial forecasts, we have recorded a deferred tax liability as at December 31, 2022, at the tax rate we expect to apply when temporary differences reverse.

LIQUIDITY AND CAPITAL RESOURCES

As at December 31, 2022, our liquidity includes $225.7 million in cash as well as undrawn total availability of $354.3 million under our revolving credit facilities.

Senior Unsecured Notes

We have $600.0 million aggregate principal amount of 4.5% senior notes due April 2026 and $600.0 million aggregate principal amount of 6.125% senior notes due April 2029.

Senior Secured Revolving Credit Facilities

We have two senior secured revolving credit facilities with total commitments of $450 million ("the Credit Facilities") for our Canadian and Peruvian businesses and substantially similar terms and conditions. As at December 31, 2022, we were in compliance with our covenants under the Credit Facilities and had drawn $25.5 million in letters of credit under the Credit Facilities.

C$130 Million Bilateral Letter of Credit Facility

On August 22, 2022, we closed a C$130.0 million bilateral letter of credit facility ("LC Facility") with a major Canadian financial institution. The LC Facility enables the Company to issue up to C$130.0 million of letters of credit to beneficiaries on an unsecured basis at attractive rates, with a further C$30.0 million sub-limit for financial letters of credit. This new facility was permitted under the existing terms the Credit Facilities and has no financial covenants. As at December 31, 2022, the Manitoba business unit had drawn $56.7 million in letters of credit under the LC Facility.

Surety Bonds

As at December 31, 2022, the Arizona business unit had $12.8 million in surety bonds issued to support future reclamation and closure obligations. The Peru business unit also had $107.6 million in letters of credit issued with various Peruvian financial institutions to support future reclamation and other operating matters. No cash collateral is required to be posted under these letters of credit or surety bonds.

Gold Prepay

During the fourth quarter of 2020, we entered into a gold forward sale and prepay transaction which generated $115.0 million in cash proceeds to pre-fund the expected capital requirements for the New Britannia gold mill refurbishment project. The transaction valued the future gold ounce delivery obligation for 79,954 gold ounces in 2022 and 2023 at forward curve prices averaging approximately $1,682 per ounce. The gold delivery obligation is expected to be satisfied with a monthly delivery of 3,331 gold ounces over a 24-month period from January 2022 to December 2023. The fair value of the financial liability at December 31, 2022 was $71,208.

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Financial Condition

Financial Condition as at December 31, 2022 compared to December 31, 2021

Cash decreased by $45.3 million during the year to $225.7 million as at December 31, 2022. This decrease was mainly the result of investing and financing cash outflows of $346.5 million from capital investments and community agreements primarily at our Peru and Manitoba operations, partial repayment of our gold prepayment liability of $71.7 million, interest payments of $63.8 million, lease payments of $35.8 million, $10.0 million for a scheduled payment related to the Rosemont acquisition, other finance payments of $12.3 million as well as dividends of $4.0 million. Offsetting these outflows were cash inflows from operating activities of $487.8 million. We hold the majority of our cash in low-risk, liquid investments with major Canadian and Peruvian financial institutions.

Working capital decreased by $71.0 million to $76.5 million from December 31, 2021 to December 31, 2022, primarily due to a decrease in trade and other receivables of $90.9 million mainly due to timing and changes in provisionally priced receivables, a decrease in cash of $45.3 million and changes to other financial assets and liabilities of $10.8 million due to the revaluation of our non-hedge derivatives. Offsetting these items was a decrease in deferred revenue liabilities of $24.3 million due to the closure of 777 in June 2022, a decrease in net taxes payable of $20.3 million, a decrease in lease liabilities of $17.4 million, a decrease in other liabilities of $16.2 million mainly due to changes in decommissioning and restoration liabilities and an increase in prepaid expenses of $4.8 million.

Cash Flows

The following table summarizes our cash flows for the year ended months ended December 31, 2022 and December 31, 2021:

(in $ thousands)   Three months ended     Year ended  
  Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		  
Operating cash flow before change in non-cash working capital   109,148     156,917     391,729     483,862  
Precious metals stream deposit   -     4,000     -     4,000  
Change in non-cash working capital   (22,766 )   (63,813 )   96,074     (102,791 )
Cash generated from operating activities   86,382     97,104     487,803     385,071  
Cash used in investing activities   (89,114 )   (105,603 )   (337,670 )   (376,257 )
Cash used in financing activities   (58,580 )   (18,513 )   (196,300 )   (175,899 )
Effect of movement in exchange rates on cash   860     550     843     (1,061 )
Decrease in cash   (60,452 )   (26,462 )   (45,324 )   (168,146 )

Cash Flow from Operating Activities

Cash generated from operating activities was $86.4 million during the fourth quarter of 2022, a decrease of $10.7 million compared with the same period in 2021. Operating cash flow before change in non-cash working capital was $109.1 million during the fourth quarter of 2022, reflecting a decrease of $47.8 million compared to the fourth quarter of 2021. The decrease in operating cash flows before changes in working capital is mostly attributable to lower prices for all metals, lower gold sales volumes due to a temporary deferral of Pampacancha mining operations in the quarter, lower zinc sales volumes primarily due to the planned closure of 777 in June 2022, higher mine operating costs due to inflationary pressures on input costs, partially offset by higher molybdenum prices and sales volumes.

Cash generated from operating activities for the full year 2022 was $487.8 million in 2022, an increase of $102.7 million compared to 2021. Operating cash flow before changes in non-cash working capital for 2022 was $391.7 million, a decrease of $92.1 million compared to 2021. The decrease in operating cash flow before changes in working capital is mostly attributable to the timing of current tax payments, which increased by $19.5 million compared to 2021, higher mine operating costs due to inflationary pressures on input costs, lower copper and precious metal prices and lower zinc sales volumes partially offset by higher copper and precious metal sales volumes and higher zinc prices.

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Cash Flow from Investing and Financing Activities

During the fourth quarter of 2022, we spent $147.7 million in investing and financing activities, primarily driven by $88.8 million in capital expenditures, $3.9 million in community agreements, $31.9 million of interest payments, $17.4 million in partial settlement of our gold prepayment liability, $6.5 million in capitalized lease payments and $3.1 million in other finance payments.

Year-to-date, we used $534.0 million of cash in investing and financing activities, primarily driven by $309.0 million of capital expenditures, $37.5 million in community agreements, $71.7 million in partial settlement of our gold prepayment liability, $63.8 million of interest payments, $35.8 million in capitalized lease payments, $12.3 million of financing costs mainly related to withholding taxes on our debt obligations and our revolving credit facilities, $10.0 million for a scheduled payment related to the Rosemont acquisition and $4.0 million in dividend payments.

Capital Expenditures

The following summarizes accrued and cash additions to capital assets for the periods indicated:

    Three months ended     Year ended     Guidance  
  Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		     Annual  
(in $ millions)   2022     20233  
Manitoba sustaining capital expenditures   26.1     22.5     125.1     100.4     115.0     75.0  
Peru sustaining capital expenditures 1   24.4     45.0     101.4     128.9     105.0     160.0  
Total sustaining capital expenditures   50.5     67.5     226.5     229.3     220.0     235.0  
Arizona capitalized costs 2   9.1     9.7     36.2     22.9     40.0     30.0  
Peru growth capitalized expenditures   2.8     -     4.3     22.8     10.0     10.0  
Manitoba growth capitalized expenditures   9.0     22.0     33.4     119.2     50.0     15.0  
Other capitalized costs   2.0     1.7     5.8     18.2     -     -  
Capitalized exploration 2   18.7     9.9     42.3     13.3     40.0     10.0  
Total other capitalized expenditures   41.6     43.3     122.0     196.4              
Total capital additions   92.1     110.8     348.5     425.7              
                                     
Reconciliation to cash capital additions:                                    
Right-of-use asset additions   (1.9 )   (17.2 )   (28.0 )   (49.7 )            
Community agreement additions, net   -     (0.9 )   (3.5 )   (24.2 )            
Change in capital accruals and other   (1.4 )   10.0     (8.0 )   0.4              
Acquisition of property, plant & equipment - cash   88.8     102.7     309.0     352.2              
1 Peru sustaining capital expenditures includes capitalized stripping costs.
2 In August 2022 Arizona capital expenditure guidance has increased by $20 million, which includes an additional $15 million in capitalized exploration and $5 million in capitalized costs.
3 Capital expenditure guidance in 2023 excludes right-of-use lease additions..

For the three months and year ended December 31, 2022, total capital additions declined by 17% and 18%, respectively, compared to the same periods in 2021 as a result of lower sustaining capital expenditures in Peru and mostly lower growth spending at our operations, partially offset by higher sustaining capital expenditures in Manitoba and higher capitalized exploration and growth spending in Arizona.

Sustaining capital expenditures in Manitoba for the three months and year ended December 31, 2022 were $26.1 million and $125.1 million, respectively, representing increases of $3.6 million and $24.7 million compared to the same period in 2021. The increase in year-to-date sustaining capital expenditures was mainly due to higher planned capital development at Lalor, additional spending for tailings management and lease additions related to the Snow Lake operations, partially offset by the cessation of capitalizing development costs at 777.

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Sustaining capital expenditures in Peru for the three months and year ended December 31, 2022 were $24.4 million and $101.4 million, respectively, representing a decrease of $20.6 million and $27.5 million compared to the same period in 2021. The decreased expenditures mainly relate to lower spending for the tailings management facility expansion partially offset by increased capitalized stripping at Pampacancha.

Growth capital spending in Manitoba for the three months and year ended December 31, 2022 were $9.0 million and $33.4 million, respectively, reflecting expenditures for the Lalor expansion and recovery improvement projects at both New Britannia and Stall. Compared to the same periods in 2021, growth capital expenditures decreased by $13.0 million and $85.8 million for the three months and year ended December 31, 2022, respectively, as the comparative periods included significant costs related to the New Britannia refurbishment project, which was completed in the fourth quarter of 2021.

Growth capital expenditures in Peru for the twelve months ended December 31, 2022 were $4.3 million, representing a decrease of $18.5 million compared to the same period in 2021. This decrease was caused by costs incurred in the comparative period to bring Pampacancha into commercial production during 2021.

Arizona's growth capital expenditures for the three months and year ended December 31, 2022 were $9.1 million and $36.2 million, respectively, and relate primarily to the infill drilling at Copper World to upgrade resources to reserves and the pre-feasibility study costs.

Other capitalized costs for the three months and year ended December 31, 2022 were $2.0 million and $5.8 million, respectively, and mainly consist of changes in estimates for certain Peru community agreements.

Consolidated sustaining and growth capital expenditures in 2022 were below our full year combined guidance. This reflects discretionary growth capital reductions of approximately $25 million across the business, partially offset by approximately $10 million in higher sustaining capital expenditures in Manitoba due to inflationary cost pressures and lease additions that were not originally contemplated in guidance.

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Capital Commitments

As at December 31, 2022, we had outstanding capital commitments in Canada of approximately $9.7 million, of which $8.7 million can be terminated, approximately $27.1 million in Peru primarily related to exploration option agreements, all of which can be terminated, and approximately $43.1 million in Arizona, primarily related to our Copper World project, of which approximately $7.2 million can be terminated.

Contractual Obligations

The following table summarizes our significant contractual obligations as at December 31, 2022:

          Less than
12 months		     13 - 36
months		     37 - 60
months		     More than
60 months		  
Payment Schedule (in $ millions)   Total  
Long-term debt obligations1   1,541.7     66.7     132.9     687.0     655.1  
Gold prepayment obligation2   71.2     71.1     0.1     -     -  
Lease obligations   127.6     43.7     50.3     14.0     19.6  
Purchase obligation - capital commitments   80.0     27.2     16.3     36.5     -  
Purchase obligation - other commitments3   959.2     343.2     357.4     111.7     146.9  
Pension and other employee future benefits obligations2   95.1     8.3     10.5     8.3     68.0  
Community agreement obligations4, 5   67.7     8.4     8.6     7.7     43.0  
Decommissioning and restoration obligations5   411.3     8.4     9.1     7.4     386.4  
Total   3,353.8     577.0     585.2     872.6     1,319.0  
1 Long-term debt obligations include scheduled interest payments, as well as principal repayments.
2 Discounted.
3 Primarily made up of long-term agreements with operational suppliers, obligations for power purchase, concentrate handling, fleet and port services, as well as deferred consideration arising from the acquisition of Rosemont's minority interest.
4 Represents community agreement obligations and various finalized land user agreements, including Pampacancha.
5 Undiscounted before inflation.

In addition to the contractual obligations included in the above payment schedule, we also have the following commitments which impact our financial position:

- A profit-sharing plan with most Manitoba employees;

- A profit-sharing plan with all Peru employees;

- Wheaton precious metals stream agreements for 777 and the Constancia mines; and,

- Government royalty payments related to the Constancia mines.

Outstanding Share Data

As of February 22, 2023, the final trading day prior to the date of this MD&A, there were 262,025,681 common shares of Hudbay issued and outstanding. In addition, there were 1,512,070 stock options outstanding.

48

FINANCIAL RISK MANAGEMENT

The risks relating to Hudbay and our business include those risks described under the heading "Risk Factors" in our most recent Annual Information Form, which section has been incorporated by reference into this MD&A and should be reviewed by readers. In addition to those risks, we have identified the following other risks which may affect our financial statements in the future.

Political and Social Risks

On December 7, 2022, the former President of Peru, Pedro Castillo, was removed from office and replaced by Peru's former Vice President, Dina Boluarte. Following these political developments, Peru faced increasing tensions, protests, and social unrest. Protests have continued into early 2023 and the civil unrest has caused disruptions to commerce and supply chains. Constancia's operations have not been significantly impacted but our ability to steadily receive fuel and other key inputs and to deliver concentrates to port have been disrupted. Any prolonged disruption could cause us to temporarily shut down our operations, which could have an adverse effect on our financial results and cash flows. Hudbay continues to monitor the situation and mitigate the risks caused by the challenges with a focus on employee safety and site security. Given the uncertainty and future extent of these protests, our 2023 production and cost guidance are subject to higher than normal degree of uncertainty.

A change in government, government policy, the declaration of a state of emergency or the implementation of new, or the modification of existing, laws and regulations affecting our operations and other mineral properties could have a material adverse impact on us and our projects. We are at a heightened risk of having this occur whenever there is a change in government in the countries or regions in which we operate, as is currently the case in Peru.

Carrying Values and Mine Plan Updates

At the end of each reporting period, Hudbay reviews its groups of non-financial assets to determine whether there are any indicators of impairment or impairment reversal. If any such indicator exists, the Company estimates the recoverable amount of the non-financial asset group in order to determine the extent of the impairment loss or reversal, if any. At December 31, 2022, the Company assessed whether there were impairment or impairment reversal indicators associated with the general business environment and known changes to business planning. Other than an impairment indicator related to the PEA of the Copper World Complex, which contemplates the mining of Copper World deposits and the East deposit (formerly referred to as the Rosemont deposit) in a two-phase mine plan, there were no other impairment or impairment reversal indicators.

There are a number of potential indicators that could trigger non-financial asset impairment or reversal of impairment in the future. One such potential indicator is a change to the life of mine ("LOM") plan for an asset. LOM plans incorporate management's best estimates of key assumptions which include future commodity prices, the value of mineral resources not included in the LOM plan, production based on current estimates of recoverable reserves, discount rates, future operating and capital costs and future foreign exchange rates.

There is a risk that certain assumptions in the updated LOM plans for Constancia planned to be completed by the end of March 2023 could give rise to an indicator of impairment or impairment reversal and cause an adjustment to the carrying value of the relevant assets and/or impact our financial statements.

A pre-feasibility study for Phase I of the Copper World project is expected to be completed in 2023. There is a risk that certain assumptions in the pre-feasibility study could give rise to an indicator of impairment and/or impairment reversal and cause an adjustment to the carrying value of the relevant assets and/or impact our financial statements.

Metals Price Strategic Risk Management

From time to time, we maintain price protection programs and conduct commodity price risk management in line with Board-approved policies to reduce risk through the use of financial instruments.

Commodity prices are a key driver of our financial and operational results. Our strategic objective is to provide our investors with exposure to base metals prices, unless a reason exists to implement a hedging arrangement.

49

In the normal course, we typically consider metal price hedging to manage the risk associated with provisional pricing terms in concentrate sales agreements and in connection with stream delivery obligations. We may also occasionally consider metal price hedging in accordance with Board approved policies to achieve strategic objectives, including: locking in favourable metal prices to ensure a minimum cash flow during or after the construction of a mine or during a period of reduced liquidity, to maintain profitable production of shorter life/higher cost operations or as part of a financing arrangement.

During 2022, we entered into copper and zinc hedging transactions intended to manage the risk associated with provisional pricing terms in concentrate sales agreements.

As at December 31, 2022, we had 89.7 million pounds of net copper fixed for floating swaps outstanding at an average fixed receivable price of $3.61/lb associated with provisional pricing risk in concentrate sales agreements. These swaps settle across January to May 2023.

As at December 31, 2022, we had 17.5 million pounds of net zinc fixed for floating swaps outstanding at an average fixed receivable price of $1.32/lb associated with provisional pricing risk in concentrate sales agreements. These swaps settle across January to March 2023.

From time to time, we enter into gold and silver forward sales contracts to hedge the commodity price risk associated with the future settlement of provisionally priced deliveries. We are generally obligated to deliver gold and silver to Wheaton prior to the determination of final settlement prices. These forward sales contracts are entered into at the time we deliver gold and silver to Wheaton, and are intended to mitigate the risk of subsequent adverse gold and silver price changes. Gains and losses resulting from the settlement of these derivatives are recorded directly to revenue, as the forward sales contracts do not achieve hedge accounting, and the associated cash flows are classified in operating activities. Our swap agreements are with counterparties we believe to be creditworthy and do not require us to provide collateral.

During the fourth quarter of 2020, we entered into a gold forward sale and prepay transaction which generated $115.0 million in cash proceeds to pre-fund the expected capital requirements for the New Britannia gold mill refurbishment project. The transaction valued the future gold ounce delivery obligation for 79,954 gold ounces in 2022 and 2023 at forward curve prices averaging approximately $1,682 per ounce. The gold delivery obligation is expected to be satisfied with a monthly delivery of 3,331 gold ounces over a 24-month period from January 2022 to December 2023. The New Britannia gold mill achieved commercial production in the fourth quarter of 2021. The fair value of the financial liability at December 31, 2022 was $71,208.

Interest Rate and Foreign Exchange Risk Management

To the extent that we incur indebtedness at variable interest rates to fund our growth objectives, we may enter into interest rate hedging arrangements to manage our exposure to short-term interest rates. To the extent that we make commitments to capital expenditures denominated in foreign currencies, we may enter into foreign exchange forwards or acquire foreign currency outright, which may result in foreign exchange gains or losses in our consolidated income statements.

At December 31, 2022, approximately $189.4 million of our cash was held in US dollars, approximately $25.2 million of our cash was held in Canadian dollars, and approximately $11.1 million of our cash was held in Peruvian soles.

50

TREND ANALYSIS AND QUARTERLY REVIEW

A detailed quarterly and annual summary of financial and operating performance can be found in the "Summary of Results" section at the end of this MD&A. The following table sets forth selected consolidated financial information for each of our eight most recently completed quarters:

(in $ millions, except per share amounts,
production on a copper equivalent basis
and average realized copper price)

 

2021

2022

Q4

Q3

Q2

Q1

Q4

Q33

Q2

Q1

Production on a copper equivalent basis (tonnes)

45,454

42,099

46,332

45,085

50,685

42,243

39,289

43,246
                 

Average realized copper price ($/lb)

3.61

3.47

4.28

4.53

4.34

4.26

4.40

3.69

Revenue

321.2

346.2

415.5

378.6

425.2

359.0

404.2

313.6

Gross profit (loss) 4

69.7

32.4

89.5

85.3

81.7

(85.4)

82.2

52.5

Profit (loss) before tax

(14.3)

(0.3)

21.5

88.9

(0.2)

(147.8)

14.8

(69.6)

Profit (loss)

(17.4)

(8.1)

32.1

63.8

(10.5)

(170.4)

(3.4)

(60.1)

Adjusted net earnings (loss)1,3

2.6

(12.4)

30.5

5.2

32.7

0.9

5.4

(16.1)

Earnings (loss) per share:

 

 

 

 

 

 

 

 

Basic and diluted

(0.07)

(0.03)

0.12

0.24

(0.04)

(0.65)

(0.01)

(0.23)

Adjusted net earnings (loss)1,3

per share

0.01

(0.05)

0.12

0.02

0.13

0.00

0.02

(0.06)

Operating cash flow2

109.1

81.6

123.9

77.1

156.9

103.5

132.8

90.7

Adjusted EBITDA1

124.7

99.3

141.4

110.2

180.8

119.2

143.2

104.2

1 Adjusted net earnings (loss), adjusted net earnings (loss) per share, and adjusted EBITDA are non-IFRS financial performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.

2 Operating cash flow before changes in non-cash working capital and precious metals stream deposit.

3 The adjusted net earnings (loss) and adjusted net earnings (loss) per share in respect of the fourth quarter of 2021 were adjusted in our management's discussion and analysis of financial results for the year ended December 31, 2021 due to a change in the computed tax effect on certain adjustments. The adjusted net earnings changed from $38.2 million to an adjusted net earnings of $0.9 million and the adjusted net earnings per share changed from $0.15/share to an adjusted net earnings per share of $0.00/share.

4 Gross profit (loss) includes $147.3 million and $46.2 million, respectively, of impairment losses related to environmental reclamation provision for the now closed Flin Flon operation for the three months ended September 30, 2021 and December 31, 2021.

The easing of domestic COVID measures by China during the fourth quarter of 2022 resulted in a rebound of most industrial commodity prices. However, late in the quarter, Peru experienced heightened tensions and social unrest following a change in the country's political leadership. Inflationary pressures on fuel, consumables and energy costs have persisted globally negatively impacting our production costs and margins.

Fourth quarter revenues were negatively impacted by lower production due to planned maintenance programs at Lalor and Constancia, the planned closure of 777 earlier in the year, short-term changes in the mine plan in Peru and a build up of product inventory in Peru due to the aforementioned social unrest. The revenue impact of lower throughput was partially offset by higher commodity prices. Additionally, the fourth quarter results were impacted by a non-cash loss of $13.5 million related to the quarterly revaluation of our Flin Flon environmental reclamation provision due to changes in real, long-term discount rates.

Commodity prices declined during the third quarter of 2022 while growing inflationary pressures have contributed to higher mine operating costs resulting in declines in our key financial metrics during the quarter. Third quarter results were also impacted by lower production due to the closure of 777 in the second quarter of 2022 and the commencement of care and maintenance activities, which will continue for the next several years. Relatively small movements in real, long-term discount rates will continue to impact the revaluation of our environmental reclamation provisions for closed sites in Manitoba and these movements will be reflected through the income statement.

51

The second quarter results for 2022 were impacted by a revaluation gain of $60.7 million pertaining mostly to the environmental reclamation provision on our Flin Flon site due to increases in long-term risk-free interest rates. A pre-tax impairment loss of $95.0 million was recorded following the release of the Copper World Preliminary Economic Assessment in June 2022 as certain assets associated with the previous, stand-alone development plan for the Rosemont deposit are no longer expected to be recoverable.

Results in the first quarter of 2022 benefited from a trend of higher realized base metal prices, but were also impacted by rising operating costs caused by inflation. While we achieved increased gold production from the higher grade Pampacancha deposit and the higher recovery New Britannia gold mill, we experienced increased levels of COVID-19 related absenteeism in the workforce, impacting production, and also experienced limited availability of rail cars leading to reduced sales and an inventory build-up. The first quarter results were also impacted by a revaluation gain of $78.2 million pertaining mostly to the environmental reclamation provision on our Flin Flon site and $1.7 million for our non-producing sites in Manitoba caused by an increase in long-term risk-free interest rates.

Results for the fourth quarter of 2021 benefited from higher realized metal prices. This strength in commodity prices combined with higher gold production following the commencement of commercial production at New Britannia and improving copper recoveries led to record revenue of $425.2 million during the quarter. Adjusted EBITDA and operating cash flow both reached record highs. Notwithstanding these records, continued inflationary pressures along with lower copper grades caused operating costs to climb and put pressure on gross margins, compared to earlier quarters. A revaluation of our environmental reclamation provision for the Flin Flon closure plan resulted in a $46.2 million non-cash charge, which negatively impacted net income for the quarter.

During the third quarter of 2021, increasing base metal prices contributed to strong revenues and operating cash flow. Mining at Pampacancha continued to ramp-up, contributing significantly to gold production during the quarter. As a result of the planned closure of Flin Flon operations in mid-2022 and an updated Flin Flon closure plan, non-cash charges totaling $156.3 million were incurred, which negatively impacted gross profit for the quarter. In Peru, ongoing COVID-19 costs, along with lower copper grades, put pressure on operating costs.

Financial results in the second quarter of 2021 benefited from initial production at the Pampacancha pit but were negatively impacted by higher operating costs in Peru and lower Manitoba metal production caused by COVID-19 related impacts as well as lower copper and zinc grades and lower precious metal recoveries.

The first quarter of 2021 saw lower revenues compared to the fourth quarter of 2020 due to a delayed Peru shipment for which revenue could not be recognized, and lower sales volumes from Manitoba related to a buildup of finished goods inventory during the quarter as a result of a lack of rail car availability. First quarter results were negatively impacted by $75.2 million of various finance expenses related to the refinancing of our senior notes.

52

The following table sets forth selected consolidated financial information for each of the three most recently completed years:

(in $ millions, except for earnings (loss) per share, dividends
declared per share, production on a copper equivalent basis
and average realized copper price)		   2022     2021     2020  
Production on a copper equivalent basis (tonnes)   178,970     175,463     184,084  
Average realized copper price ($/lb)   3.94     4.19     2.86  
Revenue   1,461.4     1,502.0     1,092.4  
Gross profit 5   276.9     131.0     39.0  
(Loss) profit before tax   95.8     (202.8 )   (179.1 )
(Loss) profit   70.4     (244.4 )   (144.6 )
Adjusted net earnings (loss) 1   26.4     23.1     (121.0 )
(Loss) earnings per share:                  
Basic and diluted   0.27     (0.93 )   (0.55 )
Adjusted net earnings (loss)1 per share   0.10     0.09     (0.46 )
Total assets   4,325.9     4,616.2     4,666.6  
Operating cash flow2   391.7     483.9     241.9  
Adjusted EBITDA1   475.9     547.8     306.7  
Total non-current financial liabilities3   1,281.5     1,345.7     1,360.1  
Dividends declared per share - C$4   0.02     0.02     0.02  
1 Adjusted net earnings (loss), adjusted net earnings (loss) per share, and adjusted EBITDA are non-IFRS financial performance measure with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.
2 Operating cash flow before change in non-cash working capital and precious metals stream deposit.
3 Total non-current financial liabilities consists of non-current other financial liabilities, lease liabilities and long-term debt.
4 Dividend paid during March and September of each year.
5 Gross profit includes $193.5 million of impairment losses related to environmental reclamation provision for the now closed Flin Flon operation for the year ended December 31, 2021.

Copper equivalent 2022 production was substantially inline with the past two years while sales volumes of copper and gold increased 2% and 27%, respectively, from 2021. Zinc sales volumes fell 39% in 2022 following the planned closure of 777 and the zinc plant in the second quarter of 2022 in Manitoba. Additionally, the ramp up of the New Britannia mill in Manitoba and mining operations at Pampacancha in Peru have contributed to higher gold production in 2022. As a result, gold has overtaken zinc as the second largest source of Hudbay's revenue. Realized copper and gold prices have fallen in 2022 resulting in a decline in full year revenues compared to 2021. A profit of $70.4 million was recognized in 2022 and included a $133.5 million pre-tax revaluation gain of our Flin Flon environmental reclamation provision. Our 2022 results were negatively impacted by a $95.0 million pre-tax impairment loss related to certain specific capitalized costs and assets associated with the previous stand-alone development plan for the Rosemont deposit, which were determined to no longer be recoverable.

Gold production in 2021 climbed 55% compared to 2020 following the start of operations at our high-grade Pampacancha deposit and our New Britannia gold mill in the third and fourth quarter of 2021, respectively. The increased production of gold allowed us to capitalize on continued strength in gold prices. In addition, consistent throughput from Peru with improved copper recoveries and a nearly 50% increase in realized copper prices compared to 2020 was a significant factor in revenues climbing 37% to a record-high $1,502.0 million for the full year. From a cost perspective, global inflationary pressures increased substantially, contributing to a 20% and a 17% increase in 2021 combined unit costs in Peru and Manitoba, respectively, compared to 2020. Despite these cost pressures, the increases in copper and gold production and realized base metal prices resulted in the 2021 operating cash flow increasing by 100% from 2020. Net losses in 2021 were $70.4 million and reflect a pre-tax, non-cash impairment charge of $193.5 million related to an updated Flin Flon closure plan, among other items.

53

Although 2020 realized prices for copper and gold rose by 5% and 24%, respectively, compared to 2019, 2020 revenues declined by 12% due to lower sales volumes of copper. Sales volumes of copper declined by 31% in 2020 as compared to 2019 as a result of the temporary suspension of Constancia operations. Gross profit declined by 74% in 2020 as compared to 2019 as we expensed certain fixed overhead production costs of $31.9 million during the temporary suspension of operations at Constancia and $11.7 million during the production interruption at 777. Adjusted net loss in 2020 increased to $121.0 million compared to 2019, as a result of the same factors described above.

NON-IFRS FINANCIAL PERFORMANCE MEASURES

Adjusted net earnings (loss), adjusted net earnings (loss) per share, adjusted EBITDA, net debt, cash cost, sustaining and all-in sustaining cash cost per pound of copper produced, cash cost and sustaining cash cost per ounce of gold produced and combined unit cost are non-IFRS performance measures. These measures do not have a meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS and are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently.

Management believes adjusted net earnings (loss) and adjusted net earnings (loss) per share provides an alternate measure of the Company's performance for the current period and gives insight into its expected performance in future periods. These measures are used internally by the Company to evaluate the performance of its underlying operations and to assist with its planning and forecasting of future operating results. As such, the Company believes these measures are useful to investors in assessing the Company's underlying performance. We provide adjusted EBITDA to help users analyze our results and to provide additional information about our ongoing cash generating potential in order to assess our capacity to service and repay debt, carry out investments and cover working capital needs. Net debt is shown because it is a performance measure used by the Company to assess our financial position. Cash cost, sustaining and all-in sustaining cash cost per pound of copper produced are shown because we believe they help investors and management assess the performance of our operations, including the margin generated by the operations and the Company. Cash cost and sustaining cash cost per ounce of gold produced are shown because we believe they help investors and management assess the performance of our Manitoba operations. Combined unit cost is shown because we believe it helps investors and management assess our cost structure and margins that are not impacted by variability in by-product commodity prices.

During 2021 and 2022, there were non-recurring adjustments for Arizona and Manitoba operations, including severance, past service pension costs, disposals of certain non-current assets, and inventory supplies write-downs as well as non-cash impairment charges related to an updated Flin Flon closure plan and lower long-term discount rates in the fourth quarter of 2021, none of which management believes are indicative of ongoing operating performance and therefore are adjusting items in the calculations of adjusted net earnings (loss) and adjusted EBITDA.

Cash cost and sustaining cash cost per pound of zinc produced was a previously disclosed non-IFRS measure, most recently published in our MD&A for the year ended December 31, 2021, dated February 23, 2022. With the closure of 777 and Flin Flon operations, including the zinc plant, in the second quarter of 2022, the production profile of Manitoba has shifted from zinc to gold and therefore we have ceased providing this measure on a go forward basis.

During 2022, we recorded a non-cash gain of $133.5 million, mostly related to the quarterly revaluation of our Flin Flon environmental reclamation provision, which was impacted by rising long-term risk-free discount rates. With the closure of 777 and Flin Flon operations in the second quarter of 2022 and given the long-term nature of the reclamation cash flows, quarterly revaluation of the corresponding environmental reclamation provision remains highly sensitive to changes in real, long-term risk-free discount rates and, as such, we expect to continue to experience quarterly environmental reclamation provision revaluations, which is not indicative of our ongoing operating performance. This item has been included prospectively in our calculation of adjusted earnings.

54

Adjusted Net Earnings (Loss)

Adjusted net earnings (loss) represents net earnings (loss) excluding certain impacts, net of taxes, such as mark-to-market adjustments, impairment charges and reversal of impairment charges, write-down of assets, and foreign exchange (gain) loss. These measures are not necessarily indicative of net earnings (loss) or cash flows as determined under IFRS.

The following table provides a reconciliation of earnings (loss) per the consolidated income statements, to adjusted net earnings (loss) for the year ended months ended December 31, 2022 and 2021.

    Three months ended     Year ended  
(in $ millions)   Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		  
(Loss) profit for the period   (17.4 )   (10.5 )   70.4     (244.4 )
Tax expense   3.1     10.3     25.4     41.6  
(Loss) profit before tax   (14.3 )   (0.2 )   95.8     (202.8 )
Adjusting items:                        
Mark-to-market adjustments 1   10.7     13.3     3.0     66.7  
Foreign exchange loss (gain)   0.2     1.1     (5.4 )   1.5  
Inventory adjustments   -     -     3.6     4.0  
Variable consideration adjustment - stream revenue and accretion   -     -     (1.9 )   (1.0 )
Impairment losses   -     46.2     95.0     193.5  
Re-evaluation adjustment - environmental provision 2   13.5     -     (133.5 )   -  
Evaluation expenses   0.1     -     7.9     -  
Insurance recovery   -     -     (5.7 )   -  
Write-down of unamortized transaction costs   -     -     -     2.5  
Premium paid on redemption of notes   -     -     -     22.9  
Restructuring charges - Manitoba 3   1.0     3.4     10.6     7.0  
Loss on disposal of investments   0.5     -     3.6     -  
Post-employment plan (curtailment) / past service cost adjustment   (2.4 )   0.7     (2.4 )   5.0  
Loss (gain) on disposal of plant and equipment and non-current assets - Manitoba & Arizona   0.4     2.4     (6.3 )   7.8  
Changes in other provisions (non-capital) 4   5.8     -     5.8     -  
Adjusted earnings before income taxes   15.5     66.9     70.1     107.1  
Tax expense   (3.1 )   (10.3 )   (25.4 )   (41.6 )
Tax impact of adjusting items   (9.8 )   (23.9 )   (18.3 )   (42.4 )
Adjusted net earnings   2.6     32.7     26.4     23.1  
Adjusted net earnings ($/share)   0.01     0.13     0.10     0.09  
Basic weighted average number of common shares outstanding (millions)   262.0     261.6     261.9     261.5  
1 Includes changes in fair value of the gold prepayment liability, Canadian junior mining investments, other financial assets and liabilities at fair value through profit or loss and share-based compensation (recoveries) expenses.
2 Changes from movements to environmental reclamation provisions are primarily related to the Flin Flon operations, which were fully depreciated as of June 30, 2022, as well as other Manitoba non-operating sites.
3 Includes closure costs for Flin Flon operations.
4 Includes changes in other provisions including corporate restructuring and costs which do not pertaining to operation of the business.

After adjusting reported net earnings for those items not considered representative of the Company's core business or indicative of future operations, the Company had an adjusted net loss in the fourth quarter of 2022 of $2.6 million or $0.01 earnings per share.

55

Adjusted EBITDA

Adjusted EBITDA is profit or loss before net finance expense/income, tax expense/recoveries, depreciation and amortization of property, plant and equipment and deferred revenue, as well as certain other adjustments. We calculate adjusted EBITDA by excluding certain adjustments included within our adjusted net earnings measure which we believe reflects the underlying performance of our core operating activities. The measure also removes the impact of non-cash items and financing costs that are not associated with measuring the underlying performance of our operations. However, our adjusted EBITDA is not the measure defined as EBITDA under our senior notes or revolving credit facilities and may not be comparable with performance measures with the same name reported by other companies. Adjusted EBITDA should not be considered as a substitute for profit or loss or as a better measure of liquidity than operating cash flow, which are calculated in accordance with IFRS. We provide adjusted EBITDA to help users analyze our results and to provide additional information about our ongoing cash generating potential in order to assess our capacity to service and repay debt, carry out investments and cover working capital needs.

The following table presents the reconciliation of earnings (loss) per the consolidated income statements, to adjusted EBITDA for the year ended months ended December 31, 2022 and 2021:

    Three months ended     Year ended  
(in $ millions)   Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		  
(Loss) profit for the period   (17.4 )   (10.5 )   70.4     (244.4 )
                         
Add back:                        
Tax expense   3.1     10.3     25.4     41.6  
Net finance expense   36.7     38.6     118.5     221.0  
Other expense   18.5     16.3     32.6     35.1  
Depreciation and amortization   79.4     89.9     337.6     357.9  
Amortization of deferred revenue and variable consideration adjustment   (10.4 )   (17.3 )   (73.2 )   (73.1 )
    109.9     127.3     511.3     338.1  
Adjusting items (pre-tax):                        
Impairment losses   -     46.2     95.0     193.5  
Re-evaluation adjustment - environmental provision 1   13.5     0.3     (133.5 )   (4.6 )
Inventory adjustments   -     -     3.6     4.0  
Post-employment plan (curtailment) / past service cost adjustment   (2.4 )   0.7     (2.4 )   5.0  
Share-based compensation expense 2   3.7     6.3     1.9     11.8  
Adjusted EBITDA   124.7     180.8     475.9     547.8  
   
1 Environmental reclamation provision adjustments were presented within other expense for 2021 periods.  
2 Share-based compensation expenses reflected in cost of sales and selling and administrative expenses.  

56

Net Debt

The following table presents our calculation of net debt as at December 31, 2022 and December 31, 2021:

(in $ thousands)   Dec. 31,
2022		     Dec. 31,
2021		  
Total long-term debt   1,184,162     1,180,274  
Cash   (225,665 )   (270,989 )
Net debt   958,497     909,285  

Cash Cost, Sustaining and All-in Sustaining Cash Cost (Copper Basis)

Cash cost per pound of copper produced ("cash cost") is a non-IFRS measure that management uses as a key performance indicator to assess the performance of our operations. Our calculation designates copper as our primary metal of production as it has been the largest component of revenues. The calculation is presented in four manners:

- Cash cost, before by-product credits - This measure is gross of by-product revenues and is a function of the efforts and costs incurred to mine and process all ore mined. However, the measure divides this aggregate cost over only pounds of copper produced, our primary metal of production. This measure is generally less volatile from period to period, as it is not affected by changes in the price received for by-product metals. It is, however, significantly affected by the relative mix of copper concentrate and finished zinc production, where the sale of the zinc will occur later, and an increase in production of zinc metal will tend to result in an increase in cash cost under this measure.

- Cash cost, net of by-product credits - In order to calculate the net cost to produce and sell copper, the net of by-product credits measure subtracts the revenues realized from the sale of the metals other than copper. The by-product revenues from zinc, gold, and silver are significant and are integral to the economics of our operations. The economics that support our decision to produce and sell copper would be different if we did not receive revenues from the other significant metals being extracted and processed. This measure provides management and investors with an indication of the minimum copper price consistent with positive operating margins, assuming realized by-product metal prices are consistent with those prevailing during the reporting period. It also serves as an important operating statistic that management and investors utilize to measure our operating performance versus that of our competitors. However, it is important to understand that if by-product metal prices decline alongside copper prices, the cash cost net of by-product credits would increase, requiring a higher copper price than that reported to maintain positive cash flows and operating margins.

- Sustaining cash cost, net of by-product credits - This measure is an extension of cash cost that includes cash sustaining capital expenditures, including payments on capitalized leases, capitalized sustaining exploration, net smelter returns royalties, payments on certain long-term community agreements, as well as accretion and amortization for expected decommissioning activities for producing assets. It does not include corporate selling and administrative expenses. It provides a more fulsome measurement of the cost of sustaining production than cash cost, which is focused on operating costs only.

- All-in sustaining cash cost, net of by-product credits - This measure is an extension of sustaining cash cost that includes corporate G&A, regional costs, accretion and amortization for community agreements relating to current operations, and accretion for expected decommissioning activities for non-producing sites. Due to the inclusion of corporate selling and administrative expenses, all-in sustaining cash cost is presented on a consolidated basis only.

The tables below present a detailed build-up of cash cost and sustaining cash cost, net of by-product credits, by business unit in addition to consolidated all-in sustaining cash cost, net of by-product credits, and reconciliations between cash cost, net of by-product credits, to the most comparable IFRS measures of cost of sales for the year ended months ended December 31, 2022 and 2021. Cash cost, net of by-product credits may not calculate exactly based on amounts presented in the tables below due to rounding.

57


Consolidated   Three months ended     Year ended  
Net pounds of copper produced1            
(in thousands)   Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Peru   59,628     50,389     197,082     171,548  
Manitoba   4,978     11,777     32,580     47,745  
Net pounds of copper produced   64,606     62,166     229,662     219,293  
1 Contained copper in concentrate.  

Consolidated   Three months ended     Year ended  
    Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Cash cost per pound of copper produced   $000s     $/lb     $000s     $/lb     $000s     $/lb     $000s     $/lb  
Cash cost, before by-product credits   208,642     3.23     232,224     3.73     906,265     3.94     867,607     3.95  
By-product credits   (138,990 )   (2.15 )   (200,306 )   (3.22 )   (708,334 )   (3.08 )   (704,345 )   (3.21 )
Cash cost, net of by-product credits   69,652     1.08     31,918     0.51     197,931     0.86     163,262     0.74  

Consolidated   Three months ended     Year ended  
    Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Supplementary cash cost information   $000s     $/lb 1     $000s     $/lb 1     $000s     $/lb 1     $000s     $/lb 1  
By-product credits2:                                                
Zinc   24,744     0.38     74,585     1.20     224,043     0.98     302,301     1.38  
Gold 3   76,336     1.18     99,728     1.60     353,478     1.53     289,981     1.32  
Silver 3   9,592     0.15     14,853     0.24     62,252     0.27     61,388     0.28  
Molybdenum & other   28,318     0.44     11,140     0.18     68,561     0.30     50,675     0.23  
Total by-product credits   138,990     2.15     200,306     3.22     708,334     3.08     704,345     3.21  
Reconciliation to IFRS:                                                
Cash cost, net of by-product credits   69,652           31,918           197,931           163,262        
By-product credits   138,990           200,306           708,334           704,345        
Treatment and refining charges   (19,968 )         (13,721 )         (68,936 )         (55,430 )      
Inventory adjustments   7           -           3,553           3,999        
Share-based compensation expense   490           744           420           1,347        
Past service pension/Curtailment   (2,384 )         737           (2,384 )         4,965        
Change in product inventory   (16,425 )         (16,247 )         (3,125 )         (18,180 )      
Royalties   1,750           3,594           11,144           15,274        
Depreciation and amortization4   79,408           89,927           337,615           357,924        
Cost of sales5   251,520           297,258           1,184,552           1,177,506        
1 Per pound of copper produced.
2 By-product credits are computed as revenue per financial statements, including amortization of deferred revenue and pricing and volume adjustments. For more information, please see the realized price reconciliation table on page 37 of this MD&A for these figures.
3 Gold and silver by-product credits do not include variable consideration adjustments with respect to stream arrangements. Variable consideration adjustments are cumulative adjustments to gold and silver stream deferred revenue primarily associated with the net change in mineral reserves and resources or amendments to the mine plan that would change the total expected deliverable ounces under the precious metal streaming arrangement. For the three and twelve months ended December 31, 2022 the variable consideration adjustments amounted income of nil and $959, respectively (three and twelve months ended December 31, 2021 - income of nil and $1,617).
4 Depreciation is based on concentrate sold.
5 As per IFRS financial statements, excluding impairment adjustments.

58


Peru   Three months ended     Year ended  
(in thousands)   Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Net pounds of copper produced1   59,628     50,389     197,082     171,548  
1 Contained copper in concentrate.  

Peru   Three months ended     Year ended  
    Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Cash cost per pound of copper produced   $000s     $/lb     $000s     $/lb     $000s     $/lb     $000s     $/lb  
Mining   41,647     0.70     27,756     0.55     137,546     0.70     98,200     0.57  
Milling   50,723     0.85     40,121     0.80     195,152     0.99     168,477     0.99  
G&A   14,817     0.25     18,351     0.36     63,015     0.32     63,629     0.37  
Onsite costs   107,187     1.80     86,228     1.71     395,713     2.01     330,306     1.93  
Treatment & refining   11,962     0.20     8,636     0.17     39,587     0.20     32,365     0.19  
Freight & other   15,607     0.26     11,609     0.23     50,284     0.25     41,316     0.24  
Cash cost, before by-product credits   134,756     2.26     106,473     2.11     485,584     2.46     403,987     2.36  
By-product credits   (54,563 )   (0.92 )   (41,900 )   (0.83 )   (173,488 )   (0.88 )   (139,885 )   (0.82 )
Cash cost, net of by-product credits   80,193     1.34     64,573     1.28     312,096     1.58     264,102     1.54  

Peru   Three months ended     Year ended  
    Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Supplementary cash cost information   $000s     $/lb 1     $000s     $/lb 1     $000s     $/lb 1     $000s     $/lb 1  
By-product credits2:                                                
Gold3   19,934     0.33     24,325     0.49     68,630     0.35     61,510     0.37  
Silver3   7,025     0.12     7,793     0.15     41,671     0.21     35,154     0.20  
Molybdenum   27,604     0.47     9,782     0.19     63,187     0.32     43,221     0.25  
Total by-product credits   54,563     0.92     41,900     0.83     173,488     0.88     139,885     0.82  
Reconciliation to IFRS:                                                
Cash cost, net of by-product credits   80,193           64,573           312,096           264,102        
By-product credits   54,563           41,900           173,488           139,885        
Treatment and refining charges   (11,962 )         (8,636 )         (39,587 )         (32,365 )      
Inventory adjustments   -           -           (558 )         (1,446 )      
Share-based compensation expenses   95           145           77           247        
Change in product inventory   (15,685 )         (4,507 )         (31,348 )         (13,743 )      
Royalties   1,656           762           5,367           3,503        
Depreciation and amortization4   58,256           54,078           211,043           194,408        
Cost of sales5   167,116           148,315           630,578           554,591        
1 Per pound of copper produced.
2 By-product credits are computed as revenue per financial statements, including amortization of deferred revenue and pricing and volume adjustments. For more information, please see the realized price reconciliation table on page 37 of this MD&A.
3 Gold and silver by-product credits do not include variable consideration adjustments with respect to stream arrangements.
4 Depreciation is based on concentrate sold.
5 As per IFRS financial statements, excluding impairment adjustments.

59


Consolidated   Three months ended     Year ended  
    Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
All-in sustaining cash cost per pound of copper produced   $000s     $/lb     $000s     $/lb     $000s     $/lb     $000s     $/lb  
Cash cost, net of by-product credits   69,652     1.08     31,918     0.51     197,931     0.86     163,262     0.74  
Cash sustaining capital expenditures   60,002     0.92     77,539     1.25     255,725     1.11     268,190     1.22  
Capitalized exploration   11,500     0.18     8,000     0.13     11,500     0.05     8,000     0.04  
Royalties   1,750     0.03     3,594     0.06     11,144     0.05     15,274     0.07  
Sustaining cash cost, net of by-product credits   142,904     2.21     121,051     1.95     476,300     2.07     454,726     2.07  
Corporate selling and administrative expenses & regional costs   11,876     0.19     14,729     0.24     38,799     0.17     46,663     0.21  
Accretion and amortization of decommissioning and community agreements1   722     0.01     894     0.01     4,416     0.02     2,830     0.01  
All-in sustaining cash cost, net of by-product credits   155,502     2.41     136,674     2.20     519,515     2.26     504,219     2.30  
Reconciliation to property, plant and equipment additions:                                                
Property, plant and equipment additions   76,933           91,432           259,281           346,335        
Capitalized stripping net additions   15,169           19,201           89,262           79,426        
Total accrued capital additions   92,102           110,633           348,543           425,761        
Less other non-sustaining capital costs2   41,585           43,176           122,054           196,435        
Total sustaining capital costs   50,517           67,457           226,489           229,326        
Right of use leased assets   (265 )         (6,714 )         (25,695 )         (26,685 )      
Capitalized lease cash payments - operating sites   5,848           9,099           33,271           35,071        
Community agreement cash payments   2,854           1,266           9,486           1,691        
Accretion and amortization of decommissioning and restoration obligations 3   1,048           6,431           12,174           28,987        
Cash sustaining capital expenditures   60,002           77,539           255,725           268,390        
1 Includes accretion of decommissioning relating to non-productive sites, and accretion and amortization of amortization of production related community agreements capitalized to Other assets.
2 Other non-sustaining capital costs include Arizona capitalized costs, capitalized interest, capitalized exploration, and growth capital expenditures.
3 Includes amortization of decommissioning and restoration PP&E assets and accretion of decommissioning and restoration liabilities related to producing sites.

Peru   Three months ended     Year ended  
    Dec. 31, 2022     Dec. 31, 2021     Dec. 31, 2022     Dec. 31, 2021  
Sustaining cash cost per pound of copper produced   $000s     $/lb     $000s     $/lb     $000s     $/lb     $000s     $/lb  
Cash cost, net of by-product credits   80,193     1.34     64,573     1.28     312,096     1.58     264,102     1.54  
Cash sustaining capital expenditures   31,240     0.53     50,423     1.00     133,313     0.68     146,044     0.85  
Capitalized exploration1   11,500     0.19     8,000     0.16     11,500     0.06     8,000     0.05  
Royalties   1,656     0.03     762     0.02     5,367     0.03     3,503     0.02  
Sustaining cash cost per pound of copper produced   124,589     2.09     123,758     2.46     462,276     2.35     421,649     2.46  
1 Only includes exploration costs incurred for locations near to existing mine operations.  

60

Gold Cash Cost and Gold Sustaining Cash Cost

Cash cost per ounce of gold produced ("gold cash cost") is a non-IFRS measure that management uses as a key performance indicator to assess the performance of our Manitoba operations. This alternative cash cost calculation designates gold as the primary metal of production as it represents a substantial component of revenues for our Manitoba business unit and should therefore be less volatile over time than Manitoba cash cost per pound of copper. The calculation is presented in three manners:

- Gold cash cost, before by-product credits - This measure is gross of by-product revenues and is a function of the efforts and costs incurred to mine and process all ore mined. However, the measure divides this aggregate cost over only ounces of gold produced, the assumed primary metal of production. This measure is generally less volatile from period to period, as it is not affected by changes in the price received for by-product metals.

- Gold cash cost, net of by-product credits - In order to calculate the net cost to produce and sell gold, the net of by-product credits measure subtracts the revenues realized from the sale of the metals other than gold. The by-product revenues from copper, zinc, and silver are significant and are integral to the economics of our Manitoba operation. The economics that support our decision to produce and sell gold would be different if we did not receive revenues from the other significant metals being extracted and processed. This measure provides management and investors with an indication of the minimum gold price consistent with positive operating margins, assuming realized by-product metal prices are consistent with those prevailing during the reporting period. It also serves as an important operating statistic that management and investors utilize to measure our operating performance at our Manitoba operation versus that of our competitors. However, it is important to understand that if by-product metal prices decline alongside gold prices, the gold cash cost net of by-product credits would increase, requiring a higher gold price than that reported to maintain positive cash flows and operating margins.

- Gold sustaining cash cost, net of by-product credits - This measure is an extension of gold cash cost that includes cash sustaining capital expenditures, capitalized exploration, net smelter returns royalties, as well as accretion and amortization for expected decommissioning activities for producing assets. It does not include corporate selling and administrative expenses. It provides a more fulsome measurement of the cost of sustaining production than gold cash cost, which is focused on operating costs only.

The tables below present a detailed build-up of gold cash cost and gold sustaining cash cost, net of by-product credits, for the Manitoba business unit, and reconciliations between gold cash cost, net of by-product credits, to the most comparable IFRS measures of cost of sales for the year ended months ended December 31, 2022. The introduction of gold cash cost was made in 2022, as gold replaced zinc as the major output within Manitoba's production profile. No comparatives have been disclosed for this metric as Manitoba gold production in 2021 was not considered meaningful. Gold cash cost, net of by-product credits, may not calculate exactly based on amounts presented in the tables below due to rounding.

Manitoba   Three months ended     Year ended  
(in thousands)   Dec. 31, 2022     Dec. 31, 2022  
Net ounces of gold produced1   33,060     161,471  
1 Contained gold in concentrate and doré.            

61


Manitoba   Three months ended     Year ended  
    Dec. 31, 2022     Dec. 31, 2022  
Cash cost per ounce of gold produced   $000s     $/oz1     $000s     $/oz1  
Mining   38,112     1,153     192,704     1,193  
Milling   14,868     450     73,903     458  
Refining (zinc)   -     -     32,755     203  
G&A   6,452     195     62,439     387  
Onsite costs   59,432     1,798     361,801     2,241  
Treatment & refining   8,006     242     29,349     181  
Freight & other   6,448     195     29,531     183  
Cash cost, before by-product credits   73,886     2,235     420,681     2,605  
By-product credits   (43,407 )   (1,313 )   (372,783 )   (2,308 )
Gold cash cost, net of by-product credits   30,479     922     47,898     297  

Manitoba   Three months ended     Year ended  
    Dec. 31, 2022     Dec. 31, 2022  
Supplementary cash cost information   $000s     $/oz 1     $000s     $/oz1  
By-product credits2:                        
Copper   15,382     465     122,785     760  
Zinc   24,744     748     224,043     1,388  
Silver3   2,567     78     20,581     127  
Other   714     22     5,374     33  
Total by-product credits   43,407     1,313     372,783     2,308  
Reconciliation to IFRS:                        
Cash cost, net of by-product credits   30,479           47,898        
By-product credits   43,407           372,783        
Treatment and refining charges   (8,006 )         (29,349 )      
Past service pension/curtailment   (2,384 )         (2,384 )      
Share-based compensation expenses   395           343        
Inventory adjustments   7           4,111        
Change in product inventory   (740 )         28,223        
Royalties   94           5,777        
Depreciation and amortization4   21,152           126,572        
Cost of sales5   84,404           553,974        
1 Per ounce of gold produced.
2 By-product credits are computed as revenue per financial statements, amortization of deferred revenue and pricing and volume adjustments. For more information, please see the realized price reconciliation table on page 37 of this MD&A.
3 Silver by-product credits do not include variable consideration adjustments with respect to stream arrangements.
4 Depreciation is based on concentrate sold.
5 As per IFRS financial statements, excluding impairment adjustments.

62


Manitoba   Three months ended     Year ended  
    Dec. 31, 2022     Dec. 31, 2022  
Sustaining cash cost per ounce of gold produced   $000s     $/oz     $000s     $/oz  
Gold cash cost, net of by-product credits   30,479     922     47,898     297  
Cash sustaining capital expenditures   28,762     870     122,412     758  
Royalties   94     3     5,777     36  
Sustaining cash cost per ounce of gold produced   59,335     1,795     176,087     1,091  

63

Combined Unit Cost and Zinc Plant Unit Cost Reconciliation

Combined unit cost ("unit cost") and zinc plant unit cost is a non-IFRS measure that management uses as a key performance indicator to assess the performance of our mining and milling operations. Combined unit cost and zinc plant unit cost are calculated by dividing the cost of sales by mill throughput and refined zinc metal produced, respectively. This measure is utilized by management and investors to assess our cost structure and margins and compare it to similar information provided by other companies in our industry. Unlike cash cost, this measure is not impacted by variability in by-product commodity prices since there are no by-product deductions; costs associated with profit-sharing and similar costs are excluded because of their correlation to external metal prices. In addition, the unit costs are reported in the functional currency of the operation which minimizes the impact of foreign currency fluctuations. In all, the unit cost measures provide an alternative perspective on operating cost performance with minimal impact from external market prices.

The tables below present a detailed combined unit cost and zinc plant unit costs for the Manitoba business unit and combined unit cost for the Peru business unit, and reconciliations between these measures to the most comparable IFRS measures of cost of sales for the year ended months ended December 31, 2022 and 2021.

Peru   Three months ended     Year ended  
(in thousands except unit cost per tonne)   Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		  
Combined unit cost per tonne processed
Mining   41,647     27,756     137,546     98,200  
Milling   50,723     40,121     195,152     168,477  
G&A 1   14,817     18,351     63,015     63,629  
Other G&A 2   (152 )   (1,937 )   (414 )   (2,152 )
    107,035     84,291     395,299     328,154  
Less: COVID-19 related costs   689     4,041     5,214     19,760  
Unit cost   106,346     80,250     390,085     308,394  
Tonnes ore milled   7,796     8,049     30,522     28,810  
Combined unit cost per tonne   13.64     9.96     12.78     10.70  
Reconciliation to IFRS:                        
Unit cost   106,346     80,250     390,085     308,394  
Freight & other   15,607     11,609     50,284     41,316  
COVID-19 related costs   689     4,041     5,214     19,760  
Other G&A   152     1,937     414     2,152  
Share-based compensation expenses   95     145     77     247  
Inventory adjustments   -     -     (558 )   (1,446 )
Change in product inventory   (15,685 )   (4,507 )   (31,348 )   (13,743 )
Royalties   1,656     762     5,367     3,503  
Depreciation and amortization   58,256     54,078     211,043     194,408  
Cost of sales3   167,116     148,315     630,578     554,591  
1 G&A as per cash cost reconciliation above.  
2 Other G&A primarily includes profit sharing costs  
3 As per IFRS financial statements, excluding impairment adjustments.  

64


Manitoba   Three months ended     Year ended  
(in thousands except tonnes ore milled and unit cost per tonne)   Dec. 31,
2022		     Dec. 31,
2021		     Dec. 31,
2022		     Dec. 31,
2021		  
Combined unit cost per tonne processed
Mining   38,112     58,891     192,704     222,660  
Milling   14,868     22,193     73,903     62,995  
G&A 1   6,452     13,746     62,439     52,963  
Less: G&A allocated to zinc metal production and other areas   -     (3,762 )   (6,523 )   (14,656 )
Less: Other G&A related to profit sharing costs   1,939     -     (20,075 )   -  
Unit cost   61,371     91,068     302,448     323,962  
USD/CAD implicit exchange rate   1.36     1.26     1.30     1.25  
Unit cost - C$   83,363     114,751     391,782     406,164  
Tonnes ore milled   345,492     682,292     2,008,251     2,640,272  
Combined unit cost per tonne - C$   241     168     195     154  
                         
Reconciliation to IFRS:                        
Unit cost   61,371     91,068     302,448     323,962  
Freight & other   6,448     6,828     29,531     29,545  
Refined (zinc)   -     19,008     32,755     72,392  
G&A allocated to zinc metal production   -     3,762     6,523     14,656  
Other G&A related to profit sharing   (1,939 )   -     20,075     -  
Share-based compensation expenses   395     599     343     1,100  
Inventory adjustments   7     -     4,111     5,445  
Past service pension/Curtailment   (2,384 )   737     (2,384 )   4,965  
Change in product inventory   (740 )   (11,740 )   28,223     (4,437 )
Royalties   94     2,832     5,777     11,771  
Depreciation and amortization   21,152     35,849     126,572     163,516  
Cost of sales2   84,404     148,943     553,974     622,915  
1 G&A as per cash cost reconciliation above.  
2 As per IFRS financial statements, excluding impairment adjustments.  

65


Manitoba   Three months ended     Year ended  
(in thousands except zinc plant unit cost per pound)   December
31, 2022		     December
31, 2021		     December
31, 2022		     December
31, 2021		  
Zinc plant unit cost
                         
Zinc plant costs   -     19,008     32,755     72,392  
G&A 1   6,452     13,746     62,439     52,963  
Less: G&A allocated to other areas   (8,391 )   (9,984 )   (35,841 )   (38,307 )
Less: Other G&A related to profit sharing   1,939     -     (20,075 )   -  
Zinc plant unit cost   -     22,770     39,278     87,048  
                         
USD/CAD implicit exchange rate   -     1.26     1.27     1.25  
Zinc plant unit cost - C$   -     28,690     50,036     109,062  
Refined metal produced (in pounds)   -     45,819     83,542     197,461  
Zinc plant unit cost per pound - C$   -     0.63     0.60     0.55  
                         
Reconciliation to IFRS:                        
Zinc plant unit cost   -     22,770     39,278     87,048  
Freight & other   6,448     6,828     29,531     29,545  
Mining   38,112     58,891     192,704     222,660  
Milling   14,868     22,193     73,903     62,995  
G&A allocated to other areas   8,391     9,984     35,841     38,307  
Other G&A related to profit sharing   (1,939 )   -     20,075     -  
Share-based payment   395     599     343     1,100  
Inventory adjustments   7     -     4,111     5,445  
Past service pension/Curtailment   (2,384 )   737     (2,384 )   4,965  
Change in product inventory   (740 )   (11,740 )   28,223     (4,437 )
Royalties   94     2,832     5,777     11,771  
Depreciation and amortization   21,152     35,849     126,572     163,516  
Cost of sales2   84,404     148,943     553,974     622,915  
1 G&A as per cash cost reconciliation above.  
2 As per IFRS financial statements, excluding impairment adjustments.  

ACCOUNTING CHANGES

New standards and interpretations not yet adopted

For information on new standards and interpretations not yet adopted, refer to note 4 of our audited consolidated financial statements for the year ended December 31, 2022.

CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the consolidated financial statements in conformity with IFRS requires us to make judgements, estimates and assumptions that affect the application of accounting policies, reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and reported amounts of revenue and expenses during the reporting period. Actual results may differ from these estimates.

We review these estimates and underlying assumptions on an ongoing basis based on our experience and other factors, including expectations of future events that we believe to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Certain accounting estimates and judgements have been identified as being "critical" to the presentation of our financial condition and results of operations because they require us to make subjective and/or complex judgments about matters that are inherently uncertain; or there is a reasonable likelihood that materially different amounts could be reported under different conditions or using different assumptions and estimates.

66

The following are significant judgements and estimates impacting the consolidated financial statements:

- Judgements and estimates that affect multiple areas of the consolidated financial statements:

- Mineral reserves and resources which form the basis of life of mine plans which are utilized in impairment testing, timing of payments related to decommissioning obligations and depreciation of capital assets. We estimate our mineral reserves and resources based on information compiled by qualified persons as defined in accordance with NI 43-101;

- Income and mining taxes, including estimates of future taxable profit which impacts the ability to realize deferred tax assets on our balance sheet; and

- In respect of the outcome of uncertain future events as it concerns recognizing contingent liabilities.

- Judgements and estimates that relate mainly to assets (these judgements may also affect other areas of the consolidated financial statements):

- Property, plant and equipment:

- Cost allocations for mine development;

- Mining properties expenditures capitalized;

- Classification of supply costs as related to capital development or inventory acquisition;

- Determining when exploration and evaluation assets should be transferred to capital works in progress within property, plant and equipment;

- Determination of when an asset or group of assets is in the condition and location to be ready for use as intended by management for the purposes of commencing depreciation;

- Componentization;

- Assessment of impairment, including determination of cash generating units and assessing for indicators of impairment;

- Recoverability of exploration and evaluation assets, including determination of cash generating units and assessing for indications of impairment;

- Units of production depreciation;

- Plant and equipment estimated useful lives and residual values;

- Capitalized stripping costs; and

- Finite life intangible assets.

- Impairment (and reversal of impairment) of non-financial assets:

- Future production levels and timing;

- Operating and capital costs;

- Future commodity prices;

- Foreign exchange rates; and

- Risk adjusted discount rates; and

- In process inventory quantities, inventory cost allocations and inventory valuation.

- Judgements and estimates that relate mainly to liabilities (these judgements may also affect other areas of the consolidated financial statements):

- Determination of deferred revenue per unit related to the precious metals stream transactions and determination of current portion of deferred revenue, which is based on timing of future sales, and adjustments of the expected conversion of resource to reserves;

- Pensions and other employee benefits; and

- Decommissioning, restoration and similar liabilities including estimated future costs and timing of spending.

- Estimates that relate mainly to the consolidated income statements:

- Assaying used to determine revenues and recoverability of inventories.

For more information on judgements and estimates, refer to note 2 of our consolidated financial statements for the year ended December 31, 2022.

67

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

Disclosure controls and procedures ("DC&P")

Management is responsible for establishing and maintaining adequate DC&P. As of December 31, 2022, we have evaluated the effectiveness of the design and operation of our DC&P in accordance with requirements of National Instrument 52-109 of the Canadian Securities Commission ("NI 52-109") and the Sarbanes Oxley Act of 2002 (as adopted by the US Securities and Exchange Commission). Our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") supervised and participated in this evaluation.

As of December 31, 2022, based on management's evaluation, our CEO and CFO concluded that our DC&P were effective to ensure that information required to be disclosed by us in reports we file or submit is recorded, processed, summarized and reported within the time periods specified in securities legislation and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

Internal control over financial reporting ("ICFR")

Management of Hudbay is responsible for establishing and maintaining adequate ICFR. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our ICFR as of December 31, 2022 based upon the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management's evaluation, our CEO and CFO concluded that our ICFR was effective as of December 31, 2022.

The effectiveness of the Company's ICFR as of December 31, 2022 has been audited by Deloitte LLP, Independent Registered Public Accounting Firm as stated in their report immediately preceding the Company's audited consolidated financial statements for the year ended December 31, 2022.

Changes in ICFR

We did not make any changes to ICFR during the year ended December 31, 2022 that materially affected, or are reasonably likely to materially affect, our ICFR.

Inherent limitations of controls and procedures

All internal control systems, no matter how well designed, have inherent limitations. As a result, even systems determined to be effective may not prevent or detect misstatements on a timely basis, as systems can provide only reasonable assurance that the objectives of the control system are met. In addition, projections of any evaluation of the effectiveness of ICFR to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may change.

68

NOTES TO READER

Forward-Looking Information

This MD&A contains forward-looking information within the meaning of applicable Canadian and United States securities legislation. All information contained in this MD&A, other than statements of current and historical fact, is forward-looking information. Often, but not always, forward-looking information can be identified by the use of words such as "plans", "expects", "budget", "guidance", "scheduled", "estimates", "forecasts", "strategy", "target", "intends", "objective", "goal", "understands", "anticipates" and "believes" (and variations of these or similar words) and statements that certain actions, events or results "may", "could", "would", "should", "might" "occur" or "be achieved" or "will be taken" (and variations of these or similar expressions). All of the forward-looking information in this MD&A is qualified by this cautionary note.

Forward-looking information includes, but is not limited to, statements regarding our production, cost and capital and exploration expenditure guidance, the anticipated timing of our issuance of new three-year production outlook, expectations regarding reductions in discretionary spending, capital expenditures and net debt, expectations regarding the impact of inflationary pressures on our cost of operations, financial condition and prospects, expectations regarding our cash balance and liquidity for 2023, expectations regarding the Copper World project, including with respect to our plans for a pre-feasibility study and the estimated timelines and pre-requisites for sanctioning the project, expectations regarding the permitting requirements for the Copper World project and permitting related litigation, our ability to increase the mining rate at Lalor beyond 4,650 tonnes per day, the anticipated timing for completing the Stall recovery improvement program, expectations regarding the ability to conduct exploration work on the Maria Reyna and Caballito properties and to advance related drill plans, expectations regarding the duration and potential impact of short-term mine plan changes implemented at Constancia, expectations regarding the ability for the company to reduce greenhouse gas emissions, the company's evaluation of opportunities to reprocess tailings, expectations regarding the prospective nature of the Maria Reyna and Caballito properties, the anticipated impact of brownfield growth projects on our performance, anticipated expansion opportunities in Snow Lake, anticipated drill programs, anticipated mine plans, anticipated metals prices and the anticipated sensitivity of our financial performance to metals prices, events that may affect our operations and development projects, anticipated cash flows from operations and related liquidity requirements, the anticipated effect of external factors on revenue, such as commodity prices, estimation of mineral reserves and resources, mine life projections, reclamation costs, economic outlook, government regulation of mining operations, and business and acquisition strategies. 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 us 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 we identified and were applied by us in drawing conclusions or making forecasts or projections set out in the forward-looking information include, but are not limited to:

- the ability to achieve production and cost guidance;

- the ability to achieve discretionary spending reductions without impacting operations;

- no significant interruptions to our operations due to social or political unrest in the regions Hudbay operates, including the navigation of the complex environment in Peru;

- no interruptions to our plans for advancing the Copper World project;

- the ability to ramp up exploration in respect of the Maria Reyna and Caballito properties and to advance related drill plans;

- the ability to ramp up the Lalor mine beyond 4,650 tonnes per day;

- the success of mining, processing, exploration and development activities;

- the scheduled maintenance and availability of our processing facilities;

- the accuracy of geological, mining and metallurgical estimates;

- anticipated metals prices and the costs of production;

- the supply and demand for metals we produce;

- the supply and availability of all forms of energy and fuels at reasonable prices;

- no significant unanticipated operational or technical difficulties;

- the execution of our business and growth strategies, including the success of our strategic investments and initiatives;

69

- the availability of additional financing, if needed;

- the ability to complete project targets on time and on budget and other events that may affect our ability to develop our projects;

- the timing and receipt of various regulatory and governmental approvals;

- the availability of personnel for our exploration, development and operational projects and ongoing employee relations;

- maintaining good relations with the labour unions that represent certain of our employees in Manitoba and Peru;

- maintaining good relations with the communities in which we operate, including the neighbouring Indigenous communities and local governments;

- no significant unanticipated challenges with stakeholders at our various projects;

- no significant unanticipated events or changes relating to regulatory, environmental, health and safety matters;

- no contests over title to our properties, including as a result of rights or claimed rights of Indigenous peoples or challenges to the validity of our unpatented mining claims;

- the timing and possible outcome of pending litigation and no significant unanticipated litigation;

- certain tax matters, including, but not limited to current tax laws and regulations, changes in taxation policies and the refund of certain value added taxes from the Canadian and Peruvian governments; and

- no significant and continuing adverse changes in general economic conditions or conditions in the financial markets (including commodity prices and foreign exchange rates).

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, political and social risks in the regions the company operates, including the uncertainty with respect to the political and social environment in Peru and its potential impact on our mining operations (as further described below), risks generally associated with the mining industry and the current geopolitical environment, including future commodity prices, currency and interest rate fluctuations, energy and consumable prices, supply chain constraints and general cost escalation in the current inflationary environment, uncertainties related to the development and operation of our projects, risks related to the Copper World project, including in relation to permitting, litigation, project delivery and financing risks, risks related to the new Lalor mine plan, including the ability to convert inferred mineral resource estimates to higher confidence categories, dependence on key personnel and employee and union relations, risks related to political or social instability, unrest or change, risks in respect of Indigenous and community relations, rights and title claims, operational risks and hazards, including the cost of maintaining and upgrading our tailings management facilities and any unanticipated environmental, industrial and geological events and developments and the inability to insure against all risks, failure of plant, equipment, processes, transportation and other infrastructure to operate as anticipated, compliance with government and environmental regulations, including permitting requirements and anti-bribery legislation, depletion of our reserves, volatile financial markets and interest rates that may affect our ability to obtain additional financing on acceptable terms, the failure to obtain required approvals or clearances from government authorities on a timely basis, uncertainties related to the geology, continuity, grade and estimates of mineral reserves and resources, and the potential for variations in grade and recovery rates, uncertain costs of reclamation activities, our ability to comply with our pension and other post-retirement obligations, our ability to abide by the covenants in our debt instruments and other material contracts, tax refunds, hedging transactions, as well as the risks discussed under the heading "Risk Factors" in our most recent Annual Information Form.

Additionally, as a result of the heightened tensions, protests and social unrest in Peru following a recent change in the country's political leadership, the company has experienced intermittent disruptions to commerce and supply chains, including the ability to steadily receive critical supplies, and transport and sell concentrates. A prolonged disruption of logistics and supply chains may adversely impact operations at our Constancia mine. Given the uncertainty of the duration and extent of the social and political tensions in Peru, and the relative contribution of our Peru operations on our overall output, the 2023 production and cost guidance is subject to a higher-than-normal degree of uncertainty.

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. We do not assume any obligation to update or revise any forward-looking information after the date of this MD&A or to explain any material difference between subsequent actual events and any forward-looking information, except as required by applicable law.

70

Note to United States Investors

This MD&A has been prepared in accordance with the requirements of the securities laws in effect in Canada, which may differ materially from the requirements of United States securities laws applicable to U.S. issuers.

Qualified Person and NI 43-101

The technical and scientific information in this MD&A related to our material mineral projects has been approved by Olivier Tavchandjian, P. Geo, our Vice President, Exploration and Technical Services. Mr. Tavchandjian is a qualified person pursuant to National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("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 our material properties as filed by us on SEDAR at www.sedar.com.

71

SUMMARY OF RESULTS

The following unaudited tables set out a summary of quarterly and annual results for the Company.

 

 

2022 4

Q4 2022

Q3 2022

Q2 2022

Q1 2022

2021 4

Q4 2021

Q3 20215

Q2 2021

Q1 2021

2020 4

Q4 2020

Consolidated Financial Condition ($000s)

Cash

 

$225,665

$225,665

$286,117

$258,556

$213,359

$270,989

$270,989

$297,451

$294,287

$310,564

$439,135

$439,135

Total long-term debt

 

1,184,162

1,184,162

1,183,237

1,182,143

1,181,119

1,180,274

1,180,274

1,182,612

1,181,195

1,180,798

1,135,675

1,135,675

Net debt1

 

 

958,497

958,497

897,120

923,587

967,760

909,285

909,285

885,161

886,908

870,234

696,540

696,540

Consolidated Financial Performance ($000s except per share amounts)

 

 

 

Revenue

 

$1,461,440

$321,196

$346,171

$415,454

$378,619

$1,501,998

$425,170

$358,961

$404,242

$313,624

$1,092,418

$322,290

Cost of sales

 

1,184,552

251,520

313,741

325,940

293,351

1,370,979

343,426

444,379

322,060

261,112

1,053,418

287,923

Earnings (loss) before tax

 

95,815

(14,287)

(263)

21,504

88,861

(202,751)

(149)

(147,830)

14,819

(69,592)

(179,089)

911

Earnings (loss)

 

70,382

(17,441)

(8,135)

32,143

63,815

(244,358)

(10,453)

(170,411)

(3,395)

(60,102)

(144,584)

7,406

Basic and diluted earnings (loss) per share

$0.27

$(0.07)

$(0.03)

$0.12

$0.24

$(0.93)

$(0.04)

$(0.65)

$(0.01)

$(0.23)

$(0.55)

$0.03

Adjusted earnings (loss) per share 1

$0.10

$0.01

$(0.05)

$0.12

$0.02

$0.09

$0.13

$-

$0.02

$(0.06)

$(0.46)

$(0.06)

Operating cash flow before change in non-cash working capital

391,729

109,148

81,617

123,911

77,053

483,862

156,917

103,509

132,786

90,656

241,863

86,071

Adjusted EBITDA (in $ millions) 1

475.9

124.7

99.3

141.4

110.2

547.8

180.8

119.2

143.2

104.2

306.7

106.9

Consolidated Operational Performance

 

 

 

 

 

 

 

 

 

 

Contained metal in concentrate and doré produced 2

 

 

 

 

 

Copper

tonnes

104,173

29,305

24,498

25,668

24,702

99,470

28,198

23,245

23,474

24,553

95,333

27,278

Gold

ounces

219,700

53,920

53,179

58,645

53,956

193,783

64,159

54,276

39,848

35,500

124,622

32,376

Silver

ounces

3,161,294

795,015

717,069

864,853

784,357

3,045,481

899,713

763,177

685,916

696,673

2,750,873

730,679

Zinc

tonnes

55,381

6,326

9,750

17,053

22,252

93,529

23,207

20,844

21,538

27,940

118,130

25,843

Molybdenum

tonnes

1,377

344

437

390

207

1,146

275

282

295

294

1,204

333

Payable metal in concentrate and doré sold

 

 

 

 

 

 

 

 

 

 

 

Copper

tonnes

94,473

25,415

24,799

23,650

20,609

92,200

24,959

21,136

25,176

20,929

88,888

22,963

Gold

ounces

213,415

47,256

66,932

50,884

48,343

168,358

56,927

47,843

38,205

25,383

122,949

35,179

Silver

ounces

2,978,485

559,306

816,416

738,171

864,591

2,427,508

638,640

701,601

577,507

509,760

2,585,586

762,384

Zinc 3

tonnes

59,043

8,230

12,714

20,793

17,306

96,435

21,112

21,619

25,361

28,343

109,347

28,431

Molybdenum

tonnes

1,352

421

511

208

213

1,098

245

304

265

284

1,321

457

Cash cost 1

$/lb

$0.86

$1.08

$0.58

$0.65

$1.11

$0.74

$0.51

$0.62

$0.84

$1.04

$0.60

$0.43

Sustaining cash cost

$/lb

$2.07

$2.21

$1.91

$1.87

$2.29

$2.07

$1.95

$1.97

$2.25

$2.16

$1.93

$1.97

All-in sustaining cash cost 1

$/lb

$2.26

$2.41

$2.16

$1.93

$2.54

$2.30

$2.20

$2.18

$2.48

$2.37

$2.16

$2.24

1Net debt, adjusted earnings (loss) per share, adjusted EBITDA, cash cost, sustaining cash cost and all-in sustaining cash cost per pound of copper produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A. The above table sets forth selected non-IFRS financial performance measures for each of our nine most recently completed quarters and three most recently completed years; detailed reconciliations for non-comparable prior periods can be found in our MD&A for these prior periods in the "Non-IFRS Financial Performance Measures" section of these documents. 

2 Metal reported in concentrate is prior to deductions associated with smelter contract terms.

3 Includes refined zinc metal sold.

4 Annual consolidated results may not calculate based on amounts presented in this table due to rounding.
5 The Q3 2021 adjusted net earnings (loss) and adjusted net earnings (loss) per share have been adjusted for changes made in the computation of tax impacts on certain adjusting items. The adjusted net earnings per share changed from $ 0.15/share to adjusted net earnings of $0.00/share. See the "Trend Analysis and Quarterly Review" section of this MD&A for further details.

72

 

 

 

2022 5

Q4 2022

Q3 2022

Q2 2022

Q1 2022

2021 5

Q4 2021

Q3 2021

Q2 2021

Q1 2021

2020 5

Q4 2020

Peru Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Constancia ore mined1

tonnes

25,840,435

5,614,918

6,300,252

7,017,114

6,908,151

29,714,327

7,742,469

6,208,019

8,016,373

7,747,466

27,529,950

9,313,784

Copper

%

0.35

0.40

0.36

0.33

0.32

0.31

0.33

0.30

0.30

0.30

0.32

0.31

Gold

g/tonne

0.04

0.04

0.05

0.04

0.04

0.04

0.04

0.04

0.04

0.04

0.03

0.03

Silver

g/tonne

3.40

3.48

3.38

3.53

3.22

2.88

2.81

2.76

3.02

2.90

2.75

2.61

Molybdenum

%

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.02

0.01

Pampacancha ore mined1

tonnes

8,319,250

3,771,629

2,488,928

1,211,387

847,306

5,141,001

2,107,196

2,050,813

982,992

-

-

-

Copper

%

0.33

0.37

0.29

0.29

0.27

0.27

0.27

0.27

0.26

-

-

-

Gold

g/tonne

0.29

0.29

0.23

0.28

0.43

0.30

0.34

0.27

0.27

-

-

-

Silver

g/tonne

4.06

3.84

4.30

4.25

4.06

4.02

4.26

3.58

4.43

-

-

-

Molybdenum

%

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

-

-

-

Ore milled

tonnes

30,522,294

7,795,735

7,742,020

7,770,706

7,213,833

28,809,755

8,048,925

6,985,035

7,413,043

6,362,752

26,297,318

7,741,714

Copper

%

0.34

0.41

0.34

0.32

0.31

0.32

0.33

0.30

0.31

0.33

0.34

0.33

Gold

g/tonne

0.09

0.12

0.08

0.09

0.08

0.08

0.11

0.11

0.07

0.04

0.03

0.03

Silver

g/tonne

3.58

3.93

3.48

3.64

3.26

3.35

3.67

3.93

2.88

2.84

2.87

2.74

Molybdenum

%

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.01

0.02

0.02

Copper recovery

%

85.0

85.1

84.5

85.0

85.3

84.6

86.0

84.9

83.3

84.1

83.0

85.3

Gold recovery

%

63.6

69.6

61.9

60.3

59.8

64.6

63.6

71.9

62.2

52.0

49.8

52.7

Silver recovery

%

65.7

66.5

65.2

64.2

66.9

63.7

60.8

59.1

68.2

69.9

66.9

70.1

Molybdenum recovery

%

34.8

37.7

41.0

38.8

21.1

31.5

26.7

33.5

33.3

33.4

29.4

28.4

Contained metal in concentrate

 

 

 

 

 

 

 

 

 

 

 

 

Copper

tonnes

89,395

27,047

22,302

20,880

19,166

77,813

22,856

18,072

19,058

17,827

73,150

21,554

Gold

ounces

58,229

20,860

12,722

13,858

10,789

50,306

17,917

17,531

10,220

4,638

12,395

3,689

Silver

ounces

2,309,352

655,257

564,299

584,228

505,568

1,972,949

578,140

521,036

468,057

405,714

1,622,972

477,775

Molybdenum

tonnes

1,377

344

437

390

207

1,146

275

282

295

294

1,204

333

Payable metal sold

 

 

 

 

 

 

 

 

 

 

 

 

 

Copper

tonnes

79,805

23,789

20,718

18,473

16,825

71,398

20,551

16,065

19,946

14,836

68,506

18,583

Gold

ounces

49,968

15,116

11,970

8,430

14,452

41,807

16,304

16,902

5,638

2,963

10,986

3,297

Silver

ounces

2,045,678

411,129

513,470

484,946

636,133

1,490,651

380,712

457,263

315,064

337,612

1,518,548

480,843

Molybdenum

tonnes

1,352

421

511

208

213

1,098

245

304

265

284

1,321

457

Peru combined unit operating cost 2,3,4

$/tonne

$12.78

$13.64

$13.06

$12.02

$12.37

$10.70

$9.96

$10.93

$10.40

$11.74

$9.46

$10.17

Peru cash cost3

$/lb

$1.58

$1.34

$1.68

$1.82

$1.54

$1.54

$1.28

$1.26

$1.85

$1.82

$1.45

$1.47

Peru sustaining cash cost3

$/lb

$2.35

$2.09

$2.46

$2.62

$2.27

$2.46

$2.46

$2.31

$2.69

$2.36

$2.20

$2.58

1 Reported tonnes and grade for ore mined are estimates based on mine plan assumptions and may not fully reconcile to ore milled.

2 Reflects combined mine, mill and general and administrative ("G&A") costs per tonne of ore milled. Reflects the deduction of expected capitalized stripping costs.

3 Combined unit costs, cash cost, and sustaining cash cost per pound of copper produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A. The above table sets forth selected non-IFRS financial performance measures for each of our nine most recently completed quarters and three most recently completed years; detailed reconciliations for non-comparable prior periods can be found in our MD&A for these prior periods in the "Non-IFRS Financial Performance Measures" section of these documents. 

4 2022 and 2021 combined unit costs exclude COVID-19 related costs.

5 Annual consolidated results may not calculate based on amounts presented in this table due to rounding.

73


 

 

2022 1

Q4 2022

Q3 2022

Q2 2022

Q1 2022

2021 1

Q4 2021

Q3 2021

Q2 2021

Q1 2021

2020 1

Q4 2020

Manitoba Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

Lalor ore mined

tonnes

1,516,203

369,453

347,345

412,653

386,752

1,593,141

422,208

392,380

356,951

421,602

1,654,240

468,101

Copper

%

0.73

0.73

0.71

0.70

0.80

0.71

0.78

0.86

0.64

0.57

0.74

0.80

Zinc

%

3.14

2.17

3.27

3.06

4.06

4.23

4.19

3.60

3.81

5.20

5.73

5.54

Gold

g/tonne

4.00

4.00

4.57

3.73

3.76

3.41

3.92

3.85

3.19

2.67

2.51

2.79

Silver

g/tonne

21.96

19.37

21.27

23.95

22.94

24.66

30.35

22.13

22.98

22.75

25.31

24.96

777 ore mined

tonnes

484,355

-

-

226,286

258,069

1,053,710

266,744

256,536

255,170

275,260

991,576

164,856

Copper

%

1.12

-

-

1.03

1.19

1.28

1.13

1.06

0.82

2.06

1.40

1.89

Zinc

%

3.83

-

-

3.51

4.12

3.91

4.16

3.88

3.57

4.00

3.88

2.98

Gold

g/tonne

1.66

-

-

1.62

1.69

2.03

1.80

1.96

1.97

2.39

1.90

1.85

Silver

g/tonne

20.85

-

-

20.63

21.05

25.25

25.02

22.99

23.35

29.32

24.13

21.64

Stall & New Britannia Concentrator Combined:

 

 

 

 

 

 

 

 

 

 

 

 

Ore milled

tonnes

1,510,907

345,492

362,108

406,006

397,301

1,506,756

419,727

408,201

317,484

361,344

1,412,751

372,624

Copper

%

0.75

0.73

0.69

0.73

0.82

0.72

0.75

0.82

0.68

0.60

0.73

0.79

Zinc

%

3.30

2.31

3.33

3.20

4.24

4.30

4.12

3.58

4.06

5.53

5.76

5.47

Gold

g/tonne

4.08

3.98

4.60

3.93

3.87

3.42

3.90

3.84

3.19

2.57

2.55

2.88

Silver

g/tonne

22.15

20.40

20.66

23.98

23.16

24.95

30.07

23.32

22.02

23.40

25.37

24.43

Copper recovery

%

88.6

89.2

88.3

89.5

87.5

86.8

88.7

84.3

88.8

85.7

86.2

87.1

Zinc recovery

%

79.0

79.4

80.9

75.5

85.7

88.9

87.4

88.2

88.1

91.1

91.9

90.9

Gold recovery

%

59.2

58.8

60.9

58.8

58.4

54.9

54.6

53.4

55.5

57.5

60.0

59.5

Silver recovery

%

58.1

56.1

57.6

58.1

60.0

54.4

53.9

52.7

55.1

56.2

60.4

60.3

Flin Flon Concentrator:

 

 

 

 

 

 

 

 

 

 

 

 

Ore milled

tonnes

497,344

-

-

243,312

254,032

1,133,516

262,565

258,062

329,503

283,386

1,205,314

225,663

Copper

%

1.11

-

-

1.02

1.20

1.23

1.12

1.06

0.89

1.88

1.28

1.59

Zinc

%

3.87

-

-

3.60

4.13

3.95

4.16

3.86

3.65

4.20

4.21

3.87

Gold

g/tonne

1.67

-

-

1.64

1.70

2.04

1.78

1.96

2.06

2.34

1.96

1.99

Silver

g/tonne

21.00

-

-

20.76

21.23

24.90

25.04

22.93

23.65

28.01

24.26

22.65

Copper recovery

%

86.7

-

-

85.5

87.6

87.7

86.7

85.2

84.8

91.3

86.0

88.1

Zinc recovery

%

83.0

-

-

82.9

83.2

83.0

83.1

82.2

84.8

81.8

85.5

83.9

Gold recovery

%

57.1

-

-

56.4

57.7

58.5

59.2

58.1

52.9

64.0

56.0

56.6

Silver recovery

%

51.8

-

-

51.0

52.5

45.1

45.6

42.4

37.5

54.1

45.9

46.5

1 Annual consolidated results may not calculate based on amounts presented in this table due to rounding.

74


 

 

2022 4

Q4 2022

Q3 2022

Q2 2022

Q1 2022

2021 4

Q4 2021

Q3 2021

Q2 2021

Q1 2021

2020 4

Q4 2020

Manitoba Operations (continued)

 

 

 

 

 

 

 

 

 

 

 

 

Total Manitoba contained metal in concentrate produced

 

 

 

 

 

Copper

tonnes

14,778

2,258

2,196

4,788

5,536

21,657

5,342

5,173

4,416

6,726

22,183

5,724

Zinc

tonnes

55,381

6,326

9,750

17,053

22,252

93,529

23,207

20,844

21,538

27,940

118,130

25,843

Gold

ounces

132,764

25,961

32,570

37,346

36,887

134,475

37,644

36,341

29,628

30,862

112,227

28,687

Silver

ounces

799,108

127,099

138,615

264,651

268,743

1,066,003

315,054

242,131

217,859

290,959

1,127,901

252,904

Precious metal in doré produced

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold

ounces

28,707

7,099

7,887

7,441

6,280

9,002

8,598

404

-

-

-

-

Silver

ounces

52,834

12,659

14,155

15,974

10,046

6,529

6,519

10

-

-

-

-

Total Manitoba payable metal sold and doré

 

 

 

 

 

 

 

 

 

 

 

Copper

tonnes

14,668

1,626

4,081

5,177

3,784

20,802

4,408

5,071

5,230

6,093

20,382

4,380

Zinc1

tonnes

59,043

8,230

12,714

20,793

17,306

96,435

21,112

21,619

25,361

28,343

109,347

28,431

Gold

ounces

163,447

32,140

54,962

42,454

33,891

126,551

40,623

30,941

32,567

22,420

111,963

31,882

Silver

ounces

932,807

148,177

302,946

253,225

228,458

936,857

257,928

244,338

262,443

172,148

1,067,038

281,541

Manitoba combined unit operating cost2,3

C$/tonne

195

$241

$235

168

176

$154

$168

$147

$148

$151

$132

$140

Manitoba gold cash cost 3, 5

$/oz

$297

$922

$216

(207)

416

$-

$-

$-

$-

$-

$-

$-

Manitoba sustaining gold cash cost 3,5

$/oz

$1,091

$1,795

$1,045

519

1,187

$-

$-

$-

$-

$-

$-

$-

1 Includes refined zinc metal sold.

2 Reflects combined mine, mill and G&A costs per tonne of milled ore.

3 Combined unit costs, cash cost, and sustaining cash cost per pound of copper produced, cash cost, and sustaining cash cost per ounce of gold produced, net of by-product credits, are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A. The above table sets forth selected non-IFRS financial performance measures for each of our nine most recently completed quarters and three most recently completed years; detailed reconciliations for non-comparable prior periods can be found in our MD&A for these prior periods in the "Non-IFRS Financial Performance Measures" section of these documents. 

4 Annual consolidated results may not calculate based on amounts presented in this table due to rounding.

5 Cash cost and sustaining cash cost per ounce of gold produced, net of by-product credits were introduced in 2022 and do not have a published comparative.

 

75

Exhibit 99.4

Disclosure Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act

Hudbay Minerals Inc. ("Hudbay") is committed to the health and safety of its employees and to providing an incident free workplace.

Hudbay's U.S. mining operations are subject to Federal Mine Safety and Health Administration (the "MSHA") regulation under the U.S. Federal Mine Safety and Health Act of 1977 (the "FMSH Act"). The MSHA inspects Hudbay's mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the FMSH Act. Whenever the MSHA issues a citation or order, it also generally proposes a civil penalty, or fine, related to the alleged violation.

Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine are required to disclose in their periodic reports filed with the Commission information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. The disclosures reflect Hudbay's U.S. mining operations only as the requirements of the Dodd-Frank Act do not apply to Hudbay's mines operated outside the U.S. During the fiscal year ended December 31, 2022, the Registrant's Copper World and Mason projects did not receive any citations or orders from the MSHA alleging violations specified by the Dodd-Frank Act and there were no mining-related fatalities.

In addition, as required by the reporting requirements regarding mine safety included in section 1503(a)(2) of the Dodd-Frank Act, for the year ended December 31, 2022, none of the mines operated by Hudbay received written notice from the MSHA of (a) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of mine health or safety hazards under section 104(e) of the FMSH Act or (b) the potential to have such a pattern.

Exhibit 99.5

Certification by the Chief Executive Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Peter Kukielski, certify that:

1) I have reviewed this annual report on Form 40-F of Hudbay Minerals Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

4) The issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange  Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the issuer's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and

5) The issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the issuer's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal control over financial reporting.

Date: March 30, 2023

/s/ Peter Kukielski                                          

Peter Kukielski

President and Chief Executive Officer

(Principal Executive Officer)

Exhibit 99.6

Certification by the Chief Financial Officer Pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Eugene Lei, certify that:

1) I have reviewed this annual report on Form 40-F of Hudbay Minerals Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

4) The issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange  Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the issuer's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and

5) The issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the issuer's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal control over financial reporting.

Date: March 30, 2023

/s/ Eugene Lei                                  

Eugene Lei

Chief Financial Officer

(Principal Financial Officer)

Exhibit 99.7

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Hudbay Minerals Inc. (the "Registrant") on Form 40-F for the period ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Peter Kukielski, President and Chief Executive Officer of the Registrant, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. 

March 30, 2023

/s/ Peter Kukielski                                          

Peter Kukielski

President and Chief Executive Officer

(Principal Executive Officer)

Exhibit 99.8

CERTIFICATION PURSUANT TO

18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Hudbay Minerals Inc. (the “Registrant”) on Form 40-F for the period ended December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Eugene Lei, Chief Financial Officer of the Registrant, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

March 30, 2023

/s/ Eugene Lei                                  

Eugene Lei

Chief Financial Officer

(Principal Financial Officer)

Exhibit 99.9

CONSENT OF EXPERT

In connection with the Annual Report on Form 40-F of Hudbay Minerals Inc. ("Hudbay") for the year ended December 31, 2022, and any amendments thereto (the "Form 40-F"), I, Olivier Tavchandjian, P.Geo., hereby consent to the use of my name in connection with the references to and summaries of scientific and technical information relating to Hudbay's mineral properties (collectively, the "Incorporated Information") and to the inclusion of the Incorporated Information in the Annual Information Form and Management's Discussion and Analysis of Results of Operations and Financial Condition for the year ended December 31, 2022, each filed as an exhibit to the Form 40-F and incorporated by reference therein.

I do also hereby consent to the use of my name and the incorporation by reference of the Incorporated Information in Registration Statement Nos. 333-170295, 333-197080 and 333-212750 on Form S-8 (including, in each case, any amendments thereto).

Yours very truly,

/s/ Olivier Tavchandjian

Olivier Tavchandjian, P.Geo.

Dated: March 30, 2023

Exhibit 99.10

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-170295, 333-197080 and 333-212750 on Form S-8 and to the use of our reports dated February 23, 2023 relating to the financial statements of Hudbay Minerals Inc. (the “Company”) and the effectiveness of the Company’s internal control over financial reporting appearing in this Annual Report on Form 40-F for the year ended December 31, 2022.

/s/ Deloitte LLP

Chartered Professional Accountants

Licensed Public Accountants

Toronto, Canada
March 30, 2023