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6-K

Hudbay Minerals Inc. (HBM)

6-K 2021-02-19 For: 2020-12-31
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Added on April 08, 2026

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16 OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of February 2021

Commission File Number: 001-34244

HUDBAY MINERALS INC. (Translation of registrant’s name into English)

25 York Street, Suite 800 Toronto, Ontario M5J 2V5, Canada (Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F [   ]                    Form 40-F [X]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [   ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [   ]

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes [   ]                     No [X]

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- _____________________________

EXPLANATORY NOTE

On February 18, 2021, Hudbay Minerals Inc. (“Hudbay”) filed on the Canadian Securities Administrators’ System for Electronic Document Analysis and Retrieval (SEDAR) website at www.sedar.com the following documents: (1) Audited Consolidated Financial Statements for the year ended December 31, 2020, (2) Management's Discussion and Analysis for the year ended December 31, 2020 and (3) News Release dated February 18, 2021.

Copies of the filings are attached to this Form 6-K and incorporated herein by reference, as follows:

  • Exhibit 99.1 — Audited Consolidated Financial Statements for the year ended December 31, 2020
  • Exhibit 99.2 — Management's Discussion and Analysis for the year ended December 31, 2020
  • Exhibit 99.3 — News Release dated February 18, 2021

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HUDBAY MINERALS INC.
(registrant)
By: /s/ Patrick Donnelly
Name: Patrick Donnelly
Title: Vice President and General Counsel

Date: February 19, 2021

EXHIBIT INDEX

The following exhibits are furnished as part of this Form 6-K:

Exhibit Description
99.1 Consolidated Financial Statements for the year ended December 31, 2020
99.2 Management's Discussion and Analysis for the year ended December 31, 2020
99.3 News Release dated February 18, 2021 
Hudbay Minerals Inc.: Exhibit 99.1 - Filed by newsfilecorp.com

Audited Consolidated Financial Statements

(In US dollars)

HUDBAY MINERALS INC.

Years ended December 31, 2020 and 2019

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, 2020 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, 2020.

The effectiveness of the Company's ICFR as of December 31, 2020 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, 2020.

Peter Kukielski Steve Douglas
President and Chief Executive Officer Senior Vice President and Chief Financial Officer

Toronto, Canada

February 18, 2021

Deloitte Canada<br>Bay Adelaide Centre<br>8 Adelaide Street West<br>Suite 200<br>Toronto, ON. M5H 0A9<br>Canada<br><br><br>Tel: +1 (416) 601 6150<br>Fax: +1 (416) 601 6151<br>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, 2020 and 2019, the related consolidated income statements, consolidated statements of comprehensive loss, changes in equity and cash flows for each of the two years in the period ended December 31, 2020, 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, 2020 and 2019, and its financial performance and its cash flows for each of the two years in the period ended December 31, 2020, in conformity 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, 2020, 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 18, 2021, 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 Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impairment - Assessment of Whether Indicators of Impairment or Impairment Reversal Exist in Non-financial Assets - Refer to Note 2e and 3j 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 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 a fair value specialist.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the future long-term copper price 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.

• With the assistance of a fair value specialist:

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

◦ Evaluated the reasonableness of the discount rate by comparing the key inputs to external data.

/s/ Deloitte LLP

Chartered Professional Accountants

Licensed Public Accountants

Toronto, Canada

February 18, 2021

We have served as the Company's auditor since 2005.

Deloitte Canada<br>Bay Adelaide Centre<br>8 Adelaide Street West<br>Suite 200<br>Toronto, ON. M5H 0A9<br>Canada<br><br><br>Tel: +1 (416) 601 6150<br>Fax: +1 (416) 601 6151<br>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, 2020, 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, 2020, 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, 2020, of the Company and our report dated February 18, 2021, 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 18, 2021

**HUDBAY MINERALS INC.**Consolidated Balance Sheets (in thousands of US dollars)

Dec. 31, Dec. 31,
Note 2020 2019
Assets
Current assets
Cash 7 $ 439,135 $ 396,146
Trade and other receivables 8 141,199 105,994
Inventories 9 143,105 138,820
Prepaid expenses and other current assets 16,717 12,737
Other financial assets 10 3,073 2,049
Taxes receivable 12,446 7,289
755,675 663,035
Receivables 8 18,568 19,264
Inventories 9 22,006 19,455
Other financial assets 10 15,669 11,287
Intangibles and other assets 11 21,173 10,411
Property, plant and equipment 12 3,731,655 3,662,559
Deferred tax assets 22b 101,899 75,046
$ 4,666,645 $ 4,461,057
Liabilities
Current liabilities
Trade and other payables 13 $ 233,147 $ 192,404
Taxes payable 2,701 2,146
Other liabilities 14 51,971 49,411
Other financial liabilities 15 24,713 28,076
Lease liabilities 16 33,473 32,781
Deferred revenue 18 102,782 86,933
448,787 391,751
Other financial liabilities 15 194,378 39,784
Lease liabilities 16 30,041 49,166
Long-term debt 17 1,135,675 985,255
Deferred revenue 18 443,902 476,823
Provisions 19 331,799 280,850
Pension obligations 20 23,316 29,599
Other employee benefits 21 129,508 116,778
Deferred tax liabilities 22b 229,433 242,928
2,966,839 2,612,934
Equity
Share capital 23b 1,777,340 1,777,340
Reserves (24,200 ) (24,250 )
Retained earnings (53,334 ) 95,033
1,699,806 1,848,123
$ 4,666,645 $ 4,461,057
Commitments (note 28)

**HUDBAY MINERALS INC.**Consolidated Income Statements (in thousands of US dollars)

Note Year ended December 31,
2020 2019
Revenue 6a $ 1,092,418 $ 1,237,439
Cost of sales
Mine operating costs 691,591 741,342
Depreciation and amortization 6b 361,827 344,555
1,053,418 1,085,897
Gross profit 39,000 151,542
Selling and administrative expenses 41,408 36,170
Exploration and evaluation expenses 17,196 30,774
Other expenses 6d 17,583 51,116
Impairment loss 6e - 322,249
Results from operating activities (37,187 ) (288,767 )
Net interest expense on long term debt 6g 82,712 68,375
Accretion on streaming arrangements 6g 56,670 69,772
Change in fair value of financial instruments 6g (29,370 ) 8,247
Other net finance costs 6g 31,890 17,602
Net finance expense 141,902 163,996
Loss before tax (179,089 ) (452,763 )
Tax recovery 22a (34,505 ) (108,953 )
Loss for the year $ (144,584 ) $ (343,810 )
Loss per share
Basic and diluted $ (0.55 ) $ (1.32 )
Weighted average number of common shares outstanding:
Basic and diluted 25 261,272,151 261,272,151

**HUDBAY MINERALS INC.**Consolidated Statements of Cash Flows (in thousands of US dollars)

Note Year ended <br>December 31,
2020 2019
Cash generated from operating activities:
Loss for the year $ (144,584 ) $ (343,810 )
Tax recovery 22a (34,505 ) (108,953 )
Items not affecting cash:
Depreciation and amortization 6b 363,603 346,634
Share-based compensation 6c 15,008 2,714
Net interest expense on long term debt 6g 82,712 68,375
Accretion on streaming arrangements 6g 56,670 69,772
Change in fair value of financial instruments 6g (29,370 ) 8,247
Other net finance costs 6g 31,890 17,602
Inventory write-down 9 32 504
Amortization of deferred revenue and variable consideration 6a (73,931 ) (76,103 )
Pension and other employee benefit payments, net of accruals 3,043 2,148
Write-down of UCM Receivable 6d - 25,978
Asset impairment 6e - 322,249
Decommissioning and restoration payments 19 (18,737 ) (4,136 )
Other ^1^ 2,673 2,916
Taxes paid (12,641 ) (26,853 )
Operating cash flow before change in non-cash working capital 241,863 307,284
Change in non-cash working capital 30a (2,383 ) 3,572
239,480 310,856
Cash used in investing activities:
Acquisition of property, plant and equipment (361,185 ) (259,202 )
Acquisition of subsidiary, net of cash acquired - (44,688 )
Change in restricted cash - 3,401
Interest received 2,167 8,119
(359,018 ) (292,370 )
Cash generated from/(used) in financing activities:
Issuance of senior unsecured notes, net of transaction costs 17a 591,824 -
Principal repayments 17a (400,000 ) -
Premium paid on redemption of notes 17a (7,252 ) -
Interest paid on long-term debt (81,517 ) (74,750 )
Financing costs (16,204 ) (26,149 )
Lease payments 16 (35,980 ) (32,952 )
Gold prepayment proceeds 15 115,005 -
Dividends paid 23b (3,783 ) (3,927 )
162,093 (137,778 )
Effect of movement in exchange rates on cash 434 (59 )
Net increase (decrease) in cash 42,989 (119,351 )
Cash, beginning of the year 396,146 515,497
Cash, end of the year $ 439,135 $ 396,146
^1^ Includes disbursements for share-based compensation, restructuring, realized foreign exchange gains and losses and Pampacancha delivery obligation payments.
For supplemental information, see note 30.

**HUDBAY MINERALS INC.**Consolidated Statements of Comprehensive Loss (in thousands of US dollars)

Year ended <br>December 31,
2020 2019
Loss for the year $ (144,584 ) $ (343,810 )
Other comprehensive income:
Item that will be reclassified subsequently to profit or loss:
Recognized directly in equity:
Net gain on translation of foreign currency balances 4,170 9,220
4,170 9,220
Items that will not be reclassified subsequently to profit or loss:
Recognized directly in equity:
Gold prepayment revaluation (note 27a) (1,885 ) -
Tax effect (note 22c) 506 -
Remeasurement - actuarial loss (note 20 & 21) (2,598 ) (20,072 )
Tax effect (note 22c) (1,265 ) 1,878
(5,242 ) (18,194 )
Other comprehensive loss net of tax, for the year (1,072 ) (8,974 )
Total comprehensive loss for the year $ (145,656 ) $ (352,784 )

**HUDBAY MINERALS INC.**Consolidated Statements of Changes in Equity (in thousands of US dollars)

Share capital<br>(note 23) Other capital<br><br> <br>reserves Foreign currency<br><br> <br>translation reserve Remeasurement<br><br> <br>reserve Retained earnings Total equity
Balance, January 1, 2019 $ 1,777,340 $ 28,837 $ (11,819 ) $ (58,272 ) $ 442,770 $ 2,178,856
Loss - - - - (343,810 ) (343,810 )
Other comprehensive income (loss) - - 9,220 (18,194 ) - (8,974 )
Total comprehensive income (loss) - - 9,220 (18,194 ) (343,810 ) (352,784 )
Dilution of Partner's investor in Rosemont (note 5) 25,978 25,978
Contributions by and distributions to owners:
Dividends (note 23b) - - - - (3,927 ) (3,927 )
Total contributions by and distributions to owners - - - - (3,927 ) (3,927 )
Balance, December 31, 2019 $ 1,777,340 $ 54,815 $ (2,599 ) $ (76,466 ) $ 95,033 $ 1,848,123

**HUDBAY MINERALS INC.**Consolidated Statements of Changes in Equity (in thousands of US dollars)

Share capital<br>(note 23) Other capital<br><br> <br>reserves Foreign currency<br><br> <br>translation reserve Remeasurement<br><br> <br>reserve Retained earnings Total equity
Balance, January 1, 2020 $ 1,777,340 $ 54,815 $ (2,599 ) $ (76,466 ) $ 95,033 $ 1,848,123
Loss - - - - (144,584 ) (144,584 )
Other comprehensive income (loss) - - 4,170 (5,242 ) - (1,072 )
Total comprehensive income (loss) - - 4,170 (5,242 ) (144,584 ) (145,656 )
Contributions by and distributions to owners:
Dividends (note 23b) - - - - (3,783 ) (3,783 )
Stock options (note 6c) - 1,122 - - - 1,122
Total contributions by and distributions<br>to owners - 1,122 - - (3,783 ) (2,661 )
Balance, December 31, 2020 $ 1,777,340 $ 55,937 $ 1,571 $ (81,708 ) $ (53,334 ) $ 1,699,806
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

1. Reporting entity

On January 1, 2017, Hudbay Minerals Inc. amalgamated under the Canada Business Corporations Act with its subsidiaries Hudson Bay Mining and Smelting Co., Limited and Hudson Bay Exploration and Development Company Limited to form Hudbay Minerals Inc. ("HMI" or the "Company"). The address of the Company's principal executive office is 25 York Street, Suite 800, Toronto, Ontario. The consolidated financial statements of the Company for the year ended December 31, 2020 and 2019 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, 2020 and 2019 include HudBay Marketing & Sales Inc. ("HMS"), HudBay Peru Inc., HudBay Peru S.A.C. ("Hudbay Peru"), HudBay (BVI) Inc., Hudbay Arizona Inc, Rosemont Copper Company ("Rosemont") and Mason Resources (US) Inc. ("Mason").

Hudbay is an integrated mining company primarily producing copper concentrate (containing copper, gold and silver), molybdenum concentrate and zinc metal. With assets in North and South America, Hudbay is focused on the discovery, production and marketing of base and precious metals. Directly and through its subsidiaries, Hudbay owns three polymetallic mines, four ore concentrators and a zinc production facility in northern Manitoba and Saskatchewan (Canada) and Cusco (Peru) and copper projects in Arizona and Nevada (United States). Hudbay also has equity investments in a number of junior exploration companies. 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, 2020.

The Board of Directors approved these consolidated financial statements on February 18, 2021.

(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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

(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.

(d)  COVID-19 estimation uncertainty:

At the end of 2019, a novel strain of coronavirus ("COVID-19") was reported in China. The COVID-19 outbreak has developed rapidly in 2020, with a significant number of infections around the world, including regions Hudbay operates in. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. Since then, containment measures have resulted in decreased economic activity, which has adversely affected the broader global economy.

The resulting impacts on global commerce have been and continue to be far-reaching. To date there has been volatility in stock markets, commodities and foreign exchange markets, restrictions on the conduct of business in many jurisdictions and the global movement of people and some goods have become restricted.

The Company has evaluated the potential impacts arising from COVID-19 on all aspects of its business, with particular attention to indicators of impairment / reversal of impairment of non-financial assets, inventory and accounts receivable valuations, impacts on pension and other employee benefit discount rates, and deferred tax provisions.

In all these areas, for the year ended December 31, 2020, there was no significant financial impact on the Company.

(e)  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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

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 3i, 3j 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, 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"). 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 Constancia and Arizona LOM plan, 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 Constancia and Arizona LOM plan. 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 Hudbay's consolidated 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.

  • IFRS 15 - Revenue- stream transactions (note 18) - Hudbay has determined that the precious metals stream contracts are subject to variable consideration and contain a significant financing component. As such, Hudbay recognizes a financing charge at each reporting period and grosses up the deferred revenue balance to recognize the significant financing element that is part of these contracts. Significant judgement was required in determining if the stream transactions were to be accounted for as deferred revenue. Management has determined that these stream transactions are not derivatives since obligations will be satisfied through the delivery of non-financial items (i.e., gold and silver credits) rather than cash or financial assets. It is management's intention to settle the obligations under the stream transactions through its own production and if this is not possible, this would lead to the stream transactions becoming a financial instrument since a cash settlement payment may be required. This would cause a change to the accounting treatment, resulting in the revaluation of the fair value of the agreement through the income statement on a recurring basis.

  • Mineral reserves and resources (notes 3i, 3m, 3o and 18) - 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;
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

  • 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 3i 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.

  • Acquisition method accounting (notes 3a and 5) - Judgement was required to determine if the acquisition of UCM's 7.95% interest in the Rosemont project represented a business combination, or an asset purchase. Since it was concluded that the acquisition represented the purchase of assets, there was no goodwill generated on the transaction and acquisition costs were capitalized to the assets purchased rather than expensed.

  • Tax provisions (notes 3o and 22) - 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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

- 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.

- Decommissioning and restoration obligations (notes 3m and 19) - 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 to determine the extent 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 3l, 20 and 21) - 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.

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.

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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

Business combinations and goodwill

When Hudbay makes 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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

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 and pre-production revenue. 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 buyer. Control is deemed to have passed to the customer when significant risk and reward of the product has passed to the buyer, Hudbay has a present right to payment and physical possession of the product has been transferred to the buyer. 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.

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 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, 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. There is a significant financing component associated with the Company's precious metal streaming arrangements 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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

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.

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, 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 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.

Supplies are valued at the lower of average cost and net realizable value.

g) Intangible assets:

Computer software is measured at cost less accumulated amortization and accumulated impairment losses. Costs include all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating it in the manner intended by management.

Amortization methods, useful lives, and residual values if any, are reviewed at each year end and adjusted prospectively, if required. When an intangible asset is disposed of, or when no further economic benefits are expected, the asset is derecognized, and any resulting gain or loss is recorded in the consolidated income statements.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

Currently, the Company's intangible assets relate primarily to enterprise resource planning ("ERP") information systems, which are amortized over their estimated useful lives.

h) 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.

(i) 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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

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. Up to and including December 31, 2020, any revenue earned in the process of preparing an asset to be capable of operating in the manner intended by management is included in the cost of the constructed asset. Any other incidental revenue earned prior to commencement of commercial production is recognized 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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

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.

(j) 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 and evaluation 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.
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
  • 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.

(k) Assets held for sale:

The Company classifies non-current assets, or disposal groups consisting of assets and liabilities, as held for sale when it expects to recover their carrying amounts primarily through sale rather than through continuing use. To meet criteria to be held for sale, the sale must be highly probable, and the assets or disposal groups must be available for immediate sale in their present condition. Hudbay must be committed to a plan to sell the assets or disposal group, and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification.

The Company measures assets or disposal groups at the lower of their carrying amount and fair value less costs of disposal. Impairment losses on initial classification as held for sale and subsequent gains and losses on remeasurement are recognized in the consolidated income statements; however, gains are not recognized in excess of any cumulative impairment loss. Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets or investment property. Upon classifying assets or disposal groups as held for sale, Hudbay presents the assets separately as a single amount and the liabilities separately as a single amount on the consolidated balance sheets. When an asset no longer meets the criteria for classification as an asset held for sale, the Company records the asset at the lower of its recoverable amount and the carrying amount before the asset was classified as held for sale.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

(l) 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.

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 is 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.

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 MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

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.

(m) 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 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 operating 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 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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

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 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.

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 and regulations are continually evolving in all regions in which the Company operates. Hudbay is not able to determine the impact, if any, of environmental laws and regulations 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.

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.

(n) 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 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 unrealized gains or losses related to changes in fair value are reported in other finance income/expense in the consolidated income statements.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

Amortized cost

Cash, certain receivables, payables 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.

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.

Contracts to buy or sell non-financial items that meet the definition of a derivative but were entered into and are held in accordance with the Company's expected purchase, sale or usage requirements are not recognized as derivatives. Such contracts are recorded as non-derivative purchases and sales.

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 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 27.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

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.

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.

The loss allowance is presented as a deduction to trade receivables in the balance sheets.

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.

(o) 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
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
  • 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:

  • 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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

(p) 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.

(q) Share-based compensation:

Hudbay offers 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 24. 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 December 31st of the third calendar year after the year in which the services corresponding to such share unit award were performed. 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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

(r) 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.

(s) 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.

(t) 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 31.

(u) Statement of cash flows:

Hudbay presents interest paid and dividends paid as financing activities, except if the interest is related to capitalized borrowing costs, and interest received is presented as an investing activity in the consolidated statement of cash flow. Hudbay presents the consolidated statement of cash flows using the indirect method.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

4. New standards

New standards and interpretations adopted

(a) Amendment to IFRS 3 - Business Combinations

The amendment to IFRS 3 clarifies the definition of a business and includes an optional concentration test to determine whether an acquired set of activities and assets is a business. This amendment is in effect January 1, 2020 and will be applied prospectively to future acquisition transactions.

New standards and interpretations not yet adopted

(b) Amendment to IAS 16 - Property, Plant and Equipment

The amendments to IAS 16 prohibit deducting from the cost of property, plant and equipment the proceeds from selling items produced while bringing the assets to the location and condition necessary for them to be capable of operating in the manner intended by management. Instead, a company will recognize such sales proceeds and related cost in profit or loss. This amendment is in effect January 1, 2022 with early adoption permitted.

Hudbay intends to early adopt this amendment as of January 1, 2021 with retrospective application only to items of property, plant and equipment that were brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after January 1, 2020. The Company expects that the adoption of this amendment will impact the 2021 consolidated financial statements as it expects certain development projects to achieve commercial production in 2021, however, no restatement of prior periods is expected.

(c) Interest Rate Benchmark Reform - Phase II - Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 6

These amendments require companies to determine if there is a significant change in the basis of determining  contractual cash flows as a result of interest rate benchmark reform / IBOR reform. A company will be required to determine if the replacement of an existing interest rate benchmark with an alternative rate benchmark results in contractual cash flows that are significantly different for financial instruments, lease payments, insurance contracts and/or items that use hedge accounting. If IBOR reform result in a transition on an economically equivalent basis with no value transfer having occurred, the changes to the standard allow the contractual cash flow changes to be applied prospectively, similar to a change in a market rate. These amendments are in effect for periods beginning on or after January 1, 2021 with earlier application being permitted and with retrospective application required. An entity is not required to restate prior periods.

Hudbay does not believe the impact of these amendments will result in material changes to the consolidated financial statements.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

5. Acquisition of remaining interest in the Rosemont project

In March 2019, the Company entered into an agreement with United Copper & Moly LLC ("UCM") to purchase    UCM's remaining 7.95% interest in the Rosemont project, and to terminate all of UCM's remaining earn-in and off-take rights. The acquisition was completed on April 25, 2019.

Upfront cash consideration of $45,000 was paid on April 25, 2019, and the Company also committed to pay three annual installments of $10,000 per year, commencing July 1, 2022.

To facilitate an orderly acquisition of UCM's interest in Rosemont, Hudbay, immediately prior to closing the acquisition, agreed to release UCM from repayment obligations under an intercompany Rosemont project loan in exchange for an increase in equity interest in Rosemont.  As a result, the loan receivable balance of $25,978 was written off. The Company recognized the loss on the loan receivable in the income statement (refer to note 6d). In addition, in order to recognize previously unfunded contributions to the Rosemont Project due from UCM, Hudbay recognized an increase to other capital reserves, a component of shareholder's equity.

The acquisition provides Hudbay with 100% ownership of Rosemont, allowing greater strategic flexibility with respect to capital structure and project financing alternatives. In exchange for acquiring the percentage ownership not already owned by Hudbay, the Company paid:

Cash $ 45,000
Present value of future cash installments 23,557
Total consideration $ 68,557

As part of the increase in ownership of the Rosemont Project, Hudbay acquired and assumed the following assets and liabilities, which represented the fair value of the assets and liabilities not already owned by Hudbay at the time of transaction:

Current assets $ 343
Non-current assets 68,904
Liabilities (690 )
Net assets acquired $ 68,557
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

6. Revenue and expenses

(a) Revenue

Hudbay's revenue by significant product types:

Year ended <br>December 31,
2020 2019
Copper $ 563,910 $ 786,332
Zinc 264,106 284,897
Gold 180,949 120,366
Silver 25,986 29,315
Molybdenum 25,627 31,270
Other 5,619 4,760
1,066,197 1,256,940
Non-cash streaming arrangement items ^1^
Amortization of deferred revenue - gold 27,854 32,028
Amortization of deferred revenue - silver 39,409 60,370
Amortization of deferred revenue - variable<br>consideration adjustments - prior periods 6,668 (16,295 )
73,931 76,103
Pricing and volume adjustments ^2^ 9,178 (12,123 )
1,149,306 1,320,920
Treatment and refining charges (56,888 ) (83,481 )
$ 1,092,418 $ 1,237,439
^1^See note 18.
^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 non-hedge derivative contracts and adjustments to originally invoiced weights and assays.
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

Consideration from the Company's stream agreements is considered variable (note 18). 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 2020 and amendments made to the 777 mine plan in the third quarter of 2020, the amortization rate by which deferred revenue is drawn down into income was adjusted and, as required, a current period catch up adjustment is made for all prior year stream revenues since the stream agreement inception date. This variable consideration adjustment for the year ended December 31, 2020 resulted in increased revenue of $6,668. The variable consideration adjustment for the year ended December 31, 2019 resulted in a reversal of revenue of $16,295.

(b) Depreciation and amortization

Depreciation of property, plant and equipment and amortization of intangible assets are reflected in the  consolidated income statements as follows:

Year ended December 31,
2020 2019
Cost of sales $ 361,827 $ 344,555
Selling and administrative expenses 1,776 2,079
$ 363,603 $ 346,634

(c) 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, 2020
Cost of sales $ 1,400 $ - $ - $ - $ 1,400
Selling and administrative 4,872 5,149 1,987 1,122 13,130
Other expenses 478 - - - 478
$ 6,750 $ 5,149 $ 1,987 $ 1,122 $ 15,008
Year ended December 31, 2019
Cost of sales $ 400 $ - $ - $ - $ 400
Selling and administrative 928 1,157 - - 2,085
Other expenses 229 - - - 229
$ 1,557 $ 1,157 $ - $ - $ 2,714

During the twelve months ended December 31, 2020, the Company granted 1,581,385 stock options (twelve months ended December 31, 2019 - nil). For further details on stock options, see note 24b.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

(d) Other expenses

Year ended December 31,
2020 2019
Regional costs $ 3,602 $ 3,780
Loss on disposal of property, plant and equipment 5,088 4,807
Closure cost adjustment - non-producing properties 2,721 2,289
Allocation of community costs 2,880 2,216
Write down of UCM receivable - 25,978
Pampacancha delivery obligation - 7,499
Other 3,292 4,547
$ 17,583 $ 51,116

During the first quarter of 2019, Hudbay recognized an obligation to deliver additional precious metal credits to Wheaton Precious Metals ("Wheaton") as a result of Hudbay's expectation that mining at the Pampacancha deposit would not begin until after January 1, 2020. The obligation was paid in four quarterly installments, with all payments having been made in 2020.

(e) Impairment

During 2019, Hudbay recorded impairment losses of $322,249 for non-current assets relating to the Arizona cash generating units ("CGU").

Arizona
Pre-tax impairment to:
Property, plant & equipment $ 322,249
Tax impact - (recovery) (80,143 )
After-tax impairment charge $ 242,106

On July 31, 2019, the U.S. District Court of the District of Arizona ("Court") issued a ruling in the lawsuits challenging the U.S. Forest Service's issuance of the Final Record of Decision ("FROD") for the Rosemont project in Arizona. The Court ruled to vacate and remand the FROD thereby delaying the expected start of construction of Rosemont. Hudbay and the U.S. federal government have appealed the Court's decision to the U.S. Ninth Circuit Court of Appeals. However, the Court's ruling and the subsequent impact to the Company's market capitalization gave rise to an indicator of impairment. Following an impairment test conducted as of September 30, 2019, it was determined that the recoverable amount of the Arizona CGU was lower than its carrying value, causing Hudbay to recognize an impairment loss related to these assets.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

(f) Employee benefits expense

This table presents employee benefit expense recognized in Hudbay's consolidated income statements, including amounts transferred from inventory upon sale of goods:

Year ended December 31,
2020 2019
Current employee benefits $ 179,486 $ 171,173
Share-based compensation (notes 6c, 19, 24)
Equity settled stock options 1,122 -
Cash-settled restricted share units 6,750 1,557
Cash-settled deferred share units 5,149 1,157
Cash-settled performance share units 1,987 -
Employee share purchase plan 1,783 1,645
Post-employee pension benefits
Defined benefit plans 11,671 10,643
Defined contribution plans 1,774 1,635
Other post-retirement employee benefits 9,305 8,457
Termination benefits 582 628
$ 219,609 $ 196,895

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 20 for a description of Hudbay's pension plans and note 21 for Hudbay's other employee benefit plans.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

(g) Net finance expenses

Year ended December 31,
2020 2019
Net interest expense on long-term debt
Interest expense on long-term debt $ 82,712 $ 78,265
Interest capitalized - (9,890 )
82,712 68,375
Accretion on streaming arrangements (note 18)
Current year additions 60,362 63,725
Variable consideration adjustments - prior periods (3,692 ) 6,047
56,670 69,772
Change in fair value of financial assets and liabilities at fair value through profit or loss
Embedded derivatives (45,387 ) 3,708
Gold prepayment liability 20,141 -
Investments (4,124 ) 4,539
(29,370 ) 8,247
Other net finance costs
Net foreign exchange (gains) losses (1,644 ) 1,388
Accretion on community agreements measured at amortized cost 3,641 1,222
Unwinding of discounts on provisions 3,543 4,392
Withholding taxes 8,267 8,100
Premium paid on redemption of notes (note 17) 7,252 -
Write-down of unamortized transaction costs (note 17) 3,817 -
Other finance expense 8,826 11,027
Interest income (1,812 ) (8,527 )
31,890 17,602
Net finance expense $ 141,902 $ 163,996

Until October 1, 2019, interest expense related to certain long-term debt had been capitalized to the Rosemont project. Following the Court ruling to vacate and remand the U.S. Forest Service's issuance of the Final Record of Decision for the Rosemont project during the third quarter of 2019, Hudbay ceased capitalization effective October 1, 2019. The capitalization of this interest expense will resume upon the reinstatement of permits and will continue from that point until commercial production is reached.

Other finance expense relates primarily to fees on Hudbay's revolving credit facilities and leases.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

7. Cash

Cash balances represent deposits with a maturity date of less than 3 months.

8. Trade and other receivables

Dec. 31, 2020 Dec. 31, 2019
Current
Trade receivables $ 107,787 $ 87,332
Statutory receivables 28,445 16,543
Other receivables 4,967 2,119
141,199 105,994
Non-current
Taxes receivable 16,941 17,669
Other receivables 1,627 1,595
18,568 19,264
$ 159,767 $ 125,258

9. Inventories

Dec. 31, 2020 Dec. 31, 2019
Current
Stockpile $ 13,906 $ 10,396
Work in progress 6,364 14,420
Finished goods 72,923 62,230
Materials and supplies 49,912 51,774
143,105 138,820
Non-current
Stockpile 16,704 14,626
Materials and supplies 5,302 4,829
22,006 19,455
$ 165,111 $ 158,275

The cost of inventories recognized as an expense, including depreciation, and included in cost of sales amounted to $921,895 for the year ended December 31, 2020 (year ended December 31, 2019 -  $978,810).

During the year ended December 31, 2020, Hudbay recognized a net expense of $32 in cost of sales related to adjustments of the carrying value of inventories to net realizable value (year ended December 31, 2019 - $504). Adjustments to the carrying value of inventories to net realizable value were related to changes in commodity prices.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

10. Other financial assets

Dec. 31, 2020 Dec. 31, 2019
Current
Derivative assets $ 2,736 $ 1,712
Restricted cash 337 337
3,073 2,049
Non-current
Investments at fair value through profit or loss 15,669 11,287
$ 18,742 $ 13,336

Investments at fair value through profit or loss consist of securities in Canadian metals and mining companies, all of which are publicly traded. The change in investments at fair value through profit or loss is mostly attributed to fluctuations in market price and foreign exchange impact.

11. Intangibles and other assets

Intangibles and other assets of $21,173 includes $15,764 of other assets (December 31, 2019 - $5,384) and $5,409 of intangibles (December 31, 2019 - $5,027).

Other assets represent the carrying value of certain future community costs. The liability remaining for these agreements is recorded in other financial liabilities at amortized cost (note 15)). Amortization of the carrying amount is recorded in the consolidated income statements within other expenses (note 6d) or exploration expense, depending on the nature of the agreement. The increase in other assets during the year ended December 31, 2020 primarily relates to amendments to the original agreements with communities for the Constancia operation which allow Hudbay to extract minerals over the useful life of the Constancia operation.

Intangibles mainly represent computer software costs.

Dec. 31, 2020 Dec. 31, 2019
Cost
Balance, beginning of year $ 21,538 $ 18,557
Additions 1,466 2,325
Disposals - (96 )
Effects of movement in exchange rates 346 752
Balance, end of year 23,350 21,538
Accumulated amortization
Balance, beginning of year 16,511 14,395
Additions 1,138 1,606
Disposals - (96 )
Effects of movement in exchange rates 292 606
Balance, end of year 17,941 16,511
Intangibles, net book value $ 5,409 $ 5,027
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

12. Property, plant and equipment

Dec. 31, 2020 Exploration<br><br> <br>and<br><br> <br>evaluation<br><br> <br>assets Capital<br><br> <br>works in<br><br> <br>progress Mining<br><br> <br>properties Plant and<br><br> <br>equipment Plant and<br><br> <br>equipment-<br><br> <br>ROU assets Total
Balance, Jan. 1, 2020 $ 69,903 $ 733,874 $ 2,146,583 $ 2,653,752 $ 201,972 $ 5,806,084
Additions 809 256,251 311 28,523 17,759 303,653
Capitalized stripping and development - - 83,137 - - 83,137
Decommissioning and restoration - 263 6,849 39,680 - 46,792
Interest capitalized - - - - - -
Transfers and other movements 8,040 (36,668 ) (41,256 ) 70,777 (893 ) -
Disposals - - - (19,681 ) (5,884 ) (25,565 )
Effects of movements in exchange rates 307 3,442 21,837 20,668 1,349 47,603
Balance, Dec. 31, 2020 79,059 957,162 2,217,461 2,793,719 214,303 6,261,704
Accumulated depreciation
Balance, Jan. 1, 2020 - - 963,530 1,069,687 110,308 2,143,525
Depreciation for the year - - 146,113 200,632 23,351 370,096
Disposals - - - (14,038 ) (2,475 ) (16,513 )
Effects of movement in exchange rates - - 16,631 15,300 1,010 32,941
Balance, Dec. 31, 2020 - - 1,126,274 1,271,581 132,194 2,530,049
Net book value $ 79,059 $ 957,162 $ 1,091,187 $ 1,522,138 $ 82,109 $ 3,731,655
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---
Dec. 31, 2019 Exploration<br><br> <br>and<br><br> <br>evaluation<br><br> <br>assets Capital<br><br> <br>works in<br><br> <br>progress Mining<br><br> <br>properties Plant and<br><br> <br>equipment Plant and<br><br> <br>equipment-<br><br> <br>ROU assets^1^ Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Balance, January 1, 2019 $ 52,206 $ 873,781 $ 1,998,439 $ 2,473,176 $ 180,151 $ 5,577,753
Additions 17,016 109,372 - 33,309 22,158 181,855
Acquisitions (note 5) - 91,332 3,157 - 373 94,862
Capitalized stripping and development - - 103,108 - - 103,108
Decommissioning and restoration - 41 3,314 86,053 - 89,408
Interest capitalized - 9,890 - - - 9,890
Transfers and other movements - (30,000 ) 642 30,406 (1,048 ) -
Impairments (note 6e) - (322,249 ) - - - (322,249 )
Disposals - (2,029 ) - (10,747 ) (1,533 ) (14,309 )
Effects of movements in exchange rates 681 1,528 41,080 38,452 1,793 83,534
Other - 2,208 (3,157 ) 3,103 78 2,232
Balance, Dec. 31, 2019 69,903 733,874 2,146,583 2,653,752 201,972 5,806,084
Accumulated depreciation
Balance, January 1, 2019 - - 780,754 872,330 89,877 1,742,961
Depreciation for the year - - 154,970 179,062 19,850 353,882
Disposals - - - (6,675 ) - (6,675 )
Effects of movement in exchange rates - - 27,806 24,970 581 53,357
Balance, Dec. 31, 2019 - - 963,530 1,069,687 110,308 2,143,525
Net book value $ 69,903 $ 733,874 $ 1,183,053 $ 1,584,065 $ 91,664 $ 3,662,559

At December 31, 2019 capital works in progress decreased compared to January 1, 2019 as a result of the impairment charge of $322,249 (pre-tax) related to the Arizona CGU (see note 6e), partially offset by fixed asset additions.

Management determined that an increase in the market capitalization deficiency was related to a Court issued ruling in the lawsuits challenging the U.S. Forest Service's issuance of the FROD for the Rosemont project in Arizona, which was an indication that Rosemont's carrying value might not be recoverable. As a result, the Company conducted an impairment test of the Arizona CGU.

For the impairment test completed at September 30, 2019, Fair Value Less Cost of Disposal, ("FVLCD") was used to determine the recoverable amount since it is higher than value in use. FVLCD was calculated using discounted after-tax cash flows based on cash flow projections and assumptions in Hudbay's most current life of mine ("LOM") plans. The fair value measurement in its entirety is categorized as Level 3 based on the degree to which fair value inputs are observable and have a significant effect on the recorded fair value.

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 are discount rates, future commodity prices, production based on current estimates of recoverable reserves, future operating and capital costs, value of mineral resources not included in the LOM plan, beginning date of project cash flows incorporating permit related project delays and future foreign exchange rates.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

The discount rate was based on the CGU's weighted average cost of capital, of which the two main components are the cost of equity and the after-tax cost of debt. Cost of equity was calculated based on the capital asset pricing model, incorporating the risk-free rate of return based on the US Government's marketable bond yields as at the valuation date, the Company's beta coefficient adjustment to the market equity risk premium based on the volatility of the Company's return in relation to that of a comparable market portfolio, plus a country risk premium, size premium and company-specific risk factor. Cost of debt was determined by applying an appropriate market indication of the Company's borrowing capabilities and the corporate income tax rate applicable to the Arizona CGU. As at September 30, 2019, a real discount rate of 9.50% for the Arizona CGU was used to calculate the estimated after-tax discounted future net cash flows, commensurate with its individual estimated level of risk.

Commodity prices used in the impairment assessment were determined by reference to external market participant sources. The key commodity price for this assessment is the price of copper. Where applicable to each of Hudbay's CGUs, the cash flow calculations were based on estimates of future production levels applying forecasts for metal prices, which included forecasts for long-term prices. As at September 30, 2019, for the Arizona CGU, the cash flow calculations utilized a long-term copper price of $3.10/lb, molybdenum long-term prices of $11.00/lb and capital, operating and reclamation costs based on the most current LOM plans.

Expected future cash flows used to determine the FVLCD used in the 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. This may have a material effect on the Company's consolidated 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 on a CGU's fair value as the assumptions are inextricably linked. For example, a decrease in the assumed price of long-term copper could result in amendments to the mine plans which would partially offset the effect of lower prices. It is difficult to determine how all of these factors would interrelate; however, in deriving a recoverable amount, management believes all of these factors need to be considered.

As at September 30, 2019, the carrying value of the Arizona CGU exceeded the estimated recoverable amount of $615,368 by $242,106 (after-tax), leading to the impairment charge recorded (note 6e).

At December 31, 2020, the Company assessed whether there were impairment or impairment reversal indicators associated the general business environment and known changes to business planning and determined there were none (note 6e).

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

13. Trade and other payables

Dec. 31, 2020 Dec. 31, 2019
Trade payables $ 104,598 $ 68,742
Accruals and payables 72,698 80,375
Accrued interest 30,766 34,603
Exploration and evaluation payables 1,351 884
Statutory payables 23,734 7,800
$ 233,147 $ 192,404

Accruals and payables include operational and capital costs and employee benefit amounts owing.

14. Other liabilities

Dec. 31, 2020 Dec. 31, 2019
Current
Provisions (note 19) $ 33,675 $ 33,575
Pension liability (note 20) 13,552 12,015
Other employee benefits (note 21) 3,154 2,806
Unearned revenue 1,590 1,015
$ 51,971 $ 49,411

15. Other financial liabilities

Dec. 31, 2020 Dec. 31, 2019
Current
Derivative liabilities $ 15,312 $ 10,295
Embedded derivatives (note 27d) - 9,074
Other financial liabilities at amortized cost 9,401 8,707
24,713 28,076
Non-current
Deferred Rosemont acquisition consideration 25,961 24,491
Gold prepayment liability 137,031 -
Other financial liabilities at amortized cost 31,386 15,293
194,378 39,784
$ 219,091 $ 67,860

The derivative liabilities include derivative and hedging transactions. Derivative liabilities are carried at their fair value with changes in fair value recorded to the consolidated income statements. The fair value adjustments for hedging type derivatives are recorded in revenue. Fair value adjustments for embedded derivatives are recorded within net finance expense.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

On May 7, 2020, the Company entered into an agreement and received $115,005 in exchange for the delivery of 79,954 gold ounces starting January 2022 and ending in December 2023, which were valued at gold forward curve prices averaging $1,682 per ounce at the time of the transaction. The agreement has been assessed as a financial liability that has been designated as fair value through profit or loss within change in fair value of financial instruments, with a component of the fair value related to the fluctuation in the Company's own credit risk being recorded to other comprehensive income. The fair value adjustment recorded in profit or loss and other comprehensive income for the year ended December 31, 2020 totaled loss of $22,026.

Other financial liabilities 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 other financial liabilities at amortized cost during the year ended December 31, 2020 primarily relates to changes in estimated community payments arising from the execution of the Pampacancha surface rights agreement and individual land user agreements with certain community members, partially offset by disbursements.

The following table summarizes changes in other financial liabilities at amortized cost:

Balance, January 1, 2019 $ 21,361
Net additions 7,369
Disbursements (6,351 )
Accretion 1,222
Effects of changes in foreign exchange 399
Balance, December 31, 2019 $ 24,000
Net additions 116,233
Disbursements (98,375 )
Accretion 3,641
Effects of changes in foreign exchange (4,712 )
Balance, December 31, 2020 $ 40,787
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

16. Lease Liability

Balance, January 1, 2019 $ 89,215
Additional capitalized leases (note 12) 22,158
Lease payments (32,952 )
Accretion and other movements 3,526
Balance, December 31, 2019 $ 81,947
Additional capitalized leases (note 12) 17,759
Lease payments (35,980 )
Accretion and other movements (212 )
Balance, December 31, 2020 $ 63,514
Dec. 31, 2020 Dec. 31, 2019
--- --- --- --- ---
Current $ 33,473 $ 32,781
Non-current 30,041 49,166
$ 63,514 $ 81,947

Hudbay has entered into leases for its Peru, Manitoba and Arizona business units which expire between 2020 and 2043. The interest rates on leases which were capitalized have interest rates between 1.95% to 5.44%, 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 a 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 for the periods ended December 31, 2020 and December 31, 2019, relating to leases for which a recognition exemption was applied.

Year ended <br>December 31,
2020 2019
Short-term leases $ 40,253 $ 45,745
Low value leases 353 92
Variable leases 57,389 56,152
Total $ 97,995 $ 101,989

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 business unit during its development phase and certain amounts may be reported in inventories given the timing of sales. Variable consideration leases include equipment used for heavy civil works at Constancia.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

17. Long-term debt

Long-term debt is comprised of the following:

Dec. 31, 2020 Dec. 31, 2019
Senior unsecured notes (a) $ 1,139,695 $ 991,558
Less: Unamortized transaction costs - revolving credit facilities (b) (4,020 ) (6,303 )
$ 1,135,675 $ 985,255

(a) Senior unsecured notes

Balance, January 1, 2019 989,306
Change in fair value of embedded derivative (prepayment option) 1,079
Accretion of transaction costs and premiums 1,173
Balance, December 31, 2019 991,558
Addition to Principal, net of 8,176 transaction costs 591,824
Principal repayments (400,000 )
Change in fair value of embedded derivative (prepayment option) (47,169 )
Write-down of unamortized transaction costs 2,315
Accretion of transaction costs and premiums 1,167
Balance, December 31, 2020 1,139,695

All values are in US Dollars.

On September 23, 2020, Hudbay completed an offering of $600,000 aggregate principal amount of 6.125% senior unsecured notes due April 2029 (the "2029 Notes").

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 "2023 Notes").

The unamortized transaction costs of $2,315 were expensed upon extinguishment of the 2023 Notes. The early redemption of these notes resulted in a charge of $7,252, which was recorded on the consolidated income statement (note 6g).

As at December 31, 2020, $1,200,000 aggregate principal amount of senior notes were outstanding in two series: (i) a series of 7.625% senior notes due 2025 in an aggregate principal amount of $600,000 and (ii) a series of 6.125% senior notes due 2029 in an aggregate principal amount of $600,000.

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 Rosemont 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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

(b) Unamortized transaction costs - revolving credit facilities

Balance, January 1, 2019 $ 8,276
Accretion of transaction costs (2,342 )
Transaction costs 369
Balance, December 31, 2019 $ 6,303
Accretion of transaction costs (3,062 )
Write-down of unamortized transaction costs (1,502 )
Transaction costs 2,281
Balance, December 31, 2020 ^1^ $ 4,020
^1^ Balance, representing deferred transaction costs, is in an asset position.

On August 31, 2020, Hudbay completed a restructuring of its two senior secured credit facilities. The total available credit has been reduced from $550,000 to $400,000 and various financial covenants have been amended.

The unamortized transaction costs of $1,502 were expensed upon restructuring of the credit facilities.

As at December 31, 2020, the Peru business unit had $24,796 in letters of credit issued under the Peru revolving credit facility to support its reclamation obligations and the Manitoba business unit had $90,295 in letters of credit issued under the Canada revolving credit facility to support its reclamation and pension obligations. As at December 31, 2020, there were no cash advances under the credit facilities.

Surety bonds

The Arizona business unit had $8,591 in surety bonds and the Peru business unit had $20,000 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 business unit had $45,000 in letters of credit issued with various Peruvian financial institutions. No cash collateral is required to be posted under these letters of credit.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

18. Deferred revenue

On August 8, 2012 and November 4, 2013, Hudbay entered into precious metals stream transactions with Wheaton whereby Hudbay has received aggregate deposit payments of $455,100 against delivery of (i) 100% of payable gold and silver from the 777 mine until the end of 2016, and delivery of 50% of payable gold and 100% of payable silver for the remainder of the 777 mine life; and aggregate deposit payments of $429,900 against the delivery of (ii) 100% of payable silver and 50% of payable gold from the Constancia mine.

In addition to the aggregate deposit payments of $885,000, as gold and silver is delivered under the stream agreements, Hudbay receives 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 1% annual escalation after three years, from the inception of the agreement.

Hudbay recorded the deposits received as deferred revenue and recognizes amounts in revenue as gold and silver are delivered under the stream agreements. Hudbay determines the amortization of deferred revenue to the consolidated income statements on a per unit basis using the estimated total number of gold and silver ounces expected to be delivered under the stream agreements over the life of the 777 and Constancia life-of-mine plans. During the third quarter of 2020, Hudbay revised its estimate of remaining mineralization for the 777 deposit and as such adjusted the drawdown rates for the remainder of the year. For the year ended December 31, 2020  the drawdown rates for the 777 stream agreement for gold and silver were $1,173 and $22.43 per ounce, respectively (year ended December 31, 2019 - $1,177 and $22.51 per ounce, respectively). For the year ended December 31, 2020 the drawdown rates for the Constancia stream agreement for gold and silver were $976 and $21.52 per ounce, respectively (year ended December 31, 2019 - $948 and $21.77 per ounce, respectively). Hudbay estimates the current portion of deferred revenue based on deliveries anticipated over the next twelve months.

Hudbay has determined that precious metals stream contracts are subject to variable consideration and contain a significant financing component. As such, the Company recognizes a financing charge at each reporting period and will gross up the deferred revenue balance to recognize the significant financing element that is part of these contracts. Hudbay's streaming arrangements are secured against the mining properties and other business unit assets associated with the applicable stream.

Hudbay expects that the remaining performance obligations for the 777 and Constancia streams will be settled by the expiry of their respective stream agreements, which is no earlier than 2052.

As part of the streaming agreement for the 777 mine, Hudbay must repay, with precious metals credits, the legal deposit provided by August 1, 2052, the expiry date of the agreement. If the legal deposit is not fully repaid with precious metals credits from 777 production by the expiry date, a cash payment for the remaining amount will be due at the expiry date of the agreement. Given the mineral reserve and resources of the 777 mine and the current mine plan, there is a possibility that an amount of the legal deposit may not be repaid by means of 777 mine's precious metals credits over its expected remaining mine life. As at December 31, 2020, this prepayment amount does not meet the definition of a financial liability. Hudbay incorporates the possibility of repayment as part of its assessment of variable consideration in recognizing the amount of deferred revenue to recognize in income.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

The following table summarizes changes in deferred revenue:

Balance, January 1, 2019 $ 566,078
Amortization of deferred revenue
Liability drawdown (92,398 )
Variable consideration adjustments - prior periods 16,295
Accretion on streaming arrangements
Current year additions 63,725
Variable consideration adjustments - prior periods 6,047
Effects of changes in foreign exchange 4,009
Balance, December 31, 2019 $ 563,756
Amortization of deferred revenue
Liability drawdown (67,263 )
Variable consideration adjustments - prior periods (6,668 )
Accretion on streaming arrangements (note 6g)
Current year additions 60,362
Variable consideration adjustments - prior periods (3,692 )
Effects of changes in foreign exchange 189
Balance, December 31, 2020 $ 546,684

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 2020 and amendments made to the 777 mine plan in the third quarter of 2020, the amortization rate by which deferred revenue is drawn down into income was adjusted and, as required, a current period catch up adjustment is made for all prior period stream revenues since the stream agreement inception date. This variable consideration adjustment resulted in an increase in revenue of $6,668 and reversal of finance expense of $3,692 for the year ended December 31, 2020 (December 31, 2019 - revenue reversal of $16,295 and additional finance expense $6,047).

During the year ended December 31, 2020, the Company recognized an adjustment to gold and silver revenue and finance costs due to a net increase in the Company's mineral reserve and resources estimates coupled with a change to the 777 mine plan. During the year ended December 31, 2019 the Company recognized an adjustment to gold and silver revenue and finance costs.

Deferred revenue is reflected in the consolidated balance sheets as follows:

Dec. 31, 2020 Dec. 31, 2019
Current $ 102,782 $ 86,933
Non-current 443,902 476,823
$ 546,684 $ 563,756
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

19. Provisions

Decommis-<br><br> <br>sioning,<br><br> <br>restoration<br><br> <br>and similar<br><br> <br>liabilities Deferred<br><br> <br>share units<br><br> <br>(note 24a) Restricted<br><br> <br>share<br><br> <br>units^1^(note<br><br> <br>24a) Performan-<br><br> <br>ce share<br><br> <br>units (note<br><br> <br>24a) Other Total
Balance, January 1, 2020 $ 302,116 $ 3,876 $ 5,477 $ - $ 2,956 $ 314,425
Net additional provisions made 5,868 1,628 3,642 1,257 15 12,410
Amounts used (18,737 ) (497 ) (2,646 ) - (1,824 ) (23,704 )
Unwinding of discount (note 6g) 3,543 - - - - 3,543
Effect of change in discount rate 43,180 - - - - 43,180
Effect of foreign exchange 7,162 191 116 43 (3 ) 7,509
Effect of change in share price - 3,521 3,860 730 - 8,111
Balance, December 31, 2020 $ 343,132 $ 8,719 $ 10,449 $ 2,030 $ 1,144 $ 365,474

^1^Certain amounts relating to the Arizona segment are capitalized.

Provisions are reflected in the consolidated balance sheets as follows:

December 31, 2020 Decommis-sioning, restoration and similar liabilities Deferred share units (note 24a) Restricted share units^1^ (note 24a) Performance share units (note 24a) Other Total
Current (note 14) $ 20,308 $ 8,719 $ 4,648 $ - $ - $ 33,675
Non-current 322,824 - 5,801 2,030 1,144 331,799
$ 343,132 $ 8,719 $ 10,449 $ 2,030 $ 1,144 $ 365,474
Decommis-sioning, restoration and similar liabilities Deferred share units (note 24a) Restricted share units^1^ (note 24a) Performance share units (note 24a) Other Total
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Balance, January 1, 2019 $ 202,024 $ 4,288 $ 12,201 $ - $ 411 $ 218,924
Net additional provisions made 68,881 1,479 2,885 - 2,882 76,127
Amounts used (4,136 ) (1,668 ) (9,380 ) - (341 ) (15,525 )
Unwinding of discount (note 6g) 4,392 - - - - 4,392
Effect of change in discount rate 23,635 - - - - 23,635
Effect of foreign exchange 7,320 99 225 - 4 7,648
Effect of change in share price - (322 ) (454 ) - - (776 )
Balance, December 31, 2019 $ 302,116 $ 3,876 $ 5,477 $ - $ 2,956 $ 314,425

^1^Certain amounts relating to the Arizona segment are capitalized.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
December 31, 2019 Decommis-<br><br> <br>sioning,<br><br> <br>restoration<br><br> <br>and similar<br><br> <br>liabilities Deferred<br><br> <br>share units<br><br> <br>(note 24a) Restricted<br><br> <br>share units1<br><br> <br>(note 24a) Performan-<br><br> <br>ce share<br><br> <br>units (note<br><br> <br>24a) Other Total
--- --- --- --- --- --- --- --- --- --- --- --- ---
Current (note 14) $ 23,621 $ 3,876 $ 4,468 $ - $ 1,610 $ 33,575
Non-current 278,495 - 1,009 - 1,346 280,850
$ 302,116 $ 3,876 $ 5,477 $ - $ 2,956 $ 314,425

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

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.

During the year ended December 31, 2020, additional provisions were recognized mostly as a result of lower discount rates and increased cost in Peru and Manitoba as well as additional disturbance in Peru.

During 2019, additional provisions were recognized as a result of higher estimates for closure activities of tailings facilities at the Manitoba operations to ensure compliance with higher industry-wide standards for tailings management safety and, to a lesser extent, increased mine activity footprints and the resulting higher disturbance at the Constancia operation.

Hudbay's decommissioning and restoration liabilities relate mainly to its Manitoba operations. Management anticipates that the assets in Flin Flon will be placed on care and maintenance once mining activities are completed at 777 mine in order to maintain optionality for restart should a new mine be found in the Flin Flon area. 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 2100 for ongoing monitoring and water treatment requirements. Management anticipates most decommissioning and restoration activities for the Constancia operation will occur from 2035 to 2070, which include ongoing monitoring and water treatment requirements.

These estimates have been discounted to their present value at rates ranging from 0.12% to 1.65% per annum (2019 - 1.59% to 2.39%), using pre-tax risk-free interest rates that reflect the estimated maturity of each specific liability.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

20. 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 2020 using data as at December 31, 2019. For these plans, the next actuarial valuation required for funding purposes will be performed during 2021 using data as of December 31, 2020.

Movements in the present value of the defined benefit obligation in the current and previous years were as follows:

Year ended
Dec. 31, 2020 Dec. 31, 2019
Opening defined benefit obligation: $ 243,733 $ 211,512
Current service costs 11,044 9,880
Interest cost 6,569 7,156
Benefits paid from plan (35,384 ) (16,745 )
Benefits paid from employer (1,317 ) (934 )
Participant contributions 48 64
Effects of movements in exchange rates 2,780 11,660
Remeasurement actuarial (gains)/losses:
Arising from changes in demographic assumptions (1,461 ) -
Arising from changes in financial assumptions 16,967 29,609
Arising from experience adjustments (2,625 ) (2,258 )
Settlement payments from plan assets - (6,307 )
Loss on settlement - 96
Closing defined benefit obligation $ 240,354 $ 243,733

The defined benefit obligation closing balance, by member group, is as follows:

Dec. 31, 2020 Dec. 31, 2019
Active members $ 211,861 $ 231,959
Deferred members 2,198 1,555
Retired members 26,295 10,219
Closing defined benefit obligation $ 240,354 $ 243,733
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

Movements in the fair value of the pension plan assets in the current and previous years were as follows:

Year ended
Dec. 31, 2020 Dec. 31, 2019
Opening fair value of plan assets: $ 202,119 $ 175,795
Interest income 5,695 6,170
Remeasurement adjustment:
Return on plan assets (excluding amounts included in net interest expense) 15,377 21,460
Contributions from the employer 12,987 11,952
Employer direct benefit payments 1,317 934
Contributions from plan participants 48 64
Benefit payment from employer (1,317 ) (934 )
Administrative expenses paid from plan assets (77 ) (82 )
Benefits paid (35,384 ) (16,745 )
Settlement payments from plan assets - (6,307 )
Effects of changes in foreign exchange rates 2,721 9,812
Closing fair value of plan assets $ 203,486 $ 202,119

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, 2020 Dec. 31, 2019
Present value of funded defined benefit obligation $ 220,210 $ 224,364
Fair value of plan assets (203,486 ) (202,119 )
Present value of unfunded defined benefit obligation 20,144 19,369
Net liability arising from defined benefit obligation $ 36,868 $ 41,614

Reflected in the consolidated balance sheets as follows:

Dec. 31, 2020 Dec. 31, 2019
Pension obligation - current (note 14) $ 13,552 $ 12,015
Pension obligation - non-current 23,316 29,599
Total pension obligation $ 36,868 $ 41,614
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

Pension expense is as follows:

Dec. 31, 2020 Dec. 31, 2019
Service costs:
Current service cost $ 11,044 $ 9,880
Loss on settlement - 96
Total service cost 11,044 9,976
Net interest expense 874 986
Administration cost 77 82
Defined benefit pension expense $ 11,995 $ 11,044
Defined contribution pension expense $ 1,791 $ 1,639

Remeasurement on the net defined benefit liability:

Dec. 31, 2020 Dec. 31, 2019
Return on plan assets (excluding amounts included in net interest expense) $ (15,377 ) $ (21,460 )
Actuarial gains arising from changes in demographic assumptions (1,461 ) -
Actuarial losses arising from changes in financial assumptions 16,967 29,609
Actuarial gains arising from experience adjustments (2,625 ) (2,258 )
Defined benefit (gain)/loss related to remeasurement $ (2,496 ) $ 5,891
Total pension cost $ 11,290 $ 18,574

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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

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:

2020 2019
Defined benefit cost:
Discount rate - benefit obligations 3.08 % 3.73 %
Discount rate - service cost 3.10 % 3.75 %
Expected rate of salary increase^1^ 2.75 % 2.75 %
Average longevity at retirement age for current pensioners (years)^2^ :
Males 21.2 21.1
Females 23.9 23.9
Defined benefit obligation:
Discount rate 2.54 % 3.08 %
Expected rate of salary increase^1^ 2.75 % 2.75 %
Average longevity at retirement age for current pensioners (years)^2^ :
Males 20.3 21.2
Females 23.7 23.9
Average longevity at retirement age for current employees (future pensioners) (years)^2^ :
Males 22.2 23.0
Females 25.4 25.6
^1^ Plus merit and promotional scale based on member's age
^2^ CPM2014 Priv with CPM-B projection scale.
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

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 $22,846 (increase by $26,250).

  • If the expected salary growth increases (decreases) by 1%, the defined benefit obligation would increase by $3,526 (decrease $3,158).

  • If the life expectancy increases (decreases) by one year for both men and women, the defined benefit obligation would increase by $2,978 (decrease by $3,039).

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, 2021 is $12,437.

The average duration of the pension obligation at December 31, 2020 is 21.2 years (2019 - 19.3 years). This number can be broken down as follows:

  • Active members: 22.3 years (2019: 19.7 years)

  • Deferred members: 21.9 years (2019: 22.0 years)

  • Retired members: 12.0 years (2019: 10.5 years)

Asset-Liability-Matching studies are performed periodically to analyze the investment policies in terms of risk and-return profiles.

The actual return on plan assets in 2020 was 10.8% (2019: 15.1%).

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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

The following is a summary of the fair value classification levels for investment:

December 31, 2020 Level 1 Level 2 Level 3 Total
Investments:
Money market instruments $ 4,766 $ - $ - $ 4,766
Pooled equity funds 68,926 - - 68,926
Pooled fixed income funds - 98,922 - 98,922
Alternative investment funds - 30,323 - 30,323
Balanced funds - 549 - 549
$ 73,692 $ 129,794 $ - $ 203,486
December 31, 2019 Level 1 Level 2 Level 3 Total
--- --- --- --- --- --- --- --- ---
Investments:
Money market instruments $ 1,588 $ - $ - $ 1,588
Pooled equity funds 76,680 - - 76,680
Pooled fixed income funds - 103,646 - 103,646
Alternative investment funds - 19,438 - 19,438
Balanced funds - 767 - 767
$ 78,268 $ 123,851 $ - $ 202,119
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

21. 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, 2020 Dec. 31, 2019
Opening defined benefit obligation $ 116,696 $ 93,528
Current service cost^1^ 4,140 3,060
Past service cost - -
Interest cost 3,478 3,600
Effects of movements in exchange rates 2,423 4,864
Remeasurement actuarial (gains)/losses:
Arising from changes in demographic assumptions (4,460 ) -
Arising from changes in financial assumptions 10,043 14,094
Arising from experience adjustments (489 ) 87
Benefits paid (2,215 ) (2,537 )
Closing defined benefit obligation $ 129,616 $ 116,696

^1^Includes remeasurement of other long term employee benefits

The defined benefit obligation closing balance, by group member, is as follows:

Dec. 31, 2020 Dec. 31, 2019
Active members $ 68,983 $ 60,801
Inactive members 60,633 55,895
Closing defined benefit obligation $ 129,616 $ 116,696

Movements in the fair value of defined benefit amounts in the current and previous years were as follows:

Dec. 31, 2020 Dec. 31, 2019
Employer contributions $ 2,215 $ 2,537
Benefits paid (2,215 ) (2,537 )
Closing fair value of assets $ - $ -

The non-pension employee benefit plan obligations are unfunded.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

Reconciliation of assets and liabilities recognized in the consolidated balance sheets:

Dec. 31, 2020 Dec. 31, 2019
Unfunded benefit obligation $ 129,616 $ 116,696
Vacation accrual and other - non-current 3,046 2,888
Net liability $ 132,662 $ 119,584

Reflected in the consolidated balance sheets as follows:

Dec. 31, 2020 Dec. 31, 2019
Other employee benefits liability - current (note 14) $ 3,154 $ 2,806
Other employee benefits liability - non-current 129,508 116,778
Net liability $ 132,662 $ 119,584

Other employee future benefit expense includes the following:

Dec. 31, 2020 Dec. 31, 2019
Current service cost ^1^ $ 4,140 $ 3,060
Net interest cost 3,478 3,600
Components recognized in consolidated income statements $ 7,618 $ 6,660
^1^ Includes remeasurement of other long term employee benefit
Dec. 31, 2020 Dec. 31, 2019
--- --- --- --- --- ---
Remeasurement on the net defined benefit liability:
Actuarial gains arising from changes in demographic assumptions $ (4,460 ) $ -
Actuarial losses arising from changes in financial assumptions 10,043 14,094
Actuarial (gains)/losses arising from changes experience adjustments (489 ) 87
Components recognized in statements of comprehensive income<br> **** $ 5,094 $ 14,181
Total other employee future benefit cost $ 12,712 $ 20,841

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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
Dec. 31, 2020 Dec. 31, 2019
--- --- --- --- ---
Defined benefit cost:
Discount rate 3.17 % 3.88 %
Initial weighted average health care trend rate 5.68 % 5.74 %
Ultimate weighted average health care trend rate 4.00 % 4.00 %
Average longevity at retirement age for current pensioners (years)^1^:
Males 21.2 21.1
Females 23.9 23.9
Dec. 31, 2020 Dec. 31, 2019
--- --- --- --- ---
Defined benefit obligation:
Discount rate 2.76 % 3.17 %
Initial weighted average health care trend rate 5.66 % 5.68 %
Ultimate weighted average health care trend rate 4.00 % 4.00 %
Average longevity at retirement age for current pensioners (years)^1^:
Males 20.3 21.2
Females 23.7 23.9
Average longevity at retirement age for current employees (future pensioners) (years)^1^:
Males 22.2 23.1
Females 25.4 25.6

^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.
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

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 $11,585 (increase by $13,392).

  • If the health care cost assumption increases (decreases) by 1%, the defined benefit obligation would increase by $27,392 (decrease by $21,023).

  • If the life expectancy increases (decreases) by one year for both men and women, the defined benefit obligations would increase by $5,553 (decrease by $5,645).

The average duration of the non-pension post-employment obligation at December 31, 2020 is 19.4 years (2019: 19.6 years).

This number can be broken down as follows:

  • Active members: 24.6 years (2019: 24.9 years)

  • Inactive members: 13.6 years (2019: 13.9 years)

22. Income and mining taxes

(a) Tax recoveries:

The tax expense (recoveries) is applicable as follows:

Year ended <br>December 31,
2020 2019
Current:
Income taxes $ 4,458 $ 24,919
Mining taxes 4,671 4,720
Adjustments in respect of prior years (398 ) 6,273
8,731 35,912
Deferred:
Income tax recoveries - origination, revaluation and/or reversal of temporary differences (39,411 ) (133,468 )
Mining tax recoveries - origination, revaluation and/or reversal of temporary difference (3,331 ) (12,214 )
Adjustments in respect of prior years (494 ) 817
(43,236 ) (144,865 )
$ (34,505 ) $ (108,953 )

Adjustments in respect of prior years refers to amounts changing due to the filing of tax returns and assessments from government authorities.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

(b) Deferred tax assets and liabilities as represented on the consolidated balance sheets:

Dec. 31, 2020 Dec. 31, 2019
Deferred income tax asset $ 94,070 $ 69,950
Deferred mining tax asset 7,829 5,096
101,899 75,046
Deferred income tax liability (220,568 ) (233,218 )
Deferred mining tax liability (8,865 ) (9,710 )
(229,433 ) (242,928 )
Net deferred tax liability balance, end of year $ (127,534 ) $ (167,882 )

(c) Changes in deferred tax assets and liabilities:

Year ended <br>Dec. 31, 2020 Year ended <br>Dec. 31, 2019
Net deferred tax liability balance, beginning of year $ (167,882 ) $ (308,577 )
Deferred tax recovery 43,236 144,865
OCI transactions (759 ) 1,878
Foreign currency translation on the deferred tax liability (2,129 ) (6,048 )
Net deferred tax liability balance, end of year $ (127,534 ) $ (167,882 )
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

(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, 2020 and 2019 is as follows:

Year ended December 31,
2020 2019
Statutory tax rate 26.3 % 27.0 %
Tax recovery at statutory rate $ (47,047 ) $ (122,246 )
Effect of:
Deductions related to mining taxes (1,369 ) (1,493 )
Adjusted income taxes (48,416 ) (123,739 )
Mining tax expense (recovery) 1,291 (6,674 )
(47,125 ) (130,413 )
Permanent differences related to:
Capital items (160 ) 3,270
Other income tax permanent differences (1,165 ) 1,747
Impact of remeasurement on decommissioning liability 7,094 (12,018 )
Temporary income tax differences not recognized (1,827 ) (351 )
Other temporary income tax differences not recognized 2,927 2,323
Non-deductible impairment on UCM receivable - 7,041
Withholding tax on dividends - 6,826
Impact related to differences in tax rates in foreign operations 5,534 20,338
Impact of changes to statutory tax rates 2,412 (259 )
Foreign exchange on non-monetary items (3,628 ) (6,633 )
Impact related to tax assessments and tax return amendments 1,433 (824 )
Tax recovery $ (34,505 ) $ (108,953 )

A decrease in the statutory tax rate in 2020 mainly reflects a reduction in the Canadian statutory tax rate which is the result of the changes to the relevant provincial allocation factors based on income earned and expenses incurred in different Canadian jurisdictions.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

(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, 2020 and 2019 are as follows:

Balance sheet Income Statement
Dec. 31, <br>2020 Dec. 31, <br>2019 Dec. 31, <br>2020 Dec. 31, <br>2019
Deferred income tax (liability) asset/ expense (recovery)
Property, plant and equipment $ (88,368 ) $ (96,841 ) $ (8,473 ) $ 13,434
Pension obligation 9,467 11,332 1,294 (1,115 )
Other employee benefits 25,687 16,837 (8,850 ) (3,349 )
Decommissioning and restoration obligation 37,902 41,208 3,307 (33,391 )
Non-capital losses 110,374 90,446 (19,928 ) (17,976 )
Share issuance and debt cost 8,972 6,540 (2,768 ) 4,361
Embedded derivative (prepayment option) (13,137 ) (694 ) 12,443 245
Deferred revenue (809 ) (112 ) 697 (12,839 )
Other 3,982 1,234 (4,516 ) (7,755 )
Deferred income tax asset / expense (recovery) 94,070 69,950 (26,794 ) (58,385 )
Deferred income tax liability (asset)/ (recovery) expense
Property, plant and equipment 292,858 259,145 33,713 (79,892 )
Other employee benefits 203 (80 ) (176 ) (320 )
Asset retirement obligations (1,588 ) (833 ) (756 ) 85
Non-capital losses (78,607 ) (28,643 ) (49,965 ) (1,269 )
Other 7,702 3,629 4,073 7,302
Deferred income tax liability/ expense (recovery) 220,568 233,218 (13,111 ) (74,094 )
Deferred income tax liability/ expense (recovery) $ (126,498 ) $ (163,268 ) $ (39,905 ) $ (132,479 )

The above reconciling items are disclosed at the tax rates that apply in the jurisdiction where they have arisen.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

(f) Income tax temporary differences - not recognized:

The Company has not recognized a deferred tax asset in respect of the following deductible income tax temporary differences:

Dec. 31, 2020 Dec. 31, 2019
Property, plant and equipment $ 46,718 $ 33,269
Capital losses 166,227 159,545
Other employee benefits 51,226 68,866
Asset retirement obligations 193,898 146,679
Non-capital losses 115,902 122,979
Temporary differences not recognized $ 573,971 $ 531,338

The deductible temporary differences excluding non-capital losses do not expire under current tax legislation.

The Canadian non-capital losses were incurred between 2006 and 2020 and expire between 2026 and 2040. Hudbay incurred United States net operating losses between 2004 and 2020 which have a twenty year carry forward period. Peruvian net operating losses were incurred in 2020 which have a four year carry forward period.

(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, 2020 and 2019 are as follows:

Canada Dec. 31, 2020 Dec. 31, 2019
Property, plant and equipment $ 7,829 $ 5,095
Peru Dec. 31, 2020 Dec. 31, 2019
Property, plant and equipment $ (8,865 ) $ (9,710 )

For the year ended December 31, 2020, Hudbay had unrecognized deferred mining tax assets of approximately $7,544 (December 31, 2019 - $5,361).

(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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

(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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

23. 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 <br>December 31, 2020 Year ended <br>Dec. 31, 2019
Common shares Amount Common shares Amount
Beginning and end of year 261,272,151 $ 1,777,340 261,272,151 $ 1,777,340

During the year ended December 31, 2020, the Company declared two semi-annual dividends of C$0.01 per share each. The Company paid $1,804 and $1,979 in dividends on March 27, 2020 and September 25, 2020 to shareholders of record as of March 10, 2020 and September 4, 2020.

During the year ended December 31, 2019, the Company paid $1,955 and $1,972 in dividends on March 29, 2019 and September 27, 2019 to shareholders of record as of March 8, 2019 and September 6, 2019.

The Company declared a semi-annual dividend of C$0.01 per share on February 18, 2021. The dividend will be paid on March 26, 2021 to shareholders of record as of March 9, 2021 and is expected to total C$2,613.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

24. 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, 2020, the carrying amount and the intrinsic value of the outstanding liability related to the DSU plan was $8,719 (December 31, 2019 - $3,876) (note 19). The following table outlines information related to DSUs granted, expenses recognized and payments made during the year.

Year ended
Dec. 31, 2020 Dec. 31, 2019
Granted during the year:
Number of units 465,889 337,999
Weighted average price (C$/unit) $ 4.10 $ 5.89
Expenses recognized during the year^1^ (notes 6c) $ 5,149 $ 1,157
Payments made during the year (note 19) $ 497 $ 1,668

^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.

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, 2020, the carrying amount of the outstanding liability related to the RSU plan was $10,449 (December 31, 2019 - $5,477) (note 19). The following table outlines information related to RSUs granted, expenses recognized and payments made in the year.

Year ended
Dec. 31, 2020 Dec. 31, 2019
Number of units, beginning of year ^1^ 2,223,999 3,666,867
Number of units granted during the year 1,388,786 1,080,741
Credits for dividends 17,587 7,554
Number of units forfeited during the year (44,678 ) (573,914 )
Number of units vested (645,357 ) (1,957,249 )
Number of units, end of year ^1^ 2,940,337 2,223,999
Weighted average price - granted (C$/unit) $ 3.98 $ 8.98
Expenses recognized during the year^2^ (note 6c) $ 6,750 $ 1,557
Payments made during the year (note 19) $ 2,646 $ 9,380

^1^ Includes 738,002 and 616,397 units that have vested; however, are unreleased and unpaid as of December 31, 2020 and December 31, 2019, respectively.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

^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.

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.

At December 31, 2020, the carrying amount of the outstanding liability related to PSU plan was $2,030 (December 31, 2019 - $0) (note 19). The following table outlines information related to PSUs granted, expenses recognized and payments made in the year.

Year ended
Dec. 31, 2020 Dec. 31, 2019
Number of units, beginning of year - -
Number of units granted during the year 1,089,569 -
Credits for dividends 6,046 -
Number of units, end of year 1,095,615 -
Weighted average price - granted (C$/unit) $ 3.97 $ -
Expenses recognized during the year (note 6c) $ 1,987 $ -
Payments made during the year (note 19) $ - $ -

(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, 2020, the Company granted 1,581,385 stock options (year ended December 31, 2019 - nil).

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, 2020
Weighted average share price at grant date (CAD) $ 3.77
Risk-free rate 1.14%
Expected dividend yield 0.5%
Expected stock price volatility (based on historical volatility) 57.0%
Expected life of option (months) 84
Weighted average per share fair value of stock options granted (CAD) $ 2.02
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

During the year ended December 31, 2020, 18,196 stock options were forfeited, which resulted in 1,563,189 options outstanding as of December 31, 2020. There are no stock options outstanding that are exercisable as at December 31, 2020.

Dec. 31, 2020
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 1,563,189 6.16 -

All values are in US Dollars.

No options were granted under the Plan during the year ended December 31, 2019.

Hudbay estimates expected life of options and expected volatility based on historical data, which may differ from actual outcomes.

Year ended Year ended
Dec. 31, 2020 Dec. 31, 2019
Number of<br><br> <br>shares<br><br> <br>subject to<br><br> <br>option Weighted-<br><br> <br>average<br><br> <br>exercise price<br><br> <br>C$ Number of<br><br> <br>shares subject<br><br> <br>to option Weighted<br><br> <br>average<br><br> <br>exercise price<br><br> <br>C$
Balance, beginning of year - - $ -
Number of units granted during the year 1,581,385 $ 3.77 - $ -
Forfeited (18,196 ) $ 3.76 - $ -
Balance, end of year 1,563,189 $ 3.77 - $ -
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

25. Earnings per share

Year ended
Dec. 31, 2020 Dec. 31, 2019
Basic and diluted weighted average common shares outstanding 261,272,151 261,272,151

The determination of the diluted weighted-average number of common shares excludes the impact of 1,292,840 weighted-average stock options outstanding that were anti-dilutive for the year ended December 31, 2020 (December 31, 2019 - nil).

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. For the year ended December 31, 2020 and 2019, Hudbay calculated diluted loss per share using 261,272,151 common shares.

26. 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, 2020 was $1,135,675 (December 31, 2019 - $985,255).

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, 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 and cash equivalents, which were $439,135 as at December 31, 2020 (2019 - $396,146), together with availability under its committed credit facilities. Hudbay invests its cash and cash equivalents 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 17). As part of the Company's capital management activities, Hudbay monitors interest coverage ratios and leverage ratios.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

27. 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, 2020 Dec. 31, 2019
FV CV FV CV
Financial assets at amortized cost
Cash and cash equivalents 1 439,135 $ 439,135 $ 396,146 $ 396,146
Restricted cash1 337 337 337 337
Fair value through profit or loss
Trade and other receivables 1, 2, 3 114,381 114,381 91,046 91,046
Non-hedge derivative assets 4 2,736 2,736 1,712 1,712
Investments 5 15,669 15,669 11,287 11,287
Total financial assets 572,258 572,258 500,528 500,528
Financial liabilities at amortized cost
Trade and other payables1, 2 209,413 209,413 184,604 184,604
Deferred Rosemont acquisition consideration 8 25,961 25,961 24,491 24,491
Other financial liabilities 6 41,912 40,787 21,338 24,000
Senior unsecured notes 7 1,277,124 1,139,695 1,050,126 991,558
Fair value through profit or loss
Embedded derivatives 4 - - 9,074 9,074
Gold prepayment liability 9 137,031 137,031 - -
Non-hedge derivative liabilities 4 15,312 15,312 10,295 10,295
Total financial liabilities 1,706,753 1,568,199 1,299,928 1,244,022
Net financial liability (1,134,495 ) $ (995,941 ) $ (799,400 ) $ (743,494 )
1 Cash and cash equivalents, 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 FVLTPL 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 17) has been determined using the quoted market price at the period end. Fair value incorporates the fair value of the prepayment option embedded derivative. The carrying value of this embedded derivative is at FVTPL (2020: 49,754; 2019: 2,585) and has been determined using a binomial tree/lattice approach based on the Hull-White single factor interest rate term structure model.
8 Discounted value based on a risk adjusted discount rate.
9 The gold prepayment liability (note 15) 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, 2020 was a loss of 1,885.

All values are in US Dollars.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

Fair value hierarchy

The table below provides an analysis by valuation method of financial instruments that are measured at fair value subsequent to recognition. 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, 2020 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Financial assets at FVTPL:
Non-hedge derivatives - $ 2,736 $ - $ 2,736
Investments 15,669 - - 15,669
15,669 $ 2,736 $ - $ 18,405
Financial liabilities measured at fair value
Financial liabilities at FVTPL:
Non-hedge derivatives - $ 15,312 $ - $ 15,312
Gold prepayment liability1 - 137,031 - 137,031
Financial liabilities at amortized cost:
Other financial liabilities - - 41,912 41,912
Senior unsecured notes 1,277,124 - - 1,277,124
1,277,124 $ 152,343 $ 41,912 $ 1,471,379
1The gold prepayment liability (note 15) 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, 2020 was a loss of 1,885.

All values are in US Dollars.

December 31, 2019 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Financial assets at FVTPL:
Non-hedge derivatives $ - $ 1,712 $ - $ 1,712
Investments 11,287 - - 11,287
$ 11,287 $ 1,712 $ - $ 12,999
Financial liabilities measured at fair value
Financial liabilities at FVTPL:
Embedded derivatives $ - $ 9,074 $ - $ 9,074
Non-hedge derivatives - 10,295 - 10,295
Financial liabilities at amortized cost:
Other financial liabilities - - 21,338 21,338
Senior unsecured notes 1,050,126 - - 1,050,126
$ 1,050,126 $ 19,369 $ 21,338 $ 1,090,833
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

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, 2020 and 2019 Hudbay did not make any such transfers.

(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, 2020, Hudbay had 43.4 million pounds of net copper swaps outstanding at an effective average price of $3.22/lb and settling across January to April 2021. As at December 31, 2019, Hudbay had 66.1 million pounds of net copper swaps outstanding at an effective average price of $2.67/lb and settling across January to April 2020. The aggregate fair value of the transactions at December 31, 2020 was a net liability of $13,198 (December 31, 2019 - a liability position of $8,362).

Transactions involving derivatives are with large multi-national financial institutions that Hudbay believes to be credit worthy.

Non-hedge derivative zinc contracts

Hudbay enters into future dated fixed price sales contracts with zinc customers and, to ensure that the Company continues to receive a floating or unhedged realized zinc price, Hudbay enters into forward zinc purchase contracts that effectively offset the fixed price sales contracts. At December 31, 2020, Hudbay held contracts for forward zinc purchased of 3.5 million pounds (December 31, 2019 - 12.7 million pounds) that related to forward customer sales of zinc. Prices range from $0.87/lb to $1.30/lb (December 31, 2019 - $1.00/lb to $1.15/lb) and settlement dates extend to December 2021. The aggregate fair value of the transactions at December 31, 2020 was an asset position of $622 (December 31, 2019 - a net liability position of $221).

(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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

As at December 31, 2020 and 2019, 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, 2020 Dec. 31, 2019 Dec. 31, 2020
Copper pounds<br><br> <br>(in thousands) 47,901 72,977 3.52
Gold oz 18,106 16,152 1,894
Silver oz 123,380 124,371 26.35

All values are in US Dollars.

The aggregate changes in fair value of provisionally priced receivables within the copper and zinc concentrate sales contracts at December 31, 2020, was an asset position of $21,295 (December 31, 2019 - an asset position of $10,165).

(d) Embedded derivatives

Prepayment option embedded derivative

The senior unsecured notes (note 17) contain prepayment options, which represent embedded derivatives that require bifurcation from the host contract. The prepayment options are measured at fair value, with changes in the fair value being recognized as change in fair value of financial instruments (note 6g). The fair value of the embedded derivative at December 31, 2020 was an asset of $49,754 (December 31, 2019 - $2,585).

Pampacancha delivery obligation-embedded derivative

During the first quarter of 2019, Hudbay recognized an obligation to deliver additional precious metal credits to Wheaton as a result of the Pampacancha deposit not being mined until after January 1, 2020 (note 15). The fair value of the embedded derivative at December 31, 2020 was nil as all payments have been made during 2020 (December 31, 2019 - a liability of $9,074). During the year ended December 31, 2020 precious metal credits totaling $10,856 were delivered to settle this liability.

(e) Other financial liabilities

Gold prepayment liability

The gold prepayment liability (note 15) requires settlement by physical delivery of gold ounces or equivalent gold credits. The fair value of the embedded derivative at December 31, 2020 was a liability of $137,031 (December 31, 2019 - nil).

(f) 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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

(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 and cash equivalents, 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 and cash equivalents, trade and other receivables and other financial liabilities. The Peru segment's primary financial instrument foreign currency exposure is on Peruvian soles cash and cash equivalents, trade and other payables and other financial liabilities.

The Company's exposure to foreign currency risk was as follows based on notional financial instruments amounts stated in US equivalent dollars:

Dec. 31, 2020 Dec. 31, 2019
CAD^1^ 2 PEN^3^ CAD^1^ 2 PEN^3^
Cash and cash equivalent 7,791 $ 3,895 $ 4,141 $ 8,394 $ 21,217 $ 7,617
Trade and other receivables 31 43,316 36,951 374 56,998 25,413
Other financial assets 15,669 - - 11,287 - -
Trade and other payables (6,104 ) (1,419 (34,622 ) (5,719 ) (435 (22,618 )
Other financial liabilities - - (40,787 ) - - (24,000 )
17,387 $ 45,792 $ (34,317 ) $ 14,336 $ 77,780 $ (13,588 )
1 HMI is exposed to foreign currency risk on CAD.
2 The Manitoba segment is exposed to foreign currency risk on .
3 The Peru segment is exposed to foreign currency risk on PEN.

All values are in US Dollars.

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, 2020 and does not reflect the overall effect that changes in market variables would have on the Company's operating results.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
December 31, 2020 Change of: Would have changed<br><br> <br>2020 after-tax profit by:
--- --- --- ---
USD/CAD exchange rate^1^ + 10% $1.1 million
USD/CAD exchange rate^1^ - 10% (1.4) million
USD/PEN exchange rate^2^ + 10% 2.0 million
USD/PEN exchange rate^2^ - 10% (2.5) million
December 31, 2019 Change of: Would have changed 2019<br><br> <br>after-tax profit by:
USD/CAD exchange rate^1^ + 10% $3.4 million
USD/CAD exchange rate^1^ - 10% (4.1) million
USD/PEN exchange rate^2^ + 10% 0.8 million
USD/PEN exchange rate^2^ - 10% (1.0) 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, 2020 and does not reflect the overall effect that changes in market variables would have on the Company's operating results.

December 31, 2020 Change of:
Copper prices (/lb)3 + 0.30 $ (1.4) million
Copper prices (/lb)3 - 0.30 1.4 million
Zinc prices (/lb)4 + 0.10 0.3 million
Zinc prices (/lb)4 - 0.10 (0.3) million
December 31, 2019 Change of:
Copper prices (/lb)3 + 0.30 (2.0) million
Copper prices (/lb)3 - 0.30 2.0 million
Zinc prices (/lb)4 + 0.10 1.0 million
Zinc prices (/lb)4 - 0.10 (1.0) million

All values are in US Dollars.

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, 2020 and does not reflect the overall effect that changes in market variables would have on the Company's finance expenses.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
December 31, 2020 Change of: Would have changed 2020<br><br> <br>after-tax profit by:
--- --- --- --- --- --- ---
Share prices + 25% $ 3.9 million
Share prices - 25% (3.9) million
December 31, 2019 Change of: Would have changed 2019<br><br> <br>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;

- fair value interest rate risk on its embedded derivative associated with its senior notes; and,

- interest rate risk on its senior secured revolving credit facilities.

The most material of these risks is the embedded derivative associated with its senior notes. This analysis is based on values at December 31, 2020 and does not reflect the overall effect that changes in market variables would have on the Company's finance expenses.

December 31, 2020 Change of: Would have changed<br><br> <br>2020 after-tax profit by:
Interest rates + 2.00% $ (38.0) million
Interest rates - 2.00% 48.5 million
December 31, 2019 Change of: Would have changed<br><br> <br>2019 after-tax profit by:
Interest rates + 2.00% $ 2.3 million
Interest rates - 2.00% (2.6) million

(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 27a.

A large portion of Hudbay's cash and cash equivalents are on deposits with major Schedule 1 Canadian banks. Deposits and other investments with Schedule 1 Canadian banks represented 90% of total cash and cash equivalents as at December 31, 2020 (2019 - 92%). 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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

Management has a credit policy in place that requires the Company to obtain credit insurance from an investment grade credit insurance provider to mitigate exposure to credit risk in its receivables. At December 31, 2020, approximately 95% of Hudbay's trade receivables were insured or payable by letters of credit (2019 - 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.

Two customers accounted for approximately 56% of total trade receivables as at December 31, 2020 (2019 - two customers accounted for approximately 63%). Credit risk for these customers is assessed as medium to low. As at December 31, 2020, none of the Company's trade receivables were aged more than 30 days (2019 - 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.

Dec. 31, 2020 Carrying<br><br> <br>amount Contractual<br><br> <br>cash flows 12 months<br><br> <br>or less 13 - 36<br><br> <br>months 37 - 60<br><br> <br>months More than<br><br> <br>60 months
Assets used to manage liquidity risk
Cash and cash equivalents $ 439,135 $ 439,135 $ 439,135 - $ - $ -
Restricted cash 337 337 337 - - -
Trade and other receivables 114,381 114,381 114,381 - - -
Non-hedge derivative assets 2,736 2,736 2,736 - - -
$ 556,589 $ 556,589 $ 556,589 $ - $ - $ -
Non-derivative financial liabilities
Trade and other payables, including embedded derivatives $ (209,413 ) $ (209,413 ) $ (209,413 ) $ - $ - $ -
Other financial<br>liabilities ^1^ (40,787 ) (58,837 ) (12,097 ) (9,483 ) (6,578 ) (30,679 )
Deferred Rosemont acquisition consideration (25,961 ) (30,000 ) - (20,000 ) (10,000 ) -
Long-term debt, including embedded derivatives (1,139,695 ) (1,726,904 ) (87,966 ) (168,188 ) (742,125 ) (728,625 )
Gold prepayment obligation (137,031 ) (137,031 ) - (137,031 ) - -
$ (1,552,887 ) $ (2,162,185 ) $ (309,476 ) $ (334,702 ) $ (758,703 ) $ (759,304 )
Derivative financial liabilities
Non hedge derivative contracts $ (15,312 ) $ (15,312 ) $ (15,312 ) $ - $ - $ -
$ (15,312 ) $ (15,312 ) $ (15,312 ) $ - $ - $ -
^1^ Represents the Peru community agreement obligation, excluding interest.
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---
Dec. 31, 2019 Carrying<br><br> <br>amount Contractual<br><br> <br>cash flows 12 months<br><br> <br>or less 13 - 36<br><br> <br>months 37 - 60<br><br> <br>months More than<br><br> <br>60 months
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Assets used to manage liquidity risk
Cash and cash equivalents $ 396,146 $ 396,146 $ 396,146 $ - $ - $ -
Restricted cash 337 337 337
Trade and other receivables 91,046 91,046 89,451 - - 1,595
Non-hedge derivative assets 1,712 1,712 1,712 - - -
$ 489,241 $ 489,241 $ 487,646 $ - $ - $ 1.595
Non-derivative financial liabilities
Trade and other payables, including embedded derivatives $ (184,604 ) $ (184,604 ) $ (184,604 ) $ - $ - $ -
Other financial<br>liabilities ^1^ (24,000 ) (33,723 ) (6,672 ) (4,811 ) (4,734 ) (17,506 )
Deferred Rosemont acquisition consideration (24,491 ) (30,000 ) - (10,000 ) (20,000 ) -
Long-term debt, including embedded derivatives (991,558 ) (1,350,540 ) (72,165 ) (149,500 ) (1,128,875 ) -
$ (1,224,653 ) $ (1,598,867 ) $ (263,441 ) $ (164,311 ) $ (1,153,609 ) $ (17,506 )
Derivative financial liabilities
Embedded derivative $ (9,074 ) $ (9,074 ) $ (9,074 ) $ - $ - $ -
Non-hedge derivative contracts (10,295 ) (10,295 ) (10,295 ) - - -
$ (19,369 ) $ (19,369 ) $ (19,369 ) $ - $ - $ -
^1^ Represents the Peru community agreement obligation, excluding interest.

28. Commitments and contingencies

Capital commitments

(a) 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:

2020 2019
Within one year $ 58,173 $ 57,860
After one year but not more than five years 2,192 26,395
More than five years - -
$ 60,365 $ 84,255
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---

(b) Capital Commitments

As at December 31, 2020, Hudbay had outstanding capital commitments in Canada of approximately $22,539 of which $19,014 can be terminated, approximately $39,078 in Peru, all of which can be terminated, and approximately $179,656 in Arizona, primarily related to the Rosemont project, of which approximately $89,312 can be terminated by Hudbay.

(c) Contingent liabilities

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 the Company's belief that the ultimate resolution of such actions is not reasonably likely to have material adverse effect on its consolidated financial position or results of operations. The assessment of contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future events. As a result of the assessment, no significant contingent liabilities have been recorded in these consolidated financial statements.

As part of the streaming agreement with Wheaton for the 777 mine, Hudbay must repay, with precious metal credits, the legal deposit provided by Wheaton by August 1, 2052, the expiry date of the arrangement. If the legal deposit is not fully repaid with precious metal credits related to 777 production by the expiry date, a cash payment for the remaining amount will be due at the expiry date of the agreement. As a result of changes in the remaining 777 mine reserves and lower precious metal prices, there is a possibility that an amount of Wheaton's legal deposit may not be repaid by means of 777 mine's production over its expected remaining mine life.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

29. Related parties

(a) Group companies

The financial statements include the financial statements of the Company and the following significant subsidiaries:

Beneficial<br><br> <br>ownership of<br><br> <br>ultimate<br><br> <br>controlling<br><br> <br>party (Hudbay<br><br> <br>Minerals Inc.)
Name Jurisdiction Business Entity's Parent 2020 2019
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 Peru Inc. 100% 100%
HudBay (BVI) Inc. British Virgin Islands Precious metals sales Peru Inc. 100% 100%
Hudbay Arizona Inc. British Columbia Holding company HMI 100% 100%
Rosemont Copper Company Arizona Exploration/development HudBay<br><br> <br>Arizona<br><br> <br>(US)<br><br> <br>Holding<br><br> <br>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.

(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:

2020 2019
Short-term employee benefits^1^ $ 7,951 $ 8,319
Post-employment benefits 639 762
Long-term share-based awards 6,381 6,966
$ 14,971 $ 16,047

^1^Such as salaries and social security contributions, paid annual leave and paid sick leave, profit-sharing and bonuses and nonmonetary benefits (such as medical care, housing, cars and free or subsidized goods or services) for current employees.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

30. Supplementary cash flow information

(a) Change in non-cash working capital:

Year ended <br>December 31,
2020 2019
Change in:
Trade and other receivables $ (37,720 ) $ 3,252
Other financial assets/liabilities 4,077 12,540
Inventories (2,867 ) (11,759 )
Prepaid expenses (3,722 ) (3,484 )
Trade and other payables 36,247 5,613
Provisions and other liabilities 1,602 (2,590 )
$ (2,383 ) $ 3,572

(b) Non-cash transactions:

During the year ended December 31, 2020 and 2019, 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 for year ended December 31, 2020 led to a net increase in related property, plant and equipment assets of $46,792 (year ended December 31, 2019 - increase of $89,408) related to lower discount rates associated with remeasurement of the liabilities.

  • Property, plant and equipment included $17,759 (year ended December 31, 2019 - $22,158) of capital additions related to the recognition of ROU assets and $116,233 of capital additions related to agreements with communities (year ended December 31, 2019 - $7,369).

  • In 2019, immediately prior to purchasing United Copper & Moly LLC's ("UCM") remaining interest in the Rosemont project, Hudbay agreed to release UCM from repayment obligations under a Rosemont project loan in exchange for an increase in equity in Rosemont. As a result, the loan receivable balance of $25,978 was written off. Hudbay recognized the loss on write-off of the loan receivable in the income statement (refer to note 6d). In addition, in order to recognize previously unfunded contributions to the Rosemont Project due from UCM, the Company recognized an increase to other capital reserves, a component of shareholder's equity.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

31. 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 profitability of the overall operation 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), zinc metal 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  Rosemont 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, 2020
Manitoba Peru Arizona Corporate<br><br> <br>and other<br><br> <br>activities Total
Revenue from external customers $ 615,699 $ 476,719 $ - $ - $ 1,092,418
Cost of sales
Mine operating costs 391,504 300,087 - - 691,591
Depreciation and amortization 177,552 184,275 - - 361,827
Gross profit (loss) 46,643 (7,643 ) - - 39,000
Selling and administrative expenses - - - 41,408 41,408
Exploration and evaluation expenses 6,491 6,295 3,870 540 17,196
Other expenses 8,382 4,901 2,066 2,234 17,583
Results from operating activities $ 31,770 $ (18,839 ) $ (5,936 ) $ (44,182 ) $ (37,187 )
Net interest expense on long term debt 82,712
Accretion on streaming arrangements 56,670
Change in fair value of financial instruments (29,370 )
Other net finance costs 31,890
Loss before tax (179,089 )
Tax recovery (34,505 )
Loss for the year $ (144,584 )
**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
---
Year ended December 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Manitoba Peru Arizona Corporate<br><br> <br>and other<br><br> <br>activities Total
Revenue from external customers $ 537,421 $ 700,018 $ - $ - $ 1,237,439
Cost of sales
Mine operating costs 385,159 356,183 - - 741,342
Depreciation and amortization 135,429 209,126 - - 344,555
Gross profit 16,833 134,709 - - 151,542
Selling and administrative expenses - - - 36,170 36,170
Exploration and evaluation expenses 18,476 5,804 - 6,494 30,774
Other expenses 8,201 14,022 28,149 744 51,116
Impairment loss - - 322,249 - 322,249
Results from operating activities $ (9,844 ) $ 114,883 $ (350,398 ) $ (43,408 ) $ (288,767 )
Net interest expense on long term debt 68,375
Accretion on streaming arrangements 69,772
Change in fair value of financial instruments 8,247
Other net finance costs 17,602
Loss before tax (452,763 )
Tax recovery (108,953 )
Loss for the year $ (343,810 )
December 31, 2020
--- --- --- --- --- --- --- --- --- ---
Manitoba Peru Arizona Corporate<br><br> <br>and other<br><br> <br>activities Total
Total assets 801,691 $ 2,535,939 $ 718,982 $ 610,033 $ 4,666,645
Total liabilities 562,013 973,756 76,926 1,354,144 2,966,839
Property, plant and equipment1 699,884 2,290,097 709,939 31,735 3,731,655
1Included in Corporate and Other activities is 27.5 million of property, plant and equipment that is located in Nevada.

All values are in US Dollars.

December 31, 2020
Manitoba Peru Arizona Corporate<br><br> <br>and other<br><br> <br>activities Total
Additions to property, plant and equipment $ 159,313 $ 208,805 $ 18,640 $ 32 $ 386,790
December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Manitoba Peru Arizona Corporate<br><br> <br>and other<br><br> <br>activities Total
Total assets $ 779,896 $ 2,556,895 $ 700,799 $ 423,467 $ 4,461,057
Total liabilities 556,267 926,642 78,988 1,051,037 2,612,934
Property, plant and equipment^1^ 684,679 2,253,404 691,538 32,938 3,662,559

^1^Included in Corporate and Other activities is $27.3 million of property, plant and equipment that is located in Nevada.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019
December 31, 2019
--- --- --- --- --- --- --- --- --- --- ---
Manitoba Peru Arizona Corporate<br><br> <br>and other<br><br> <br>activities Total
Additions to property, plant and equipment $ 143,418 $ 101,717 $ 38,923 $ 905 $ 284,963

Geographical Segments

The following tables represent revenue information regarding Hudbay's geographical segments for the years ended December 31, 2020 and 2019:

2020 2019
Revenue by customer location^1^
Canada $ 422,403 $ 418,636
China 215,278 158,795
United States 206,906 209,382
Philippines 77,575 71,506
Peru 56,437 110,411
Switzerland 55,703 162,167
Singapore 29,314 71,506
Germany 11,725 10,731
Other 17,077 24,305
$ 1,092,418 $ 1,237,439

^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, 2020, eight customers accounted for approximately 36%, 17%, 13%, 7%, 7%, 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.

During the year ended December 31, 2019, six customers accounted for approximately 24%, 9%, 9%, 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.

**HUDBAY MINERALS INC.**Notes to Audited Consolidated Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>Years ended December 31, 2020 and 2019

32. Events after the reporting period

As a result of the delay in finalizing the remaining land user agreements coupled with new, heightened, domestic travel restrictions announced on January 26, 2021 by the government of Peru, Hudbay has concluded that it no longer expects to mine four million tonnes of ore from the Pampacancha deposit by June 30, 2021. If we fail to meet this milestone, we will be required to deliver an additional 8,020 ounces of gold to Wheaton in equal quarterly installments, at prevailing market prices, starting September 30, 2021.

Hudbay Minerals Inc.: Exhibit 99.2 - Filed by newsfilecorp.com

Management's Discussion and Analysis of

Results of Operations and Financial Condition

For the year ended

December 31, 2020

February 18, 2021

TABLE OF CONTENTS Page
Introduction 1
Our Business 1
Strategy 2
Summary of Results 4
Key Financial Results 7
Key Production Results 8
Recent Developments 9
Constancia Operations Review 12
Manitoba Operations Review 16
Outlook 24
Financial Review 33
Liquidity and Capital Resources 44
Financial Risk Management 49
Trend Analysis and Quarterly Review 52
Non-IFRS Financial Performance Measures 55
Accounting Changes 70
Critical Accounting Judgments and Estimates 71
Disclosure Controls and Procedures and Internal Control Over Financial Reporting 72
Notes to Reader 73
Summary of Historical Results 77

INTRODUCTION

This Management's Discussion and Analysis ("MD&A") dated February 18, 2021 is intended to supplement Hudbay Minerals Inc.'s audited consolidated financial statements and related notes for the year ended December 31, 2020 (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, 2020.

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 our MD&A. Please also refer to the risks discussed under the heading "Financial Risk Management" 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 our MD&A.

  • 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 71 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 primarily producing copper concentrate (containing copper, gold, and silver) and zinc metal. Directly and through our subsidiaries, we own three polymetallic mines, four ore concentrators and a zinc production facility in northern Manitoba and Saskatchewan (Canada) and Cusco (Peru), and copper projects in Arizona and Nevada (United States). 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. Our vision is to be a responsible, top-tier operator of long-life, low-cost mines in the Americas. 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 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 the greatest opportunities for shareholder value creation in the mining industry are in the discovery and successful development of new mineral deposits, and through highly efficient low-cost operations to profitably extract ore from those deposits. We also believe that our successful development, ramp-up and operation of the Constancia open-pit mine in Peru, along with our long history of underground mining and full life-cycle experience in northern Manitoba provide us with a competitive advantage in these respects relative to other mining companies of similar scale.

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

To ensure that any capital allocation or acquisition we undertake creates sustainable value for stakeholders, we have established a number of criteria for evaluating mineral property opportunities. These include the following:

  • Geography: Potential acquisitions should be located in jurisdictions that support responsible mining activity and have acceptable levels of political and social risk. Given our current scale and geographic footprint, 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;

  • Commodity: Among the metals we produce, we believe copper has the best long-term supply/demand fundamentals and the greatest opportunities for sustained risk-adjusted returns. While our primary focus is on copper, we appreciate the polymetallic nature of deposits and, in particular, the counter-cyclical nature of gold production in our portfolio;

  • Quality: We are focused on adding long-life, low-cost assets to our existing portfolio of high quality assets. Long life assets can capture peak pricing of multiple commodity price cycles and low cost assets can generate free cash flow even through the trough of price cycles;

  • Potential: We consider the full spectrum of acquisition and investment opportunities from early-stage exploration to producing assets, but they must meet our stringent risk-adjusted criteria for growth and value creation. Regardless of the stage of development, we look for mineral assets that we believe offer significant incremental potential for exploration, development and optimization beyond the stated resources and mine plan;

  • Process: Through a robust due diligence and capital allocation process, we develop a clear understanding of how we can create value from the investment or the acquired property through the application of our technical, social, operational and project execution expertise, as well as through the provision of necessary financial capacity and other operational optimization opportunities;

  • Operatorship: We believe real value is created through leading efficient project development and operations. Hudbay's leadership team is well positioned to drive value and deliver effective capital allocation with our proven track record of successful project development and operational excellence.

  • Financial: Investments and acquisitions should be accretive to Hudbay on a per share basis. Given that our strategic focus includes capital allocation to non-producing 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.

Our key objectives for 2021 are to:

  • Focus on operational efficiencies and maintain our low-costs of production to continue to generate positive cash flow and strong returns on invested capital;

  • Execute development and commence mining activities at the high-grade Pampacancha satellite deposit, further enhancing Constancia's production and cost profile;

  • Deliver the refurbishment of the New Britannia gold mill to significantly increase gold production from Lalor, completing the second phase of the Snow Lake gold strategy;

  • Advance the appeals process and alternative options to unlock value at Rosemont;

  • Progress the third phase of our Snow Lake gold strategy to further increase annual production scale by advancing studies to optimize recoveries, throughput, resource conversion and exploration;

  • Maintain Constancia's industry-leading efficiency metrics by identifying areas of upside through continuous improvement initiatives at the mill and ongoing near-mine exploration;

  • Drill regional copper exploration targets near Constancia, in northern Peru, and at Rosemont while continuing to advance exploration programs in the Snow Lake region, Peru and Nevada;

  • Support our workforce, their families and the communities in which we operate through continuing to make health and safety a priority and providing ongoing COVID-19 support; and,

  • Evaluate exploration, organic growth and acquisition opportunities that meet our stringent strategic criteria and allocate capital to pursue those opportunities that create sustainable value for the Company and our stakeholders.

SUMMARY

Fourth Quarter and Full Year Operating and Financial Results

  • Achieved 2020 production and unit cost guidance in Peru and Manitoba; Manitoba copper production exceeded the top end of the guidance range and refined zinc metal production was higher than it has been in over ten years.

  • Capitalized on higher gold prices as Manitoba annual gold sales volumes increased by 24% in 2020 compared to the prior year.

  • Full production resumed at 777 on November 25 following a skip hoist incident in early October; shaft repair activities were completed well ahead of schedule and below expected costs.

  • The Lalor mine and Stall concentrator both achieved record quarterly and annual production as 777 employees and equipment were redeployed to Lalor during the 777 shaft repair period.

  • Constancia mine achieved excellent operational efficiencies during the quarter with a 16% increase in ore mined compared to the same quarter in 2019.

  • Fourth quarter net earnings were $7.4 million or $0.03 per share. Fourth quarter adjusted net loss^1^ per share was $0.06 and adjusted EBITDA^1^ was $106.9 million.

  • Operating cash flow before change in non-cash working capital increased to $86.1 million in the fourth quarter of 2020, from $69.1 million in the same quarter of 2019, due to higher realized copper and gold prices and higher gold sales volumes, partially offset by lower sales volumes of copper.

2021 Annual Guidance and Outlook

  • Consolidated copper production is forecast to increase by 7%^2^ in 2021, compared to 2020, with a further increase expected in 2022 with higher grades at the Pampacancha deposit in Peru.

  • Consolidated gold production is forecast to increase by 62%^2^ in 2021, compared to 2020, with a further increase expected in 2022 due to the first full year of production at the New Britannia mill and Pampacancha.

  • 2021 unit operating costs are expected to be modestly higher than 2020 with the inclusion of the New Britannia mill in Manitoba and higher input costs in Peru. Introduced new 2021 consolidated cash cost guidance of $0.65 to $0.80 and consolidated sustaining cash cost guidance of $2.05 to $2.30, in each case, per pound of copper produced, net of by-product credits^1^.

  • Updated mine plans will be issued for each of the Constancia and Snow Lake operations with our annual mineral reserve and resource update at the end of March 2021, incorporating the results from various optimization studies. The company will issue new three-year production guidance once the new mine plans are published.

  • Total capital expenditures are expected to decline by 11%^2^year-over-year as a majority of the Peru growth spending was completed in 2020, while a portion of Manitoba growth spending was deferred from 2020 to 2021.

  • Increased exploration spending in 2021 to drill promising targets in Arizona, Peru and Snow Lake.

Executing on Growth Initiatives

  • Advanced the New Britannia gold mill refurbishment project to approximately 73% completion and the project continues to track ahead of the original schedule. Total project capital is tracking approximately $13.0 million over budget due to additions to the project scope and the impact of COVID-related costs. Commissioning of the gold plant is expected in mid-2021, three months earlier than originally planned. The new copper flotation facility is on track for commissioning and ramp-up in the fourth quarter of 2021. Operational readiness activities are progressing as planned with underground development of Lalor's gold-rich lenses well-advanced in preparation for the start-up of New Britannia.

  • Successfully completed the Consulta Previa consultation process for Pampacancha and received the final mining permit for the development and operation of the mine. Pre-development activities commenced in early January and pre-stripping activities are expected to begin once the remaining individual land user agreement has been completed.

  • Advanced the appeal of the unprecedented Rosemont court decision with oral arguments presented on February 1^st^ and continued to evaluate next steps for the project and advance drilling activities on our land package.

Summary of Fourth Quarter Results

Cash generated from operating activities in the fourth quarter of 2020 increased to $121.1 million compared to $98.7 million in the same quarter of 2019. Operating cash flow before change in non-cash working capital was $86.1 million during the fourth quarter of 2020, reflecting an increase of $17.0 million compared to the same period of 2019. The increase in operating cash flow is primarily the result of higher realized copper and gold prices and higher gold sales volume, partially offset by lower sales volumes of copper.

Copper-equivalent production in the fourth quarter of 2020 decreased by 15% compared to the same period in 2019 primarily as a result of lower copper grades at Constancia and lower production at 777 due to a shaft incident in October 2020 that resulted in a six-week suspension of hoisting operations.

Net earnings and earnings per share in the fourth quarter of 2020 were $7.4 million and $0.03, respectively, compared to a net loss and loss per share of $1.5 million and $0.01, respectively, in the fourth quarter of 2019. Fourth quarter earnings benefited from higher realized prices for base metals and gold which was partially offset by lower sales volumes of copper due to lower Constancia grades. In addition, we recorded a $28.0 million mark-to-market net gain on certain financial instruments, including a $40.3 million non-cash gain on the revaluation of the embedded derivative on our senior notes due in 2025. Partially offsetting these gains was the accounting effect related to the 777 production interruption. This resulted in fixed overhead production costs of $11.7 million, which would normally be capitalized to inventories, being immediately expensed as part of our cost of sales with no corresponding revenue benefit.

After adjusting for the 777 fixed overhead costs and the net mark-to-market gain on financial instruments, among other items, adjusted net loss^1^ and adjusted EBITDA^1^ in the fourth quarter of 2020 were $16.4 million, or $0.06 per share, and $106.9 million, respectively. This compares to an adjusted net loss and adjusted EBITDA of $24.6 million, or $0.09 per share, and $82.2 million, respectively, in the same period of 2019. The favourable movements in adjusted EBITDA and adjusted net loss, as compared to the fourth quarter of 2019, primarily included the same factors that benefited net earnings.

In the fourth quarter of 2020, consolidated cash cost per pound of copper produced, net of by-product credits^1^, was $0.43, compared to $0.90 in the same period last year. The overall decrease in this measure was a result of higher by-product credit revenues mainly driven by a significant increase in Manitoba's gold revenue compared to the same period in 2019; this was partially offset by a decline in copper production at Constancia due to lower grades. Incorporating sustaining capital, capitalized exploration, royalties, selling, administrative and regional costs, consolidated all-in sustaining cash cost per pound of copper produced, net of by-product credits^1^, in the fourth quarter of 2020 was $2.24, which increased slightly from $2.22 in the same period last year. The marginal increase in consolidated all-in sustaining cash cost was mostly a result of higher sustaining capital expenditures, as well as increased corporate selling and administrative costs due to higher stock-based compensation expense.

Summary of Full Year Results

Cash generated from operating activities decreased to $239.5 million in 2020 from $310.9 million in 2019. Operating cash flow before change in non-cash working capital decreased to $241.9 million from $307.3 million in 2019. The decrease is the result of significantly lower copper sales volumes due to an eight-week suspension of Constancia operations in Peru following a government declared state of emergency and a six-week production interruption at the 777 mine in Manitoba. The lower copper sales volumes were only partially offset by higher realized sales prices for copper and precious metals.

Net loss and loss per share for 2020 were $144.6 million and $0.55, respectively, compared to a net loss and loss per share of $343.8 million and $1.32, respectively, in 2019. The 2019 loss was mainly caused by an after-tax impairment charge of $242.1 million recorded in our investment in the Rosemont project. Gross margins declined in 2020 in part due to multi-week operational suspensions at Constancia and 777 causing certain fixed overhead production costs to be immediately expensed as part of our cost of sales with no corresponding revenue benefit. Consolidated cash costs per pound of copper produced, net of by-product credits, were 28% lower, mainly as a result of increased by-product credit revenues, partially offset by lower copper production from lower grades at Constancia and reduced Constancia production from the eight-week suspension of operations.

On a consolidated basis, our copper, zinc and precious metals production met 2020 guidance ranges. Production of copper in Manitoba exceeded the top end of the guidance range, while copper production in Peru was within the revised guidance range. When compared to 2019 production levels, 2020 copper production in Peru was lower due to  lower copper grades, as well as an eight-week suspension of Constancia operations due to a government declared state of emergency at the onset of the COVID-19 pandemic (which caused us to update our Peru guidance with our second quarter results). Combined unit costs in Peru and Manitoba were within 2020 guidance ranges. Total capital expenditures were above 2020 guidance in large part due to costs associated with individual land user agreements that were not included in the Company's initial growth capital guidance for Peru, as previously disclosed, due to the ongoing nature of the negotiations.

*Reflects Constancia temporary suspension of operations in April and May.

^1^Adjusted net loss and adjusted net loss per share, adjusted EBITDA, cash cost, all-in sustaining cash cost per pound of copper produced, net of by-product credits, 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 Reporting Measures" section of this MD&A.

^2^ Year-over-year forecast changes assume the mid-point of the respective guidance range is achieved.

KEY FINANCIAL RESULTS

Financial Condition Dec. 31, 2019
(in thousands)
Cash and cash equivalents 396,146
Total long-term debt 985,255
Net debt1 589,109
Working capital 271,284
Total assets 4,461,057
Equity 1,848,123
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 Reporting Measures" section of this MD&A.

All values are in US Dollars.

Financial Performance Three months ended Year ended
(in $ thousands, except per share amounts) Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Revenue $ 322,290 $ 324,485 $ 1,092,418 $ 1,237,439
Cost of sales 287,923 298,852 1,053,418 1,085,897
Profit (loss) before tax 911 (42,352) (179,089) (452,763)
Net profit (loss) 7,406 (1,455) (144,584) (343,810)
Basic and diluted loss per share 0.03 (0.01) (0.55) (1.32)
Adjusted loss per share^1^ (0.06) (0.09) (0.46) (0.18)
Operating cash flow before change in non-cash working capital^2^ 86.1 69.1 241.9 307.3
Adjusted EBITDA^1,2^ 106.9 82.2 306.7 358.5
^1^ Adjusted loss 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 Reporting Measures" section of this MD&A.
^2^ In millions.

KEY PRODUCTION RESULTS

Three months ended
Dec. 31, 2020 Dec. 31, 2019
Peru Total Peru Manitoba Total
Contained metal in concentrate produced ^1^
Copper tonnes 5,724 27,278 26,659 5,763 32,422
Gold oz 28,687 32,376 5,007 27,705 32,712
Silver oz 252,904 730,679 631,774 298,363 930,137
Zinc tonnes 25,843 25,843 - 30,592 30,592
Molybdenum tonnes - 333 372 - 372
Payable metal sold
Copper tonnes 4,380 22,963 28,430 5,285 33,715
Gold oz 31,882 35,179 4,824 25,520 30,344
Silver oz 281,541 762,384 666,839 242,584 909,423
Zinc ^2^ tonnes 28,431 28,431 - 28,001 28,001
Molybdenum tonnes - 457 199 - 199
Cash cost ^3^ /lb (3.48) 0.43 1.36 (1.26) 0.90
Sustaining cash cost ^3^ /lb (0.36) 1.97 2.17 1.83 2.11
All-in sustaining cash cost^3^ /lb 2.24 2.22

All values are in US Dollars.

Year ended
Dec. 31, 2020 Dec. 31, 2019
Peru Total Peru Manitoba Total
Contained metal in concentrate produced ^1^
Copper tonnes 22,183 95,333 113,825 23,354 137,179
Gold oz 112,227 124,622 19,723 94,969 114,692
Silver oz 1,127,901 2,750,873 2,504,769 1,080,561 3,585,330
Zinc tonnes 118,130 118,130 - 119,106 119,106
Molybdenum tonnes - 1,204 1,272 - 1,272
Payable metal sold
Copper tonnes 20,382 88,888 106,184 22,335 128,519
Gold oz 111,963 122,949 18,956 90,043 108,999
Silver oz 1,067,038 2,585,586 2,452,496 1,000,430 3,452,926
Zinc ^2^ tonnes 109,347 109,347 - 104,319 104,319
Molybdenum tonnes - 1,321 1,186 - 1,186
Cash cost ^3^ /lb (2.20) 0.60 1.16 (0.75) 0.83
Sustaining cash cost ^3^ /lb 1.02 1.93 1.65 2.07 1.72
All-in sustaining cash cost^3^ /lb 2.16 1.86
^1^Metal reported in concentrate is prior to deductions associated with smelter contract terms.
^2^ Includes refined zinc metal sold.
^3^ 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 the discussion under the "Non-IFRS Financial Reporting Measures" section of this MD&A.

All values are in US Dollars.

RECENT DEVELOPMENTS

COVID-19 Business Update

The Company continues to manage and respond to the COVID-19 pandemic and has implemented preventative measures to ensure the safety of our workforce, their families, and the communities in which we operate. During the fourth quarter, production disruptions due to COVID-19 were minimal and there was no material impact on the delivery of goods to or from our operations. We continue to closely monitor the evolution of the pandemic in each of our operating regions and are reviewing and adapting our procedures based on the latest local situation. While we have had members of our workforce contract COVID-19, to date we have not identified cases of transmission within our workplaces, or transmission between rotational employees and local communities.

On January 26, 2021, the Peruvian government announced heightened restrictions in order to help mitigate the spread of COVID-19. Under these new measures, all provinces of Peru are categorized as High, Very High, or Extreme, with corresponding levels of restrictions, including daily curfews and restrictions on domestic travel. Parts of Lima and Cusco, two regions where we operate, are currently classified as Extreme and Very High, respectively. The new measures are expected to remain in place at least until February 28, 2021, at which point the government of Peru is expected to reevaluate the classifications and the associated restrictions.

On January 28, 2021, in an effort to continue to reduce the COVID-19 cases in the province, the Manitoba government issued a public health order mandating a 14-day self-isolation period for anyone returning or coming to Manitoba from all jurisdictions. This order provides certain allowances for workers travelling to work and is not expected to impact Hudbay's ability to maintain required workforce levels. Our protocols of testing and pre-screening incoming workers continue to be in effect.

Lalor Mine and the New Britannia Mill Refurbishment Update

The New Britannia refurbishment project is ahead of the original schedule. Overall project progress is approximately 73% complete. Construction of the new copper flotation building continues to advance as planned and construction of the pipeline between the New Britannia and Stall mills has been completed.

Total project spending on the New Britannia refurbishment project is forecast to be approximately $13.0 million higher than budget due to project scope additions and COVID-19 related costs, identified through a higher classification of the project capital estimate as the project nears completion. The additions to the project scope were as a result of changes to the Stall tailings pipeline configuration due to processing considerations, in addition to the implemented scope changes relating to the installation of temporary modular copper flotation cells to achieve early gold production at the gold plant. COVID-19 related costs are as a result of the additional costs associated with remote project management and pandemic safety protocols.

Refurbishment activities at the gold plant continue to remain ahead of the original schedule with commissioning expected to be completed in mid-2021. Ramp-up and first production at the gold plant is expected early in the third quarter of 2021. Copper flotation building construction activities are on track for commissioning and ramp-up during the fourth quarter of 2021.

Operational readiness activities in support of the early start-up of New Britannia are on track. Lalor continues to exceed underground development rates in gold-rich lenses 25 and 27, and in preparation for the mid-year startup of New Britannia, a stockpile of 12,000 tonnes of gold ore was established on surface during the fourth quarter of 2020. The gold ore stockpile is expected to grow over the first half of 2021 and supply sufficient feed to facilitate a quick ramp up of the gold plant.

Once the New Britannia mill is fully ramped-up, average annual gold production from Lalor is expected to increase to over 150,000 ounces commencing in 2022 at cash costs and sustaining cash costs, net of by-product credits, of approximately $480 and $655 per ounce, respectively, during the first eight years of the gold plant's operation.

Pampacancha Update

We completed the Pampacancha surface rights agreement with the local community of Chilloroya in February 2020. Throughout the remainder of the year, we focused on advancing the consultation process between the government and the Chilloroya community as per Peru's Consulta Previa law. Despite challenges presented by the pandemic, the Consulta Previa process was completed at the end of the year, and in early January 2021, we received the final mining permit for the development and operation of Pampacancha.

In January 2021, Hudbay commenced limited pre-development activities for Pampacancha, including haul road construction and site preparation work. The company continues to advance discussions with the remaining land user family at Pampacancha. Pre-stripping activities are expected to commence once the remaining land user agreement has been completed.

In late January 2021, new COVID-19 restrictions were announced by the government of Peru. As a result of these restrictions and the need to complete the remaining land user agreements, we no longer expect to mine four million tonnes of ore from the Pampacancha deposit by June 30, 2021. If we fail to meet this milestone, we will be required to deliver an additional 8,020 ounces of gold to Wheaton Precious Metals ("Wheaton") in equal quarterly installments, at prevailing market prices, starting September 30, 2021. Hudbay and Wheaton are currently in discussions about, among other things, alternatives to defer the additional gold deliveries over the Pampacancha mine life.

Rosemont Update

The appeal of the unprecedented Rosemont court decision with the U.S. Court of Appeals for the Ninth Circuit ("Ninth Circuit") continues to advance with final briefs filed in November 2020 and the oral hearing completed in early February 2021. A decision from the Ninth Circuit is expected in the second half of 2021.

We have completed the initial drill program on our wholly owned private land located near Rosemont in a historic mining district called Helvetia. The focus of the program was to complete condemnation drilling for Rosemont and to test the Helvetia copper district for future exploration potential. The drill program consisted of 60 holes with several intersecting sulphide or oxide mineralization. Full assay results are pending.

Other Key Strategic Initiatives

Snow Lake Expansion Potential

We continue to advance various studies as part of phase three of our Snow Lake gold strategy. We expect to publish an updated mine plan for our Snow Lake operations with our annual mineral reserves and resources update at the end of March 2021. The updated mine plan is expected to incorporate the following upside opportunities:

• Increased Lalor Mine Production Rate - At the Lalor mine, we were pleased with the production increase achieved during the fourth quarter as a result of the allocation of additional mining resources from 777 to Lalor while the 777 shaft repairs were being completed. During this period, Lalor's mine output increased by an average of 650 tonnes per day above the normal level. The updated mine plan will contemplate a higher production rate at the Lalor mine after the 777 mine closes in mid-2022.

• 1901 Deposit Prefeasibility Study - After releasing an upgraded resource estimate for the 1901 deposit in August 2020, we initiated engineering activities to develop a viable mine plan for the 1901 deposit that could supplement production from Lalor to take advantage of the future processing capacity of our mills in the Snow Lake region. The study will initially focus on the base metal zones with the gold zone in the inferred category remaining as future upside potential for the deposit. The results will be reflected in our updated mine plan for Snow Lake.

• Stall Recovery Improvement Study - We are exploring various technological enhancements at the Stall mill to potentially increase gold and copper recoveries, which could create further value for Lalor and the other deposits in the Snow Lake region.

We believe the updated mine plan will optimize our milling capacity in Snow Lake with an expected higher production rate at Lalor and the incorporation of the 1901 deposit into the operations. There remains the potential to  expand the New Britannia mill capacity beyond the currently planned 1,500 tonnes per day and this opportunity is expected to be examined in the future once the updated mine plan enhancements have been implemented.

Constancia Regional Exploration

We are evaluating and integrating the results from the recent drill programs at Constancia North into our annual mineral reserve and resource estimate update for Constancia at the end of March 2021. The drill program intersected copper porphyry and high-grade skarn mineralization within 300 metres of the northern edge of the current Constancia pit. The mineralization remains open to the north.

We continue to advance the regional exploration programs in Peru. In early 2021, we commenced drilling on the Quehuincha North high-grade skarn target located approximately 10 kilometres from Constancia's processing facilities. Exploration agreement discussions with the community of Uchucarcco on the Maria Reyna and Caballito properties are progressing. Maria Reyna is a prospective copper skarn-porphyry target and Caballito is a past-producing copper oxide mine, both of which are located within 10 kilometers north of Constancia. We also expect to commence drilling at our Llaguen property in the second quarter of 2021, after receiving all required drill permits in 2020. Llaguen is a copper porphyry target located in northern Peru, near the city of Trujillo and in close proximity to existing infrastructure.

Collective Bargaining Agreements

The three-year collective bargaining agreements with Hudbay's unionized workforces at each of our Peru and Manitoba operations expired on or about December 31, 2020. We are engaged in discussions with the labour unions in each jurisdiction as we work toward renewing the collective agreements.

Dividend Declared

A semi-annual dividend of C$0.01 per share was declared on February 18, 2021. The dividend will be paid out on March 26, 2021 to shareholders of record as of March 9, 2021.

CONSTANCIA OPERATIONS REVIEW

Three months ended Year ended Guidance
Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 Annual
2020 ^1^ 2021
Ore mined ^2^ tonnes 9,313,784 8,049,063 27,529,950 33,308,369
Copper % 0.31 0.41 0.32 0.43
Gold g/tonne 0.03 0.04 0.03 0.04
Silver g/tonne 2.61 3.87 2.75 3.76
Molybdenum % 0.01 0.02 0.02 0.02
Ore milled tonnes 7,741,714 7,474,136 26,297,318 31,387,281
Copper % 0.33 0.42 0.34 0.42
Gold g/tonne 0.03 0.04 0.03 0.04
Silver g/tonne 2.74 3.86 2.87 3.64
Molybdenum % 0.02 0.02 0.02 0.02
Copper concentrate tonnes 94,552 114,201 321,395 487,772
Concentrate grade % Cu 22.80 23.34 22.76 23.34
Copper recovery % 85.3 85.6 83.0 85.7
Gold recovery % 52.7 50.0 49.8 48.1
Silver recovery % 70.1 68.2 66.9 68.2
Molybdenum recovery % 28.4 30.8 29.4 26.5
Combined unit operating costs^3,4^ /tonne 10.17 10.20 9.46 9.50 8.30 - 10.00 8.90 - 10.90
^1^ Updated Peru guidance issued August 11, 2020.
^2^ Reported tonnes and grade for ore mined are estimates based on mine plan assumptions and may not reconcile fully to ore milled.
^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 Reporting Measures" section of this MD&A.

All values are in US Dollars.

The Constancia team continues to deliver strong operating performance despite the environment of strict ongoing COVID-19 measures and controls. We continue to work collaboratively with the local health authorities to ensure our workforce and partners adhere to our COVID-19 protocols while continuing to operate safely and efficiently.

The Constancia mine achieved excellent operational efficiencies during the quarter with a 16% increase in ore mined compared to the fourth quarter of 2019.

Ore milled during the fourth quarter of 2020 was 4% higher compared to the same period in 2019 due to the deferral of a fourth quarter plant maintenance shutdown to January 2021. This was partially offset by increased ore hardness that limited throughput, as compared to the same period in 2019. Milled gold, silver and copper grades in the fourth quarter were approximately 25%, 29% and 21% lower, respectively, than the same period in 2019. Copper recoveries in the fourth quarter of 2020 remained consistent with the same period in 2019 as the impact of lower grades was offset by lower contaminants in the current mining phase of the pit and flotation process improvements.

Combined mine, mill and G&A unit operating costs in the fourth quarter of 2020 were in line with the same period in 2019, primarily due to a higher volume of ore milled as a result of the delayed plant maintenance which led to reduced operating costs at the mill. This was partially offset by higher mining costs and lower capitalized stripping expenditures.

Full year combined unit operating costs were in line with 2019 as lower production, caused by an eight-week suspension of operations, was offset by a corresponding decrease in mine, mill and general and administrative costs.

Contained metal in concentrate produced Three months ended Year ended Guidance
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 Annual
2020 ^1^ 2021
Copper tonnes 21,554 26,659 73,150 113,825 65,000 - 75,000 72,000 - 88,000
Gold oz 3,689 5,007 12,395 19,723 - 40,000 - 50,000
Silver oz 477,775 631,774 1,622,972 2,504,769 - 1,800,000 - 2,170,000
Molybdenum tonnes 333 372 1,204 1,272 1,100- 1,300 1,400 - 1,700
Precious metals^2^ oz 9,058 14,033 30,630 55,506 25,000 - 35,000 -
^1^ Updated Peru guidance issued August 11, 2020.
^2^ Precious metals production includes gold and silver production on a gold-equivalent basis. For 2019, silver is converted to gold at a ratio of 70:1. For 2020, silver is converted to gold at a ratio of 89:1.

In the fourth quarter of 2020, production of copper, gold and silver were 19%, 26%, and 24% lower, respectively, than the same period in 2019 due to lower grades. Full year 2020 production of copper, gold and silver were 36%, 37%, and 35% lower, respectively, compared to 2019, due to the same reasons as the fourth quarter variances as well as the suspension of operations in the second quarter of 2020.

Molybdenum production in the fourth quarter of 2020 was lower than the same period in 2019 due to lower ore grades and recoveries. Full year 2020 molybdenum production was also lower than the same period in 2019 due to the eight-week suspension of operations as well as lower grades, partially offset by higher recoveries.

Full year production of all metals and unit operating costs at Constancia achieved the revised full year guidance ranges for 2020.

*Reflects Constancia temporary suspension of operations in April and May.

Peru Cash Cost and Sustaining Cash Cost

Three months ended Year ended
Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Cash cost per pound of copper produced, net of by-product credits^1^ /lb 1.47 1.36 1.45 1.16
Sustaining cash cost per pound of copper produced, net of by-product credits^1^ /lb 2.58 2.17 2.20 1.65
^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.

All values are in US Dollars.

Cash cost per pound of copper produced, net of by-product credits, for the three months and year ended December 31, 2020 were $1.47 and $1.45, respectively. Cash cost increased 8% and 25%, respectively, compared to the same periods in 2019. The overall increase is primarily due to lower copper production caused by lower grades as we progress through the mine plan, and, in the case of full year 2020 copper production, an eight-week suspension of Constancia operations during the second quarter.

Sustaining cash cost per pound of copper produced, net of by-product credits increased by 19% compared to the fourth quarter of 2019, mainly due to the same factors noted above affecting cash costs as well as elevated sustaining capital spending in the fourth quarter of 2020 following a full ramp up of Constancia operations to normal levels in the second half of 2020. Sustaining cash cost increased 33% on a year-to-date basis, primarily due to the same factors noted above.

Metal Sold

Three months ended Year ended
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Payable metal in concentrate
Copper tonnes 18,583 28,430 68,506 106,184
Gold oz 3,297 4,824 10,986 18,956
Silver oz 480,843 666,839 1,518,548 2,452,496
Molybdenum tonnes 457 199 1,321 1,186

Quantities of payable metal sold for the year ended December 31, 2020 were lower than the same period in 2019 primarily for the same reasons that affected contained metal production as well as the relative timing of shipments.

MANITOBA OPERATIONS REVIEW

Mines

Three months ended Year ended
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Lalor
Ore tonnes 468,101 390,140 1,654,240 1,536,780
Copper % 0.80 0.80 0.74 0.75
Zinc % 5.54 6.20 5.73 6.36
Gold g/tonne 2.79 2.63 2.51 2.16
Silver g/tonne 24.96 28.38 25.31 25.51
777
Ore tonnes 164,856 269,342 991,576 1,109,782
Copper % 1.89 1.17 1.40 1.37
Zinc % 2.98 3.33 3.88 3.22
Gold g/tonne 1.85 1.52 1.90 1.61
Silver g/tonne 21.64 18.52 24.13 18.67
Total Mines
Ore tonnes 632,957 659,482 2,645,816 2,646,562
Copper % 1.08 0.95 0.98 1.01
Zinc % 4.87 5.03 5.04 5.04
Gold g/tonne 2.55 2.18 2.29 1.93
Silver g/tonne 24.10 24.35 24.87 22.64
Unit Operating Costs^1,2^ Three months ended Year ended
--- --- --- --- --- --- --- --- ---
Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Mines
Lalor C/tonne 98.74 99.90 96.51 104.42
777 C/tonne 87.17 82.35 79.94 79.02
Total Mines C/tonne 95.73 92.73 90.30 93.77
^1^ Reflects costs per tonne of ore mined.
^2^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 Reporting Measures" section of this MD&A.

All values are in US Dollars.

The Manitoba business unit had strong operating performance across the mines, mills and zinc plant during the fourth quarter despite the 777 shaft incident, which resulted in the suspension of hoisting operations for six weeks. In the face of the growing COVID-19 pandemic, we added new controls at the Snow Lake camp by introducing point of care PCR testing while maintaining the existing controls that were developed in the early part of the year. Our health and safety committees have continued to work collaboratively with local health units with a focus on keeping our employees and communities safe.

The coordinated business unit response to the 777 shaft incident focused on mitigating production losses by efficiently completing the repairs in the shaft, allowing the mine to return to normal operations quicker than expected.  A business continuity plan was established that relocated employees and equipment from 777 to Lalor and utilized Lalor's ramp to truck additional ore to surface from the upper parts of the mine at a rate of approximately 650 tonnes per day. This plan was successfully executed allowing Lalor to achieve record quarterly production, averaging over 5,000 tonnes per day in the quarter. Lalor continued to produce at a higher tonnage rate through the month of December mainly due to ongoing continuous improvement initiatives.

Total unit operating costs for the mines during the fourth quarter of 2020 increased by 3% compared to the same period in 2019 mainly due to higher unit costs at 777 due to lower tonnage in the quarter. Full year total unit operating costs for the mines decreased by 4% due to lower Lalor unit costs.

Processing Facilities

Three months ended Year ended
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Stall Concentrator
Ore tonnes 372,624 310,622 1,412,751 1,290,300
Copper % 0.79 0.80 0.73 0.73
Zinc % 5.47 6.24 5.76 6.39
Gold g/tonne 2.88 2.60 2.55 2.13
Silver g/tonne 24.43 28.12 25.37 25.48
Copper concentrate tonnes 14,271 10,930 47,680 40,856
Concentrate grade % Cu 18.03 19.56 18.74 19.86
Zinc concentrate tonnes 36,395 35,173 147,862 147,227
Concentrate grade % Zn 50.89 49.96 50.57 51.04
Copper recovery % 87.1 85.9 86.2 85.9
Zinc recovery % 90.9 90.7 91.9 91.1
Gold recovery % 59.5 61.1 60.0 56.8
Silver recovery % 60.3 62.9 60.4 60.4
Contained metal in concentrate produced
Copper tonnes 2,572 2,138 8,934 8,113
Zinc tonnes 18,520 17,574 74,776 75,144
Precious metals^1^ oz 22,491 18,394 77,482 59,394
Flin Flon Concentrator
Ore tonnes 225,663 374,529 1,205,314 1,362,006
Copper % 1.59 1.11 1.28 1.27
Zinc % 3.87 4.05 4.21 3.78
Gold g/tonne 1.99 1.75 1.96 1.72
Silver g/tonne 22.65 20.56 24.26 19.84
Copper concentrate tonnes 13,900 15,640 57,658 65,508
Concentrate grade % Cu 22.68 23.18 22.98 23.27
Zinc concentrate tonnes 14,078 25,482 85,232 86,329
Concentrate grade % Zn 52.02 51.09 50.87 50.92
Copper recovery % 88.1 86.9 86.0 88.0
Zinc recovery % 83.9 85.8 85.5 85.5
Gold recovery % 56.6 56.1 56.0 59.4
Silver recovery % 46.5 49.2 45.9 50.8
Contained metal in concentrate produced
Copper tonnes 3,152 3,625 13,249 15,241
Zinc tonnes 7,323 13,018 43,354 43,962
Precious metals^1^ oz 9,038 13,573 47,418 51,012
^1^ Precious metals production includes gold and silver production on a gold-equivalent basis.  For 2019, silver is converted to gold at a ratio of 70:1. For 2020, silver is converted to gold at a ratio of 89:1.
Unit Operating Costs^1^ **** Three months ended Year ended Guidance
--- --- --- --- --- --- --- --- --- --- ---
Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 Annual
2020 2021
Concentrators
Stall C/tonne 23.52 29.31 23.56 26.47
Flin Flon C/tonne 25.31 22.90 23.59 22.91
Combined mine/mill unit operating costs ^2,3^
Manitoba C/tonne 140 128 132 134 130 - 140 145 - 155
^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 Reporting Measures" section of this MD&A.

All values are in US Dollars.

The Stall concentrator achieved record throughput of 4,050 tonnes per day during the fourth quarter and approximately 3,870 tonnes per day on an annual basis. Ore processed during the fourth quarter of 2020 was 20% higher than the same period of 2019 as additional resources from 777 were deployed to Lalor and incremental ore mined was sent to Stall. Full year ore processed at Stall increased by 9% as a result of ongoing continuous improvement initiatives and higher ore availability from the Lalor mine as indicated above. Although Stall recoveries were generally below levels experienced during the first half of 2020, the trend of improving gold recoveries has continued when compared to the same periods in 2019 due to improved ore characteristics and numerous operational improvement projects implemented at the Stall mill.

Ore processed at the Flin Flon concentrator in the fourth quarter of 2020 decreased by 40% compared to the same period in 2019. This was due to the production interruption at 777, which resulted in less ore mined and available to feed the mill. Full year ore processed at the Flin Flon concentrator was 12% lower than 2019 primarily for the same reason as noted above.  Metal recoveries at the Flin Flon concentrator during 2020 were lower for all metals other than zinc, which was in line with prior year recoveries and metallurgical models given the head grades processed.

As a result of the increased ore availability from Lalor during the quarter, unit operating costs at Stall decreased by 20% compared to the same period in 2019, whereas unit operating costs at Flin Flon were 11% higher over the same period because of reduced ore mined from 777.

Manitoba combined mine, mill and G&A unit operating costs in the fourth quarter of 2020 increased by 9% compared to the same period in 2019, but remained within the annual guidance range despite the 777 production interruption. The increase was primarily due to less ore milled in Flin Flon during the fourth quarter. Full year combined mine, mill and G&A unit operating costs in 2020 were slightly lower than 2019 levels as the mines and mills continued to deliver efficient results despite the production interruption at 777.

Manitoba<br><br> <br>contained metal<br><br> <br>in concentrate<br><br> <br>produced^1^ Three months ended Year ended Guidance
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 Annual
2020 2021
Copper tonnes 5,724 5,763 22,183 23,354 18,000 - 22,000 20,000 - 24,000
Gold oz 28,687 27,705 112,227 94,969 - 150,000 - 165,000
Silver oz 252,904 298,363 1,127,901 1,080,561 - 1,200,000 - 1,400,000
Zinc tonnes 25,843 30,592 118,130 119,106 105,000 - 125,000 96,000 - 107,000
Precious metals^2^ oz 31,529 31,967 124,900 110,406 110,000 - 135,000 -
^1^Metal reported in concentrate is prior to deductions associated with smelter terms.
^2^Precious metals production includes gold and silver production on a gold-equivalent basis. For 2019, silver is converted to gold at a ratio of 70:1. For 2020, silver is converted to gold at a ratio of 89:1.

Gold production was 4% higher in the fourth quarter of 2020 due to higher head grades at Lalor as compared to the same period in 2019. Copper production during the quarter was consistent with prior year levels as the lost production during the 777 shaft repair period was offset by the mining of higher grade copper stopes when the mine was operating at normal levels. Silver and zinc production declined by 15% and 16%, respectively, in the fourth quarter of 2020 compared to the same quarter in 2019 primarily due to the 777 production interruption and lower head grades at Lalor.

Full year 2020 gold and silver production increased by 18% and 4%, respectively, **** due to higher gold and silver head grades and higher recoveries at Stall compared to prior year. Full year copper production decreased by 5% as reduced production at 777 was not fully offset by the higher throughput at Stall.

Despite the fourth quarter production interruption at the 777 mine, annual guidance for all metals and unit costs was achieved in Manitoba, with copper production exceeding the upper end of the guidance range.

Zinc Plant

Zinc Production Three months ended Year ended Guidance
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 Annual
2020 2021
Zinc Concentrate Treated
Domestic tonnes 61,395 58,884 241,089 217,484
Refined Metal Produced
Domestic tonnes 28,818 27,816 111,637 103,340 100,000 - 112,000 96,000 - 103,000
Unit Operating Costs Three months ended Year ended Guidance
--- --- --- --- --- --- --- --- --- --- ---
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 Annual
2020 2021
Zinc Plant ^1,2^ C$/lb 0.45 0.48 0.47 0.49 0.45 - 0.52 0.50 - 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 Reporting Measures" section of this MD&A.

Production of cast zinc in the fourth quarter of 2020 was 4% higher than the same period in 2019 while operating costs per pound of zinc metal produced were 6% lower over the same period. Refined zinc metal production in the fourth quarter was not materially impacted by the 777 production interruption due to the processing of available zinc concentrate inventories. Full year 2020 refined zinc metal production increased by 8% compared to the same period in 2019 due to higher equipment availability coupled with higher concentrate availability. The 2020 refined zinc metal production was the highest level achieved in over 10 years.

Full year production of cast zinc and zinc plant unit operating cost were within guidance ranges for 2020.

Manitoba Cash Cost and Sustaining Cash Cost

Three months ended Year ended
Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Cost per pound of copper produced
Cash cost per pound of copper produced, net of by-product credits ^1^ /lb (3.48) (1.26) (2.20) (0.75)
Sustaining cash cost per pound of copper produced, net of by-product credits ^1^ /lb (0.36) 1.83 1.02 2.07
Cost per pound of zinc produced
Cash cost per pound of zinc produced, net of by-product credits ^1^ /lb (0.02) 0.34 0.10 0.42
Sustaining cash cost per pound of zinc produced, net of by-product credits ^1^ /lb 0.67 0.92 0.71 0.97
^1^ Cash cost and sustaining cash cost per pound of copper & zinc 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.

All values are in US Dollars.

Cash cost per pound of copper produced, net of by-product credits, in the fourth quarter of 2020 was negative $3.48. These costs were lower compared to the same period in 2019, primarily as a result of higher by-product credit revenues and lower milling costs. Cash cost per pound of copper produced, net of by-product credits was lower in 2020 compared to 2019 for the same reasons as noted above, but was partially offset by lower copper production.

Sustaining cash cost per pound of copper produced, net of by-product credits, in the fourth quarter of 2020 was negative $0.36. These costs were lower compared to the same period in 2019, primarily due to the reasons listed above offset by increased sustaining capital expenditures. Sustaining cash cost per pound of copper produced, net of by-product credits, were lower in 2020 compared to 2019, primarily due to the same reasons.

Cash cost and sustaining cash cost per pound of zinc produced, net of by-product credits, in the fourth quarter of 2020 were lower than the same period last year as a result of significantly higher by-product credits, lower milling costs, partially offset by lower production and higher sustaining capital expenditures.

Cash cost and sustaining cash cost per pound of zinc produced, net of by-product credits, were lower in 2020 compared to 2019 due to significantly higher by-product credits, partially offset by higher sustaining capital expenditures.

Metal Sold

Three months ended Year ended
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Payable metal in concentrate
Copper tonnes 4,380 5,285 20,382 22,335
Gold oz 31,882 25,520 111,963 90,043
Silver oz 281,541 242,584 1,067,038 1,000,430
Refined zinc tonnes 28,431 28,001 109,347 104,319

OUTLOOK

This outlook includes forward-looking information about our operations and financial expectations based on our expectations and outlook as of February 18, 2021. As a result of the COVID-19 global pandemic, we have experienced operational, supply chain, travel, labour and shipping disruptions, and we may continue to experience similar disruptions in the future. Given the uncertainty of the duration and magnitude of the impact of COVID-19, including its impact on the development timeline for Pampacancha, our 2021 production and cost guidance are subject to a higher-than-normal degree of uncertainty. The guidance below does not reflect any potential for additional suspensions or other significant disruption to operations or delays to development activities.

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 2021.

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^1^ 2021 Guidance Year ended<br>Dec. 31, 2020 2020 Guidance^2^
Peru
Copper tonnes 72,000 - 88,000 73,150 65,000 - 75,000
Gold^3^ oz 40,000 - 50,000 12,395 -
Silver^3^ oz 1,800,000 - 2,170,000 1,622,972 -
Molybdenum tonnes 1,400 - 1,700 1,204 1,100 - 1,300
Precious metals^3^ oz - 30,630 25,000 - 35,000
Manitoba
Zinc tonnes 96,000 - 107,000 118,130 105,000 - 125,000
Gold^3^ oz 150,000 - 165,000 112,227 -
Copper tonnes 20,000 - 24,000 22,183 18,000 - 22,000
Silver^3^ oz 1,200,000 - 1,400,000 1,127,901 -
Precious metals^3^ oz - 124,900 110,000 - 135,000
Total
Copper tonnes 92,000 - 112,000 95,333 83,000 - 97,000
Gold^3^ oz 190,000 - 215,000 124,622 -
Zinc tonnes 96,000 - 107,000 118,130 105,000 - 125,000
Silver^3^ oz 3,000,000 - 3,570,000 2,750,873 -
Molybdenum tonnes 1,400 - 1,700 1,204 1,100 - 1,300
Precious metals^3^ oz - 155,530 135,000 - 170,000
^1^ Metal reported in concentrate is prior to refining losses or deductions associated with smelter terms.
^2^Original 2020 guidance for Peru was revised on August 11, 2020 to account for a government-mandated temporary mine closure.
^3^ Precious metals production includes gold and silver production on a gold-equivalent basis and is only reported for 2020 since separate guidance for each of gold and silver was introduced in 2021. For 2020, silver is converted to gold at a ratio of 89:1.

On a consolidated basis, we met 2020 production guidance for all metals, and copper production exceeded the guidance range in Manitoba. Consolidated copper production was 6% higher than the mid-point of the guidance range due to strong performance at the Constancia operations in the second half of the year and the mining of higher copper grade stopes at 777.

In 2021, consolidated copper production is forecast to increase by 7%^1^ compared to 2020 production primarily as a result of higher expected copper production in Peru, given 2020 production was impacted by an eight-week temporary mine interruption related to a government-declared state of emergency. Consolidated gold production in 2021 is expected to increase by 62%^1^ year-over-year due to higher gold production in both Manitoba and Peru. In Manitoba, gold production is expected to increase by 40%^1^ in 2021 due to the planned early startup of the New Britannia gold mill. In Peru, gold production is expected to more than triple in 2021 as we expect to see the benefits from the higher grades at the Pampacancha satellite deposit. Zinc production is expected to decline by 14%^1^ year-over-year as a result of prioritizing the mining of the gold-rich zones at Lalor in connection with the early startup of the New Britannia mill, which will result in mining less of the zinc-rich base metal zones at Lalor.

^__________________________________1^ Year-over-year forecast changes assume the mid-point of the respective guidance range is achieved.

Peru's 2021 production guidance assumes mining of Pampacancha will begin in the second quarter, with the initial phase of lower copper grades, but higher gold grades, expected to continue for the balance of the year before higher copper grades are forecast to enter the mine plan in 2022. Manitoba's 2021 production guidance reflects an increase in Lalor's mine throughput to 4,650 tonnes per day, from the previous 4,500 tonnes per day, as the recent trend of stronger production from the mine is expected to continue.

We expect to publish updated mine plans for each of our Constancia and Snow Lake operations with our annual mineral reserve and resource update at the end of March 2021, as discussed in the "Strategy" section in this MD&A. The new Constancia mine plan is expected to reflect an increase in copper and gold production from 2022 to 2025 as the higher grades from the Pampacancha deposit enter the mine plan. This is expected to offset the lost copper production from the 777 closure in mid-2022 and enable a steady state in Hudbay's consolidated copper production. The new Constancia mine plan will incorporate new reserves from the Constancia North property, which will extend the Constancia pit. The new mine plan will also include updated unit cost assumptions based on recent operational and business activities. The new Snow Lake mine plan is expected to reflect an increase in Lalor's mine production rate beyond 4,650 tonnes per day, and incorporate the results of the 1901 prefeasibility study and the Stall mill recovery improvement study. Given the pending mine plan updates, we expect to issue our new three-year production outlook once the updated mine plans have been released.

Capital Expenditure Guidance

Capital Expenditures1<br> (in millions) Year ended<br><br> <br>Dec. 31, 2020 2020 Guidance^2^
Sustaining capital
Peru3 91.1 80.0
Manitoba 95.3 100.0
Total sustaining capital 186.4 180.0
Growth capital
Peru4 107.0 70.0
Manitoba 61.4 80.0
Arizona5 15.6 20.0
Total growth capital 184.0 170.0
Capitalized exploration 11.9 15.0
Total capital expenditures 382.3 365.0
1 Excludes capitalized costs not considered to be sustaining or growth capital expenditures. Capital expenditures are converted into U.S. dollars using the following rates: 1.30 Canadian dollars and 3.45 Peruvian soles.
2 Original 2020 guidance for Peru was revised on August 11, 2020 to account for a government-mandated temporary mine closure.
3 Includes capitalized stripping costs and Pampacancha capital after pre-stripping.
4 Peru growth capital expenditures guidance of 70.0 million in 2020 related to expected expenditures for developing the Pampacancha deposit and acquiring surface rights, but excluded any costs related to the individual land user agreements due to the ongoing nature of the negotiations. The actual costs incurred in 2020 included the costs for acquiring the surface rights and amounts committed under the land user agreements completed during 2020. A portion of the development expenditures was deferred to 2021. Peru growth capital guidance of 5.0 million includes the project development expenditures but excludes the additional costs related to the remaining individual land user agreements.
5 Arizona spending includes capitalized costs associated with the Rosemont project.

All values are in US Dollars.

Total capital expenditures are expected to decline by 11% year-over-year primarily due to lower expected growth spending in Peru in 2021.

Total sustaining capital expenditures in 2021 are expected to increase from 2020 levels primarily due to the deferral of heavy civil works and capitalized stripping expenditures in Peru from 2020 into 2021, partially offset by expected lower sustaining spending in Manitoba. A tailings dam raise is underway at Constancia and the associated heavy civil works accounts for a significant portion of the 2021 sustaining costs in Peru. Also, a portion of the Pampacancha heavy civil works, previously classified as growth capital, has been reclassified to sustaining capital expenditures in 2021. It is expected that Peru sustaining capital expenditures will begin to decline in 2022.

In Manitoba, we continue to implement improvements on the legacy Flin Flon tailings impoundment area, in line with the higher industry-wide standards for tailings dam safety. Spending under the tailings upgrade program is expected to average approximately $20.0 million per year from 2020 to 2022. These expenditures will not impact sustaining capital expenditures since they are associated with the decommissioning and restoration liability, and therefore, will be accounted for as a drawdown of the liability through operating cash flow.

Manitoba growth capital spending of $75.0 million in 2021 includes approximately $70.0 million for the completion of the New Britannia mill refurbishment project and approximately $5.0 million for the construction of a new long-term camp facility in Snow Lake. Manitoba growth capital spending in 2020 was lower than expected due to the deferral of approximately $20.0 million into 2021, despite the New Britannia refurbishment project continuing to track ahead of the original schedule. Total project spending on the New Britannia refurbishment project in 2021 includes an approximate $13.0 million increase in project costs as a result of the completion of a definitive estimate that incorporates project scope additions and COVID-19 related costs.

Peru growth capital spending of $5.0 million in 2021 includes a portion of the Pampacancha project development expenditures that was deferred from 2020, but excludes the costs associated with completing the remaining individual land user agreement due to the ongoing nature of the negotiations. As stated previously, the 2020 Peru growth capital guidance similarly excluded the land user agreement costs; however, a significant portion of the actual growth expenditures incurred in 2020 related to costs associated with land user agreements completed during the year.

Exploration Guidance

Exploration Expenditures<br> (in millions) Year ended
Dec. 31, 2020 2020 Guidance
Peru 14.3 15.0
Manitoba 10.1 10.0
Arizona and other 4.7 -
Total exploration expenditures 29.1 25.0
Capitalized spending (11.9) (15.0)
Total exploration expense 17.2 10.0

All values are in US Dollars.

Our total exploration spending in 2021 is expected to be higher than 2020 levels as we plan to conduct additional drilling activities in Peru and Arizona.

In Peru, 2021 drilling activities will be focused on the Quehuincha North skarn target property located approximately 10 kilometres north of Constancia, and on the Llaguen greenfield project located near the city of Trujillo in northern Peru. In Manitoba, we expect to complete a winter drill program focused on expanding the 1901 deposit and testing drill targets identified between 1901 and the Lalor mine. In Arizona, we plan to continue the drilling activities in the Helvetia copper region, in addition to a portion of exploration expenditures allocated for generative purposes.

Unit Operating Cost Guidance

Combined Mine/Mill Unit Operating Cost^1,2^ 2021 Guidance Year ended<br><br> <br>Dec. 31, 2020 2020 Guidance^3^
Peru $/tonne 8.90 - 10.90 9.46 8.30 - 10.00
Manitoba C$/tonne 145 - 155 132 130 - 140
^1^ Reflects combined mine, mill and G&A costs per tonne of milled ore. Peru costs reflect the deduction of expected capitalized stripping costs.
^2^ Combined unit costs 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 Reporting Measures" section of this MD&A.
^3^  Original 2020 guidance for Peru was revised on August 11, 2020 to account for a government-mandated temporary mine closure.

Combined unit costs for Manitoba in 2021 are forecast to be modestly higher than 2020 levels due to the reduction in capitalized underground development at both 777 and Lalor, which increases the portion of mining costs that are expensed and included in unit costs. In addition, combined unit costs in Manitoba are expected to trend higher with the inclusion of the New Britannia mill given the New Britannia milling unit costs are higher than the Flin Flon and Stall milling costs as disclosed in our Snow Lake operations mine plan released in March 2020. Combined unit costs for Peru in 2021 are approximately 5%^1^higher than 2020 as a result of higher consumable and mill maintenance costs and the impact of blasting harder ore in the Constancia pit.

Flin Flon Zinc Plant Guidance 2021 Guidance Year ended<br><br> <br>Dec. 31, 2020 2020 Guidance
Zinc metal produced tonnes 96,000 - 103,000 111,637 100,000 - 112,000
Unit operating costs^1^ C$/lb 0.50 - 0.55 0.47 0.45 - 0.52
^1^ Unit costs 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 Reporting Measures" section of this MD&A.

Cash Cost and Sustaining Cash Cost Guidance

Consolidated Cash Cost per pound of copper produced1,2 2021 Guidance Year ended<br><br> <br>Dec. 31, 2020 2020 Guidance^3^
Cash cost 0.65 - 0.80 0.60 -
Sustaining cash cost 2.05 - 2.30 1.93 -
1 Cash cost and sustaining cash cost, net of by-product credits, per pound of copper contained in concentrate. By-product credits are calculated using the gold and silver deferred revenue drawdown rates in effect on December 31, 2020 and the following commodity prices: 1.07 per pound zinc (includes premium), 1,800 per ounce gold, 21.00 per ounce silver, 8.00 per pound molybdenum and an exchange rate of 1.30 C/US.
2 Cash cost and sustaining cash 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 Reporting Measures" section of this MD&A.
3 Cash cost and sustaining cash cost guidance was introduced in 2021 and is not available for 2020.

All values are in US Dollars.

We are introducing consolidated cash cost and sustaining cash cost guidance in 2021. Consolidated cash cost per pound of copper produced, net of by-product credits, is expected to slightly increase from 2020 levels due to the expected increase in unit costs as described above, partially offset by expected higher copper production and higher by-product credits. Consolidated sustaining cash cost per pound of copper produced, net of by-product credits, is expected to be consistent with 2020 as lower sustaining capital expenditures are expected to offset the increase in cash costs.

Metal production in any particular quarter may vary from the implied annual guidance rate based on variations in grades and recoveries due to the areas mined in that quarter, the timing of planned maintenance, and other factors. Mining and processing costs in any particular quarter can vary from the annual guidance rate above based on a variety of factors, including the scheduling of maintenance events and seasonal heating requirements, particularly in Manitoba. Cash cost and sustaining cash cost may also vary based on changes in commodity prices affecting by-product credits. In Peru, the regularly scheduled semi-annual mill maintenance shutdowns at Constancia are expected to occur during the first and third quarters of 2021.

Commodity Markets

Our 2021 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 as they recover from the COVID-19 related shutdowns will influence the demand for copper and zinc, while interest rates, investor expectations of future inflation, the performance of financial markets and the level of economic uncertainty will influence the investment demand for gold. 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. Average prices for copper and zinc were far more volatile in 2020 than they were in 2019 due to the adverse effect of the COVID-19 pandemic on the world economy. Government mandated lockdowns and a rapid decline in the value of all assets drove copper and zinc prices to multiyear lows in the first quarter of 2020 before temporary supply side disruptions and scrap shortages, central bank liquidity injections and improved market sentiment propelled prices, especially copper, to levels significantly higher than prior to the pandemic. Gold prices, except for a brief decline in March 2020 when all asset prices suffered steep declines, moved higher through the last three quarters of the year due to the COVID-19 crisis and the world's response to it.

We have developed the following market analysis from various information sources including analyst and industry experts.

Copper

In 2020, the London Metal Exchange ("LME") copper price averaged $2.80 per pound ("/lb"), with prices ranging from a low of $2.09/lb during the depths of the initial COVID-19 crisis in March 2020 to a high of $3.61/lb in December 2020. Both the supply and the demand for copper declined significantly in 2020 due to government mandated lockdowns globally. Many mines in the world, especially those in Latin America, were forced to temporarily suspend operations for one to two months resulting in a production loss of over 500 thousand tonnes of copper in concentrate. In addition, the supply of scrap copper, which typically accounts for 16% of annual refined copper production, declined by approximately 980 thousand tonnes. At the same time, the pandemic temporarily reduced the fundamental demand for copper but the Chinese government's purchases of copper for their strategic stockpile  combined with a unexpectedly robust recovery in fundamental demand in China in the second half of 2020, brought the market into relative balance, supporting a strong price recovery in the second half of the year. Copper smelters and refineries were generally less affected by COVID-19 related shutdowns than other segments of the copper market, which kept spot treatment and refining costs for copper concentrate below annual benchmark levels for most of the year. This led to further decreases in annual benchmark terms to $59.50/tonne and ¢5.95/lb for 2021.

Early in 2021, the price of copper has been in excess of $3.50/lb and market sentiment has been quite positive. However, the outlook for global refined copper markets and copper prices in 2021 is uncertain due to the continued threat of interruptions to both copper supply and demand posed by the ongoing COVID-19 pandemic. What is relatively certain is that the economic disruption caused by the pandemic has caused governments around the world to commit to massive spending on a wide variety of "green" recovery plans, all of which involve copper intensive technologies. Over the next decade, the world economy is expected to move towards renewable energy sources (wind, hydro, solar), carbon neutrality and the adoption of electric vehicles, which is projected to drive significant additional demand for copper.

Strong future demand for copper will necessitate the development of new mines from the world's existing inventory of undeveloped deposits, which are inherently higher cost than those mines currently in production due to their lower grades, higher strip ratios and higher development costs. The result of having to bring on higher cost mines to meet increasing demand, in conjunction with the long timelines associated with permitting and obtaining social license for new greenfield mines, should lead to a prolonged period of higher copper prices.

Zinc

In 2020, the LME zinc price averaged $1.03/lb, with prices ranging from $0.80/lb to $1.29/lb. Zinc demand declined by an estimated 5.5% due to the effects of COVID-19 induced consumption disruptions but mine production declined  by only 3.5% during the year. As a result, after recording an average deficit of approximately 370 thousand tonnes per year over the previous eight years prior to 2020,  the zinc metal market recorded a surplus of approximately 460 thousand tonnes in 2020 and total exchange stocks rose in early 2021.

As world economies recover from COVID-19 in 2021, demand for zinc is projected to rebound with the help of significant government stimulus spending on infrastructure which is expected to spur demand for zinc used in the galvanizing of steel. For the next several years, the zinc metal market is anticipated to be in relative balance and zinc metal prices over the next few years are expected to be supported in the range of $1.00/lb to $1.25/lb.

After recording a small, unexpected zinc concentrate market deficit versus demand in 2020, which kept spot treatment charges during the year well below the annual benchmark of $300 per tonne, the zinc concentrate market is expected to return to surplus over the next several years. Negotiations for the 2021 annual benchmark are still ongoing with a large gap between the positions of miners and smelters.

Gold

In 2020, the London Gold Bullion Market price for gold averaged $1,772 per ounce ("/oz"), compared with an average of $1,394/oz in 2019. Prices ranged from a low of $1,461/oz, set during March 2020 when all asset classes suffered steep declines during the onset of the COVID-19 crisis, to a high of $2,064/oz at its peak in early August. The dramatic escalation in gold prices during the year was driven by the economic uncertainty surrounding the COVID-19 pandemic as well as the response to the crisis from governments and central banks globally who engaged in massive deficit spending to support their citizens, reducing interest rates to near zero, and injecting massive liquidity into the financial system, all of which are expected to lead to future inflation.

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. The current economic environment, with a perception of "lower for longer" interest rates, high government deficits and continued economic uncertainly due to the COVID-19 pandemic, is expected to be supportive for gold prices over the next few years.

Sensitivity Analysis

The following table displays the estimated impact of changes in metals prices and foreign exchange rates on our 2021 net profit, earnings per share and operating cash flow, assuming that our operational performance is consistent with our guidance for 2021^1^. The effects of a given change in an assumption are calculated in isolation.

Change of 10% Impact on Impact on Impact on Operating CF
represented by: Profit EPS^1^ before WC changes
Metals Prices
Copper price2 +/-  $0.30/lb +/-  $43M +/-  0.17 +/-  $63M
Zinc price +/-  $0.10/lb +/-  $17M +/-  0.06 +/-  $22M
Gold price3 +/-  $180/oz +/-  $19M +/-  0.07 +/-  $26M
Exchange Rates 4
US/C +/- 0.13 +/-  $49M +/-  0.19 +/-  $35M
1 Based on 261.3 million common shares outstanding as at December 31, 2020.
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 (2021 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.

All values are in US Dollars.

^___________________________1^Year-over-year forecasted changes to unit costs assume the mid-point of the respective guidance range is achieved.

FINANCIAL REVIEW

Financial Results

In the fourth quarter of 2020, we recorded a net profit of $7.4 million compared to a net loss of $1.5 million for the same period in 2019, representing an increase in profit of $8.9 million. For the full year, we recorded a loss of $144.6 million compared to a loss of $343.8 million in 2019, representing an increase in profit for the period of $199.2 million.

The following table provides further details on these variances:

(in $ millions) Three months ended <br>December 31, 2020 Year ended <br>December 31, 2020
Increase (decrease) in components of profit or loss:
Revenues (2.2) (145.0)
Cost of sales
Mine operating costs 15.6 49.8
Depreciation and amortization (4.6) (17.3)
Selling and administrative expenses (9.0) (5.2)
Exploration and evaluation expenses 3.3 13.6
Other expenses (2.1) 33.5
Impairment - 322.2
Net finance expense 42.3 22.1
Tax (34.4) (74.5)
Increase in profit for the period 8.9 199.2

Revenue

Revenue for the fourth quarter of 2020 was $322.3 million, $2.2 million lower than the same period in 2019, due mostly to lower sales volumes of copper primarily from lower copper production at Constancia, partially offset by higher realized copper, gold and zinc prices as well as higher sales volumes of gold.

Full year revenue in 2020 was $1,092.4 million, $145.0 million or 12% lower than 2019, primarily as a result of significantly lower copper sales volumes in Peru as a result of an eight-week suspension of Constancia operations in the second quarter and lower copper grades as well as lower realized zinc prices. This was partially offset by higher realized gold and copper prices, a variable consideration adjustment on stream revenue as well as lower comparative treatment and refining charges.

(in $ millions) Three months ended <br>December 31, 2020 Year ended <br>December 31, 2020
Metals prices^1^ ****
Higher copper prices 30.3 24.8
Higher (lower) zinc prices 4.5 (32.7)
Higher gold prices 8.6 42.3
(Lower) higher silver prices (0.1) 1.0
Sales volumes
Lower copper sales volumes (63.9) (238.5)
Higher zinc sales volumes 1.3 12.3
Higher gold sales volumes 7.2 20.1
Lower silver sales volumes (4.0) (22.2)
Other
Change in derivative mark-to-market on zinc 0.1 0.7
Molybdenum and other volume and pricing differences 7.3 (2.5)
Variable consideration adjustments - 23.0
Effect of lower treatment and refining charges 6.5 26.7
Decrease in revenue in 2020 compared to 2019 (2.2) (145.0)
^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, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Copper 167.0 201.7 563.9 786.3
Zinc 76.6 72.1 264.1 284.9
Gold 49.2 37.2 181.0 120.4
Silver 8.0 8.5 26.0 29.3
Molybdenum 8.8 4.7 25.6 31.3
Other metals 1.6 1.3 5.6 4.8
Revenue from contracts 311.2 325.5 1,066.2 1,257.0
Amortization of deferred revenue - gold 8.4 7.9 27.9 32.0
Amortization of deferred revenue - silver 11.7 16.0 39.4 60.4
Amortization of deferred revenue - variable consideration adjustments - prior periods - - 6.7 (16.3)
Pricing and volume adjustments^1^ 5.7 (3.7) 9.1 (12.1)
Treatment and refining charges (14.7) (21.2) (56.9) (83.6)
Revenue 322.3 324.5 1,092.4 1,237.4
^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 18 of our consolidated financial statements.

Realized sales prices

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, 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 QP hedges are not removed from 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 2020 and 2019, respectively, are summarized below:

Realized prices^1^ for the LME YTD<br><br> <br>2020^2^ Realized prices^1^ for the
Three months ended Year ended
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Prices
Copper /lb 3.29 2.69 2.80 2.86 2.73
Zinc^3^ /lb 1.24 1.17 1.03 1.10 1.24
Gold^4^ /oz 1,734 1,490 1,783 1,439
Silver^4^ /oz 27.05 27.19 26.04 25.64
^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^ All sales for the three months and year ended December 31, 2020 and 2019 were cast zinc metal. 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.
^4^Sales of gold and silver from our 777 and Constancia mines are subject to our precious metals stream agreement with Wheaton Precious Metals, 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 36.

All values are in US Dollars.

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, 2020
(in millions) 1 Zinc Gold Silver Molybdenum Other Total
Revenue per financial statements 76.6 49.2 8.0 8.8 1.6 311.2
Amortization of deferred revenue - 8.4 11.7 - - 20.1
Pricing and volume adjustments2 1.0 3.4 0.9 1.0 - 5.7
By-product credits 3 77.6 61.0 20.6 9.8 1.6 337.0
Derivative mark-to-market 4 0.2 - - - - 0.2
Revenue, excluding mark-to-market on non-QP hedges 77.8 61.0 20.6 9.8 1.6 337.2
Payable metal in concentrate sold 5 28,431 35,179 762,384 457 - -
Realized price 6 2,737 1,734 27.05 - - -
Realized price 7 1.24 - - - - -
Year ended December 31, 2020
(in millions) 1 Zinc Gold Silver Molybdenum Other Total
Revenue per financial statements 264.1 181.0 26.0 25.6 5.6 1,066.2
Amortization of deferred revenue - 27.9 39.4 - - 67.3
Pricing and volume adjustments2 1.0 10.4 1.9 0.0 - 9.1
By-product credits 3 265.1 219.3 67.3 25.6 5.6 1,142.6
Derivative mark-to-market 4 (0.7) - - - - (0.7)
Revenue, excluding mark-to-market on non-QP hedges 264.4 219.3 67.3 25.6 5.6 1,141.9
Payable metal in concentrate sold 5 109,347 122,949 2,585,586 1,321 - -
Realized price 6 2,418 1,783 26.04 - - -
Realized price 7 1.10 - - - - -
1 Average realized price per unit sold may not calculate based on amounts presented in this table due to rounding.
2 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.
3 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 zinc 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 Reporting Measures" section of this MD&A.
4 Derivative mark-to-market excludes mark-to-market on QP hedges.
5 Copper, zinc and molybdenum shown in metric tonnes and gold and silver shown in ounces.
6 Realized price for copper, zinc and molybdenum in /metric tonne and realized price for gold and silver in /oz.
7 Realized price for copper, zinc and molybdenum in /lb.

All values are in US Dollars.

Three months ended December 31, 2019
(in millions) 1 Zinc Gold Silver Molybdenum Other Total
Revenue per financial statements 72.1 37.2 8.5 4.7 1.3 325.5
Amortization of deferred revenue - 7.9 16.0 - - 23.9
Pricing and volume adjustments2 (0.4) 0.1 0.2 (1.9) - (3.7)
By-product credits 3 71.7 45.2 24.7 2.8 1.3 345.7
Derivative mark-to-market 4 0.3 - - - - 0.3
Revenue, excluding mark-to-market on non-QP hedges 72.0 45.2 24.7 2.8 1.3 346.0
Payable metal in concentrate sold 5 28,001 30,344 909,423 199 - -
Realized price 6 2,573 1,490 27.19 - - -
Realized price 7 1.17 - - - - -
Year ended December 31, 2019
(in millions) 1 Zinc Gold Silver Molybdenum Other Total
Revenue per financial statements 284.9 120.4 29.3 31.3 4.8 1,257.0
Amortization of deferred revenue - 32.0 60.4 - - 92.4
Pricing and volume adjustments2 (0.1) 4.5 (1.2) (2.4) - (12.1)
By-product credits 3 284.8 156.9 88.5 28.9 4.8 1,337.3
Derivative mark-to-market4 - - - - - -
Revenue, excluding mark-to-market on non-QP hedges 284.8 156.9 88.5 28.9 4.8 1,337.3
Payable metal in concentrate sold 5 104,319 108,999 3,452,926 1,186 - -
Realized price 6 2,730 1,439 25.64 - - -
Realized price 7 1.24 - - - - -
1 Average realized price per unit sold may not calculate based on amounts presented in this table due to rounding.
2 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.
3 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 zinc 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 Reporting Measures" section of this MD&A.
4 Derivative mark-to-market excludes mark-to-market on QP hedges.
5 Copper, zinc and molybdenum shown in metric tonnes and gold and silver shown in ounces.
6 Realized price for copper, zinc and molybdenum in /metric tonne and realized price for gold and silver in /oz.
7 Realized price for copper, zinc and molybdenum in /lb.

All values are in US Dollars.

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.

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, 2020 Dec. 31, 2020
Manitoba Peru Manitoba Peru
Gold 5,435 1,848 18,503 6,299
Silver 92,834 442,199 355,318 1,460,886
Gold deferred revenue drawdown rate1,2 1,217 976 1,173 976
Gold cash rate3 424 408 422 406
Total gold stream realized price 1,641 1,384 1,595 1,382
Silver deferred revenue drawdown rate1,2 23.47 21.52 22.43 21.52
Silver cash rate3 6.26 6.02 6.23 5.99
Total silver stream realized price 29.73 27.54 28.66 27.51
Three months ended Year ended
Dec. 31, 2019
Peru Manitoba Peru
Gold 4,160 3,103 17,740 11,750
Silver 61,487 671,742 355,468 2,405,554
Gold deferred revenue drawdown rate1,2 1,183 948 1,177 948
Gold cash rate 3 420 404 418 402
Total gold stream realized price 1,603 1,352 1,595 1,350
Silver deferred revenue drawdown rate1,2 22.63 21.77 22.51 21.77
Silver cash rate 3 6.20 5.96 6.17 5.93
Total silver stream realized price 28.83 27.73 28.68 27.70
1Subsequent to the variable consideration adjustment recorded on August 1, 2020, the deferred revenue amortization is recorded in Manitoba at C1,589/oz gold and C30.63/oz silver (December 31, 2019 - C1,562/oz gold and C29.89/oz silver) and converted to US dollars at the exchange rate in effect at the time of revenue recognition.
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 July 1, 2019. Subsequently every year, on July 1, the cash rate will increase by 1% compounded. The weighted average cash rate is disclosed.

All values are in US Dollars.

Cost of Sales

Our detailed cost of sales is summarized as follows:

(in thousands) Three months ended Year ended
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Peru
Mining 24,967 18,533 70,724 82,417
Milling 39,219 43,860 134,096 159,913
Changes in product inventory (6,550) 7,410 (3,883) (3,313)
Depreciation and amortization 50,861 56,938 184,275 209,126
G&A 14,540 15,174 43,393 56,922
Overhead costs related to suspension of activities (cash) - - 15,810 -
Inventory adjustments (2,188) (100) 32 504
Freight, royalties and other charges 11,388 17,273 39,915 59,740
Total Peru cost of sales 132,237 159,088 484,362 565,309
Manitoba
Mining 46,598 46,335 178,308 186,972
Milling 11,147 13,396 46,057 49,269
Zinc plant 18,736 19,464 71,799 72,259
Changes in product inventory 2,029 3,267 2,054 (4,413)
Depreciation and amortization 47,722 37,007 177,552 135,429
G&A 12,874 11,500 50,312 47,119
Overhead costs related to suspension of activities (cash) 8,232 - 8,232 -
Freight, royalties and other charges 8,348 8,795 34,742 33,953
Total Manitoba cost of sales 155,686 139,764 569,056 520,588
Cost of sales 287,923 298,852 1,053,418 1,085,897

Total cost of sales for the fourth quarter of 2020 was $287.9 million, reflecting a decrease of $11.0 million from the fourth quarter of 2019. Cost of sales related to Peru decreased in the fourth quarter of 2020, compared to the same period of 2019, by $26.9 million. The decrease is primarily the result of changes in product inventory due to an inventory buildup in the fourth quarter of 2020 and lower mining and milling costs which is a function of lower production volumes as well as reduced freight and other charges compared to the same period in 2019. In Manitoba, cost of sales increased by $15.9 million, compared to the fourth quarter of 2019, primarily as a result of the production interruption at 777 mine during the fourth quarter of 2020 which resulted in a $11.7 million fixed overhead charge (cash: $8.2 million; non-cash: $3.5 million included in depreciation) that would have been capitalized to inventories. The depreciation also increased during the fourth quarter of 2020 compared to the same period in 2019 as a result of increases to our decommissioning and restoration obligation assets that were recorded in the fourth quarter of 2019 and are being depreciated through to the end of the mine life in 2022.

For the full year, cost of sales was $1,053.4 million, which was $32.5 million less than in 2019. The decrease is principally related to lower production costs from an eight-week suspension of Constancia operations in the second quarter of 2020 partially offset by an accounting charge for $31.9 million of fixed overhead costs (cash: $15.8 million; non-cash: $16.1 million included in depreciation) that would ordinarily have been capitalized to inventories and property, plant, and equipment. In Manitoba, cost of sales increased by $48.5 million compared to 2019 for the same reasons described above.

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 2020, other significant variances in expenses from operations, compared to the same period in 2019, include the following:

  • Selling and administrative expense **** increased by $9.0 million compared to the same period in 2019. This increase was mainly due to higher stock-based compensation charges as a result of the relative impact of the revaluation of previously issued share units to higher share prices.

  • Exploration and evaluation expenses decreased by $3.3 million compared to the fourth quarter of 2019, in line with the reduced 2020 exploration budget compared to 2019.

For full year 2020, other significant variances in expenses from operations, compared to 2019, include the following:

  • Selling and administrative expense **** increased by $5.2 million compared to the same period in 2019. This increase was mainly due to higher stock-based compensation charges as a result of the relative impact of the revaluation of previously issued share units to higher share prices. This was partially offset by a general reduction in consulting, legal and travel costs.

  • Exploration and evaluation expenses decreased by $13.6 million in line with the reduced 2020 exploration budget compared to 2019.

  • Other expenses **** decreased by $33.5 million due to the write down of a joint venture receivable (the "UCM Receivable") from prior year of $26.0 million as well as the recognition of a delivery obligation related to the Pampacancha deposit from prior year of $7.5 million, neither of which reoccurred in the current year.

  • Impairment losses decreased by $322.2 million as a result of an impairment charge recorded in the third quarter of 2019 in our investment in the Rosemont project.

Net finance expense

(in $ thousands) Three months ended Year ended
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Finance costs - accrued or payable:
Interest expense on long-term debt 21,610 19,591 82,712 78,265
Withholding taxes 2,095 1,849 8,267 8,100
Tender premium on 7.25% senior unsecured notes - - 7,252 -
Other accrued/payable costs (income)^1^ 2,225 2,131 7,014 2,500
Total finance costs - accrued or payable 25,930 23,571 105,245 88,865
Finance costs - non-cash:
Accretion on streaming agreements^2^ 13,854 15,945 56,670 69,772
Interest capitalized - - - (9,890)
Change in fair value of financial assets and liabilities at fair value through profit or loss (37,520) 8,035 (29,370) 8,247
Write off unamortized transaction costs - - 3,817 -
Other non-cash costs^3^ 4,004 1,059 5,540 7,002
Total finance costs - non-cash (19,662) 25,039 36,657 75,131
Net finance expense 6,268 48,610 141,902 163,996
^1^Includes interest income and other finance expense.
^2^Includes variable consideration adjustment (prior periods).
^3^Includes accretion on community agreements, unwinding of discount on provisions, and net foreign exchange losses (gains).

Compared to the three months ended December 31, 2019, net finance expense decreased by $42.3 million mainly due to a $44.7 million decrease in non-cash finance costs. This was principally caused by a $48.4 million relative increase in the fair value of the embedded derivative on the early redemption option associated with our senior unsecured notes due in 2025 in the fourth quarter of 2020 compared to the same period in 2019. This increase was partially offset by a $3.4 million non-cash revaluation of our gold prepayment liability measured through profit or loss.

On a year-to-date basis, net finance expense **** decreased by $22.1 million compared to the same period in 2019. The decline was mainly caused by a $48.2 relative increase in the fair value of the embedded derivative as described above, a $9.7 million relative change in variable consideration adjustment reducing the accretion expense on our stream arrangements as well as an $8.7 million relative increase in the market value of our investments measured through profit or loss. These increases were partially offset by a $20.1 million non-cash revaluation of our gold prepayment liability, a $9.9 million increase in net interest charges (as, effective October 1, 2019, we no longer capitalize interest costs on the Rosemont project, due to its delay in development), a one-time payment of $7.3 million to satisfy the early redemption premium paid to holders of our Redeemed Notes, a decline of $6.7 million for interest earned on our cash balances as well as a $3.8 million charge for the write-down of unamortized transaction costs related to the Redeemed Notes.

Tax Recovery

For the three months and year ended December 31, 2020, tax recovery decreased by $34.4 million and $74.5 million, respectively, compared to the same period in 2019. The following table provides further details:

Year ended
Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
(in thousands)
Deferred tax recovery - income tax 1 (48,476) (39,904) (132,479)
Deferred tax recovery  - mining tax 1 (12,498) (3,332) (12,386)
Total deferred tax recovery (60,974) (43,236) (144,865)
Current tax expense - income tax 19,067 4,109 30,201
Current tax expense - mining tax 1,010 4,622 5,711
Total current tax expense 20,077 8,731 35,912
Tax recovery (40,897) (34,505) (108,953)
1 Deferred tax expense (recovery) represents our draw down/increase of non-cash deferred income and mining tax assets/liabilities.

All values are in US Dollars.

Income Tax Recovery

Applying the estimated Canadian statutory income tax rate of 26.3% to our loss before taxes of $179.1 million for the full year in 2020 would have resulted in a tax recovery of approximately $47.0 million; however, we recorded an income tax recovery of $35.8 million. The significant items causing our effective income tax rate to be different than the 26.3% estimated Canadian statutory income tax rate include:

  • Deferred tax recovery of approximately $3.6 million as certain non-monetary assets are recognized at historical cost while the tax bases of the assets change as the exchange rates fluctuates, which creates taxable temporary differences.

  • Certain deductible temporary differences mostly with respect to Peru, and mostly relating to the decommissioning and restoration liabilities, were not recognized as we have determined that it is not 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 Peruvian operations.  This has resulted in deferred tax expense of $8.5 million.

  • Certain deductible temporary differences with respect to Manitoba, and mostly relating to the decommissioning and restoration liabilities, were not recognized as we have determined that it is not 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 operations. Adjusted for the average annual effective tax rate methodology, this resulted in deferred tax expense of $1.5 million.

  • Certain deductible temporary differences 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 deferred tax expense of $5.5 million.

  • Certain foreign exchange gains and other items are not taxable for local income tax purposes and therefore result in a deferred tax recovery of approximately $1.8 million.

  • We revised our computation of deferred tax assets related to deductible temporary differences in Canada for changes in statutory tax rates taking into account the relevant provincial allocation factors based on income earned in different Canadian jurisdictions. This resulted in a decrease to the Canadian statutory rate from 27.0% to 26.3% during the fiscal year. The result was a deferred tax expense of approximately $2.4 million.

A decrease in the statutory tax rate in 2020 mainly reflects a reduction in the Canadian statutory tax rate which is the result of the changes to the relevant provincial allocation factors based on income earned and expenses incurred in different Canadian jurisdictions.

Applying the estimated Canadian statutory income tax rate of 27.0% to our loss before taxes of $452.8 million for the full year in 2019 would have resulted in a tax recovery of approximately $122.2 million; however, we recorded an income tax recovery of $102.3 million. The significant items causing our effective income tax rate to be different than the 27.0% estimated Canadian statutory income tax rate include:

  • Certain previously unrecognized deductible temporary differences with respect to Manitoba, and mostly relating to the decommissioning and restoration liabilities, were recognized in the current year as we have determined that it is probable that we will realize the recovery of these deferred tax assets through the reversals of temporary differences and future projected taxable profit of the Manitoba operations. This results in a decrease in deferred tax expense of approximately $16.3 million;

  • Certain deductible temporary differences with respect to our foreign operations are recorded using an income tax rate other than the Canadian statutory income tax rate of 27.0%, resulting in a deferred tax expense of $20.3 million;

  • The write down of the UCM Receivable of $26.0 million is not deductible for local income tax purposes and therefore results in an increase in deferred tax expense of approximately $7.0 million; and

  • An intercompany dividend payment being subject to withholding tax that is classified as current income tax of $6.8 million.

Mining Tax Recovery

Applying the estimated Manitoba mining tax rate of 10.0% to our loss before taxes of $179.1 million for the full year in 2020 would have resulted in a tax recovery of approximately $17.9 million; however, we recorded a mining tax expense of $1.3 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;

  • 15% of total mining taxable profit if mining profits are between C$55 million and C$100 million; 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, 2020, at the tax rate we expect to apply when temporary differences reverse.

LIQUIDITY AND CAPITAL RESOURCES

Senior Unsecured Notes Refinancing

On September 23, 2020, we completed the offering of $600.0 million aggregate principal amount of 6.125% senior notes due April 2029 (the "New Notes"). The New Notes are governed by an indenture, dated as of September 23, 2020, among the Company, the subsidiaries of the Company party thereto as guarantors and U.S. Bank National Association, as trustee.

The proceeds from this offering were primarily used to redeem all $400.0 million of our outstanding 7.25% senior unsecured notes due 2023 (the "Redeemed Notes"), including the payment of accrued and unpaid interest and a call premium of $7.3 million, and to pay transaction costs associated with the New Notes.

Senior Secured Revolving Credit Facilities

On August 31, 2020, we completed an amendment to our senior secured revolving credit facilities (the "Credit Facilities"). As a result of the amendment, the total available borrowings under the Credit Facilities decreased to $400.0 million from $550.0 million to reflect our anticipated business requirements until June 2022 when the Credit Facilities mature. We also revised various financial covenants as follows:

  • Maintaining net debt to EBITDA ratio of less than:

◦ 5.25:1 from September 30, 2020 to December 31, 2021; and,

◦ 3.50:1 from January 1, 2022 to maturity.

  • Maintaining an interest coverage ratio of greater than:

◦ 2.50:1 from September 30, 2020 to December 31, 2021; and,

◦ 3.00:1 from January 1, 2022 to maturity.

  • Maintaining a minimum liquidity of greater than $50 million to December 31, 2021.

The EBITDA calculation for the purposes of the covenants may differ from the non-IFRS measure of adjusted EBITDA shown in this MD&A. As at December 31, 2020, our liquidity includes $439.1 million in cash and cash equivalents as well as undrawn availability of $284.9 million under our Credit Facilities. As at December 31, 2020, we are in compliance with our covenants under the Credit Facilities and have drawn $115.1 million in letters of credit under the Credit Facilities.

As at December 31, 2020, the Arizona business unit had $8.6 million in surety bonds and the Peru business unit had $20.0 million in surety bonds issued to support future reclamation and closure obligations. The Peru business unit also had $45.0 million in letters of credit issued with various Peruvian financial institutions. No cash collateral is required to be posted under these letters of credit or surety bonds.

Financial Condition

Financial Condition as at December 31, 2020 compared to December 31, 2019

Cash and cash equivalents increased by $43.0 million during the year to $439.1 million as at December 31, 2020. This increase was mainly the result of cash flow from operating activities of $239.5 million, $115.0 million of proceeds from the gold prepay transaction and approximately $191.8 million in net proceeds raised from our New Notes offering. Offsetting these cash inflows was $361.2 million of capital investments primarily at our Peru and Manitoba operations, interest payments of $81.5 million, leasing and financing payments of $52.2 million, a $7.3 million premium paid to redeem our 2023 Notes and dividends of $3.8 million. We hold the majority of our cash and cash equivalents in low-risk, liquid investments with major Canadian and Peruvian financial institutions.

Working capital increased by $35.6 million to $306.9 million from December 31, 2019 to December 31, 2020, primarily due to the cash and cash equivalent increase of $43.0 million and an increase of $35.2 million in trade receivables due to timing of cash receipts, partially offset by an increase in trade and other payables of $40.7 million arising mainly from timing of payments.

Cash Flows

The following table summarizes our cash flows for the three months and year ended December 31, 2020 and December 31, 2019:

(in $ thousands) Three months ended Year ended
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Operating cash flow before changes in non-cash working capital 86,071 69,141 241,863 307,284
Change in non-cash working capital 35,019 29,524 (2,383) 3,572
Cash generated from operating activities 121,090 98,665 239,480 310,856
Cash (used in) generated by investing activities (117,498) (86,689) (359,018) (292,370)
Cash (used in) generated by financing activities (13,192) (14,386) 162,093 (137,778)
Effect of movement in exchange rates on cash and cash equivalents (279) 118 434 (59)
(Decrease) increase in cash and cash equivalents (9,879) (2,292) 42,989 (119,351)

Cash Flow from Operating Activities

Cash generated from operating activities was $121.1 million during the fourth quarter of 2020, an increase of $22.4 million compared with the same period in 2019. Operating cash flow before change in non-cash working capital was $86.1 million during the fourth quarter of 2020, reflecting an increase of $17.0 million compared to the fourth quarter of 2019. The increase in operating cash flow is primarily the result of higher realized copper and gold prices, higher gold sales volume as well as lower cash costs when compared to the fourth quarter of 2019. This was partially offset by lower sales volumes of copper compared to the fourth quarter of 2019.

Cash generated from operating activities for the full year was $239.5 million, representing a decrease of $71.4 million compared to 2019. Operating cash flow before change in non-cash working capital was $241.9 million for the year, compared to $307.3 million during 2019. The decrease in operating cash flow for the full year is due to significantly lower copper sales volumes in Peru as a result of an eight-week suspension of Constancia operations in the second quarter and lower copper grades as well as lower realized zinc prices and silver sales volumes. This was partially offset by higher realized copper and gold prices and higher gold sales volumes.

Cash Flow from Investing and Financing Activities

During the fourth quarter of 2020, we used $130.7 million in investing and financing activities, primarily driven by $117.9 million of capital expenditures, capitalized lease payments of $9.4 million and other financing payments of $3.8 million.

For the full year in 2020, we used $196.9 million of cash in investing and financing activities, composed primarily of $361.2 million of capital investments, interest payments of $81.5 million, capitalized lease payments of $36.0 million and other financing payments of $16.2 million, partially offset by net proceeds of $191.8 million from our New Notes offering, and $115.0 million of proceeds from the gold prepay transaction.

Capital Expenditures

The following summarizes accrued and cash additions to capital assets for the periods indicated:

(in millions) Year ended Guidance
Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019 Annual
2020 ^1^ 2021
Manitoba sustaining capital expenditures 30.0 95.3 126.3 100.0 90.0
Peru sustaining capital expenditures 2 31.4 91.1 84.9 80.0 135.0
Total sustaining capital expenditures 61.4 186.4 211.2 180.0 225.0
Arizona capitalized costs 7.0 15.6 36.4 20.0 20.0
Peru growth capitalized expenditures 3 1.2 107.0 2.1 70.0 5.0
Manitoba growth capitalized expenditures 7.8 61.4 14.1 80.0 75.0
Other capitalized costs 4 49.3 52.3 91.9
Capitalized exploration 8.9 11.9 15.7 15.0 15.0
Capitalized interest - - 9.9
Total other capitalized costs 74.2 248.2 170.1
Total capital additions 135.6 434.6 381.3
Reconciliation to cash capital additions:
Decommissioning and restoration obligation (46.6) (46.8) (89.4)
Capitalized interest - - (9.9)
Right-of-use asset additions (2.4) (17.8) (22.2)
Change in community agreement accruals - (6.7) -
Change in capital accruals and other 2.1 (2.1) (0.6)
Total cash capital additions 88.7 361.2 259.2
1 Reflects Manitoba guidance issued February 20, 2020 and updated Peru guidance issued August 11, 2020.
2 Peru sustaining capital expenditures includes capitalized stripping costs.
3 Hudbay's initial growth capital guidance for Peru of 70 million did not include the cost of the individual land user agreements due to the ongoing nature of the negotiations.
4 Other capitalized costs include decommissioning and restoration adjustments.

All values are in US Dollars.

Sustaining capital expenditures in Manitoba for the three months and year ended December 31, 2020 were $21.7 million and $95.3 million respectively, representing decreases of $8.3 million and $31.0 million, respectively, compared to the same periods in 2019. The decrease is mostly due to a reduction in capital development at the 777 mine as it nears the end of its mine life in 2022. Planned equipment purchases that are designated for 777 will ultimately be transferred to Lalor once 777 closes and capital development spending at 777 is expected to be further reduced into 2021.

Sustaining capital expenditures in Peru for the three months and year ended December 31, 2020 were $37.0 million and $91.1 million respectively, representing increases of $5.6 million and $6.2 million, respectively, from the same periods in 2019. The increase in Peru sustaining capital expenditures compared to the same period last year was mainly due to higher mine maintenance and tailings management construction costs, partially offset by decreased capitalized stripping costs.

Peru's 2020 growth capital of $107.0 million includes costs associated with the surface rights acquisition agreement with the local community and the individual agreements related to certain community members who were using the land. For the full year, growth capital spending for Peru has exceeded the initial guidance as a result of the commitments under the individual land-user agreements. As previously disclosed, the Company's initial growth capital guidance for Peru of $70.0 million did not include the cost of the individual land user agreements due to the ongoing nature of the negotiations.

Manitoba's 2020 growth capital of $61.4 million includes spending for the New Britannia refurbishment project which includes construction of the new copper flotation building and construction of a pipeline between the New Britannia and Stall mills. The project is currently approximately 73% complete and is tracking ahead of the original  schedule. Despite tracking ahead of schedule, the project spending in 2020 was lower than expected with the difference expected to be spent in 2021.

Other capitalized costs for the three months and year ended December 31, 2020 were $5.8 million and $52.3 million, respectively, and relate primarily to the remeasurement of previously recognized decommissioning and restoration liabilities at our Peru and Manitoba operations.

Capital Commitments

As at December 31, 2020, we had outstanding capital commitments in Canada of approximately $22.5 million of which $19.0 million can be terminated, approximately $39.1 million in Peru primarily related to exploration option agreements, all of which can be terminated, and approximately $179.7 million in Arizona, primarily related to our Rosemont project, of which approximately $89.3 million can be terminated.

Contractual Obligations

The following table summarizes our significant contractual obligations as at December 31, 2020:

Less than<br>12 months 13 - 36<br>months 37 - 60<br>months More than<br>60 months
Payment Schedule (in $ millions) Total
Long-term debt obligations^1^ 1,726.9 88.0 168.2 742.1 728.6
Gold prepayment obligation^3^ 137.0 - 137.0 - -
Lease obligations 129.0 93.3 29.5 2.0 4.2
Purchase obligation - capital commitments 241.3 38.7 20.0 28.0 154.6
Purchase obligation - other commitments^2^ 953.3 397.9 327.1 158.4 69.9
Pension and other employee future benefits obligations^3^ 166.5 16.7 30.2 7.6 112.0
Community agreement obligations^4^ 58.8 12.1 9.5 6.6 30.6
Decommissioning and restoration obligations^4^ 268.6 19.6 25.6 7.6 215.8
Total 3,681.4 666.3 747.1 952.3 1,315.7
^1^Long-term debt obligations include scheduled interest payments, as well as principal repayments.
^2^Primarily made up of long-term agreements with operational suppliers, obligations for power purchase, Pampacancha delivery obligation, concentrate handling, fleet and port services, as well as deferred consideration arising from the acquisition of Rosemont's minority interest.
^3^Discounted.
^4^Represents the Peru community agreement obligations, excluding interest.
^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 the 777 mine and Constancia mines;

  • A net smelter returns royalty agreement related to the 777 mine; and,

  • Government royalty payments related to the Constancia mine.

Outstanding Share Data

As of February 17, 2021, there were 261,272,151 common shares of Hudbay issued and outstanding. In addition, there were 1,563,189 stock options outstanding.

FINANCIAL RISK MANAGEMENT

Impact of COVID-19

As a result of the COVID-19 global pandemic, we have experienced operational, supply chain, travel, labour and shipping disruptions, as well as delays to our community engagement efforts in Peru, and we may continue to experience similar disruptions in the future. As a result, our financial results may remain volatile as COVID-19 continues to affect production, operating costs and the prices we receive for our products, as well as the development timeline for Pampacancha. The resumption of normal operating activities is highly dependent on the global response and impact of the COVID-19 global pandemic and, at a local level, the expected development timeline for Pampacancha depends upon our ability to effectively engage and negotiate with individual land users as well as the communities that are affected by our Constancia project in Peru. We expect that our current liquidity together with cash flows from operations will be sufficient to meet our liquidity needs in 2021.

Given the uncertainty of the duration and magnitude of the impact of COVID-19, including its impact on the development timeline for Pampacancha, our 2021 production and cost guidance are subject to a higher than normal degree of uncertainty.

Political and Social Risks

Peru has recently undergone a period of heightened political instability. A general election is scheduled to be held in April 2021 in which a record number of candidates are presently running for President. 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. The risk exists that further government limitations, restrictions or requirements, not presently foreseen, will be implemented. In addition, changes in policy 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 and, in the current environment, due to the COVID-19 pandemic.

Political or social unrest in Peru or instability could adversely affect our ability to operate the Constancia mine and develop the Pampacancha deposit. Such adverse effects could result from positions or actions that may be taken by the national government or at the regional, community or local levels by government or non-government 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. The risk of disruptions from such opposition tends to increase with national, regional and local elections in Peru as well as with change to the general political and social climate in the area in which we operate. While we continue to seek to constructively engage with all our stakeholders in the Constancia region, we've experienced an increase in disruptive activity in the Province of Chumbivilcas in recent weeks.

We continue to actively monitor the political and social risks in Peru during this elevated period of instability.

Reclamation and Mine Closure Costs

The ultimate timing of, 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, and 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 in respect of these obligations or otherwise fund these obligations in advance. As a result, we will have significant cash expenditures when we are required to close and restore mine sites, including our 777 mine and Flin Flon operations. Our estimate of this future liability may increase as a result of a new closure plan for the 777 mine and Flin Flon operations. We expect our new Flin Flon closure plan to be submitted to the Manitoba and Saskatchewan governments for approval later in 2021.

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, 2020, the Company assessed whether there were impairment or impairment reversal indicators associated with the general business environment and known changes to business planning (including any arising from the potential impacts of COVID-19 on our business) and determined there were none.

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 the Snow Lake operations and Constancia that are planned to be completed by the end of March 2021 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.

Metals Price Strategic Risk Management

From time to time, we maintain price protection programs and conduct commodity price risk management 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.

In the normal course, we typically consider base metal price hedging:

  • In conjunction with a major capital commitment to a growth opportunity for which operating cash flow is a key funding source;

  • To ensure the viability of a shorter life and/or higher cost mine;

  • To manage the risk associated with provisional pricing terms in concentrate purchase and sale agreements; or,

  • To offset fixed price zinc sales contracts with customers.

During 2020, we entered into copper hedging transactions intended to manage the risk associated with provisional pricing terms in concentrate sales agreements.

As at December 31, 2020, we had 43.4 million pounds of net copper fixed for floating swaps outstanding at an average fixed receivable price of $3.22/lb associated with provisional pricing risk in concentrate sales agreements. These swaps settle across January to April 2021.

During the second 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 full capital budget of the New Britannia gold mill refurbishment. 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 to be satisfied with a monthly delivery of 3,331 gold ounces over a 24-month period from January 2022 to December 2023.

To provide a service to customers who purchase zinc from our plants and require known future prices, we enter into fixed price sales contracts. To ensure that we continue to receive a floating or unhedged realized zinc price, we enter into forward zinc purchase contracts that effectively offset the fixed price sales contracts with our customers.

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.

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, 2020, approximately $408.3 million of our cash and cash equivalents was held in US dollars, approximately $26.7 million of our cash and cash equivalents was held in Canadian dollars, and approximately $4.1 million of our cash and cash equivalents was held in Peruvian soles.

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:

2020 2019
(in $ millions) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Revenue 322.3 316.1 208.9 245.1 324.5 291.3 329.4 292.3
Gross profit 34.4 39.3 (12.7) (22.0) 25.6 31.0 43.1 51.8
Profit (loss) profit before tax 0.9 (23.9) (74.6) (81.5) (42.4) (348.4) (43.9) (18.1)
Profit (loss) 7.4 (24.0) (51.9) (76.1) (1.5) (274.8) (54.1) (13.4)
Adjusted net (loss) earnings^1^ (16.4) (25.4) (39.7) (39.4) (24.6) (23.2) (8.1) 7.3
Earnings (loss) per share:
Basic and diluted 0.03 (0.09) (0.20) (0.29) (0.01) (1.05) (0.21) (0.05)
Adjusted net (loss) earnings^1^<br><br> <br>per share (0.06) (0.10) (0.15) (0.15) (0.09) (0.09) (0.03) 0.03
Operating cash flow^2^ 86.1 84.4 29.5 42.0 69.1 71.2 81.3 85.7
Adjusted EBITDA^1^ 106.9 96.1 49.1 55.0 82.2 76.2 95.9 104.2
^1^ Adjusted net (loss) earnings, adjusted net (loss) earnings 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 changes in non-cash working capital.

The year 2020 closed off with momentum for increasing commodity prices. An eight-week suspension of Constancia operations in Peru due to a government declared state of emergency during the first half of 2020 and a six-week production interruption at the 777 mine during the fourth quarter of 2020 impacted our production and sales volumes for the full year; however, the shift in sales from Constancia allowed us to benefit from the increasing commodity prices throughout the second half of 2020. The reduced copper production from Constancia and 777 was partially offset by increased production from Lalor.

Earnings in the fourth quarter benefited from $28.0 million in mark-to-market adjustments on certain financial instruments and were negatively impacted by the 777 production interruption which resulted in $11.7 million in certain overhead costs being expensed. Earnings in the third quarter of 2020 were negatively impacted by a $7.3 million premium paid to redeem the 2023 senior notes as well as a $3.8 million write-down of unamortized transaction costs. This was partially offset by an after-tax non-cash adjustment of $9.0 million on our streaming revenues.

Earnings in the second quarter of 2020 were impacted by the temporary suspension of operations at Constancia, which resulted in $25.6 million in certain overhead costs being expensed. The results in the first quarter of 2020 were less impacted by the Constancia shutdown and reflected $6.3 million of shutdown-related overhead costs as well as an inventory write-down of $10.4 million triggered by lower copper prices.

Earnings in 2019 were impacted by an after-tax impairment charge of $242.1 million in the third quarter of 2019, as well as the UCM Receivable write down of $26.0 million in the second quarter of 2019. In the first quarter of 2019, pre-tax revenue and finance expenses were negatively impacted by a $22.3 million charge due to a deferred revenue adjustment arising from higher net mineral reserves and resources.

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 and dividends declared per share) 2020 2019 2018
Revenue 1,092.4 1,237.4 1,472.4
Gross profit 39.0 151.5 373.7
(Loss) profit before tax (179.1) (452.8) 170.8
(Loss) profit (144.6) (343.8) 85.4
Adjusted (loss) earnings ^1^ (121.0) (48.6) 104.1
(Loss) earnings per share:
Basic and diluted (0.55) (1.32) 0.33
Adjusted (loss) earnings^1^ per share (0.46) (0.18) 0.40
Total assets 4,666.6 4,461.1 4,685.6
Operating cash flow^2^ 241.9 307.3 501.4
Adjusted EBITDA^1^ 306.7 358.5 554.8
Total non-current financial liabilities^3^ 1,360.1 1,074.2 1,053.6
Dividends declared per share - C$^4^ 0.02 0.02 0.02
^1^ Adjusted net (loss) earnings, adjusted net (loss) earnings 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.
^3^Total long-term financial liabilities include non-current portions of net long-term debt, other financial liabilities and finance lease obligations.
^4^Dividend paid during March and September of each year.

Although realized prices for copper and gold rose by 5% and 24%, respectively compared to 2019, current year revenues declined by 12% due to lower sales volumes for 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 by $72.4 million compared to 2019 as a result of the same factors described above.

In 2019, realized prices for copper and zinc decreased by 7% and 11% respectively, compared to prices in 2018. Realized prices for gold increased by 6% compared to prices in 2018. Mill throughput at Constancia reached annual record levels, contributing to higher milling costs, however milled grades dropped in accordance with the mine plan and these factors drove the overall reduction in operating cash flow before changes in non-cash working capital. Revenues decreased by 16% due to lower metals prices and sales volumes for copper and zinc. Profit before tax decreased $623.6 million mainly due to a $322.2 million impairment charge recorded in the third quarter of 2019 relating to the Arizona business unit, as well as a write down of the UCM Receivable for $26.0 million in the second quarter of 2019.

In addition to the items noted above which impacted gross profit, net profit (loss) was impacted by the following items:

Year Significant non-recurring items affecting net income After tax net income impact (in $ millions)
2018 Non-cash deferred tax adjustments (21.7)
2019 Non-cash deferred tax adjustments 16.3
2019 Write-down on UCM receivable (26.0)
2019 Rosemont impairment (242.1)
2020 Non-cash deferred tax adjustments (6.4)
2020 Peru overhead direct charge (20.8)
2020 Manitoba overhead direct charge (7.8)

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 pound of zinc produced and combined unit cost and zinc plant 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 better reflect the Company's performance for the current period and are better indications of 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 pound of zinc produced are shown because we believe they help investors and management assess the performance of our Manitoba operations. Combined unit cost and zinc plant unit cost is shown because we believe they help investors and management assess our cost structure and margins that are not impacted by variability in by-product commodity prices.

In the first half of 2020, a government-imposed shutdown of non-essential businesses led to a temporary suspension of our Constancia mining operations. Similarly, in the fourth quarter, a shaft incident led to a production interruption at 777 in Manitoba. Fixed overhead production costs incurred during these temporary production disruptions were directly charged to cost of sales. These costs did not contribute to production of inventory and were therefore excluded from the calculations of adjusted net earnings (loss), adjusted EBITDA and cash costs.

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 three months and year ended December 31, 2020 and 2019.

Three months ended Year ended
(in $ millions) Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Profit (loss) for the period 7.4 (1.5) (144.6) (343.8)
Tax recovery (6.5) (40.9) (34.5) (109.0)
Profit (loss) before tax 0.9 (42.4) (179.1) (452.8)
Adjusting items:
Mark-to-market adjustments^1^ (28.0) 10.2 (14.4) 11.0
Rosemont impairment - - - 322.2
Peru inventory write-down (reversal) (2.2) - - -
Peru cost of sales direct charge from temporary shutdown - - 31.9 -
Manitoba cost of sales direct charge from temporary shutdown 11.7 - 11.7 -
Write down of UCM receivable - - - 26.0
Costs associated with proxy contest - - - 3.0
Variable consideration adjustment - stream revenue - - (10.4) 22.3
Pampacancha delivery obligation - - - 7.5
Foreign exchange loss (gain) 2.6 (0.3) (1.6) 1.4
Write-down of unamortized transaction costs - - 3.8 -
Premium paid on redemption of notes - - 7.3 -
Adjusted loss before income taxes (15.0) (32.5) (150.8) (59.4)
Tax expense (recovery) 6.5 40.9 34.5 109.0
Tax impact of adjusting items 3.6 (2.6) (11.1) (88.8)
Dividend withholding tax - - - 6.9
Non-cash deferred tax adjustments (11.5) (30.4) 6.4 (16.3)
Adjusted net loss (16.4) (24.6) (121.0) (48.6)
Adjusted net loss ($/share) (0.06) (0.09) (0.46) (0.18)
Basic weighted average number of common shares outstanding (millions) 261.3 261.3 261.3 261.3
^1^ Includes changes in fair value  of the embedded derivative on 2025 senior unsecured notes, gold prepayment liability, Canadian junior mining investments, other financial assets and liabilities at fair value through profit or loss and share-based compensation expenses.

After adjusting reported net loss 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 2020 of $16.4 million or $0.06 loss per share.

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 three months and year ended December 31, 2020 and 2019:

Year ended
(in millions) Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Profit (loss) for the period (1.5) (144.6) (343.8)
Add back: tax recovery (40.9) (34.5) (109.0)
Add back: Net finance expense 48.6 141.9 164.0
Add back: Other expenses 3.9 17.6 51.1
Add back: Depreciation and amortization1 93.9 361.8 344.5
Less: Amortization of deferred revenue and variable consideration adjustment (23.9) (74.0) (76.1)
80.1 268.2 30.7
Adjusting items (pre-tax):
Peru inventory write-down (reversal) - - -
Cash portion of Peru cost of sales direct charge from temporary shutdown - 15.8 -
Cash portion of Manitoba cost of sales direct charge from temporary shutdown - 8.2 -
Costs associated with proxy contest - - 3.0
Share-based compensation expenses (recoveries)2 2.1 14.5 2.6
Rosemont impairment - - 322.2
Adjusted EBITDA 82.2 306.7 358.5
1 Includes the non-cash portion of the Peru cost of sales direct charge from the temporary shutdown of 16.1 million and the non-cash portion of the Manitoba cost of sales direct charge from the temporary shutdown of 3.5 million for the year ended December 31, 2020.
2 Share-based compensation expenses (recoveries) reflected in cost of sales and selling and administrative expenses.

All values are in US Dollars.

Net Debt

The following table presents our calculation of net debt as at December 31, 2020 and December 31, 2019:

(in $ thousands) Dec. 31, 2020 Dec. 31, <br>2019
Total long-term debt as per IFRS financial statements 1,135,675 985,255
Cash and cash equivalents as per IFRS financial statements (439,135) (396,146)
Net debt 696,540 589,109

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 assets. Due to the inclusion of corporate selling and administrative expenses, all-in sustaining cash cost is presented on a consolidated basis only.

Effective September 30, 2020 and for all comparably disclosed periods, we have included the period's deferred revenue amortization as a by-product credit to reflect the net cost of producing and selling the period's precious metals under our streaming arrangements as we believe doing so allows management and our investors to better evaluate the operating performance of the underlying operations. The variable consideration adjustment required under IFRS 15 related to prior periods is not included as a by-product credit in the current period and hence is disclosed as an adjustment in the non-IFRS cash cost measure reconciliation.

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 three months and year ended December 31, 2020 and 2019. Cash cost, net of by-product credits may not calculate exactly based on amounts presented in the tables below due to rounding.

Consolidated Three months ended Year ended
Net pounds of copper produced
(in thousands) Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Peru 47,519 58,773 161,269 250,940
Manitoba 12,619 12,705 48,905 51,487
Net pounds of copper produced 60,138 71,478 210,174 302,427
Consolidated Three months ended Year ended
--- --- --- --- --- --- --- --- ---
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Cash cost per pound of copper produced $000s $/lb $000s $/lb $000s $/lb $000s $/lb
Cash cost, before by-product credits 196,533 3.27 209,597 2.94 709,757 3.38 816,115 2.70
By-product credits (170,646) (2.84) (145,726) (2.04) (582,882) (2.77) (563,784) (1.86)
Cash cost, net of by-product credits 25,887 0.43 63,871 0.90 126,875 0.60 252,331 0.83
Consolidated Year ended
--- --- --- --- --- --- --- ---
Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Supplementary cash cost information $/lb ^1^ $000s $/lb ^1^ $000s $/lb ^1^ $000s $/lb ^1^
By-product credits2:
Zinc 1.29 71,732 1.00 265,105 1.26 284,766 0.94
Gold 3 1.01 45,214 0.63 219,245 1.04 156,899 0.52
Silver 3 0.34 24,723 0.35 67,342 0.32 88,525 0.29
Molybdenum & other 0.19 4,057 0.06 31,190 0.15 33,594 0.11
Total by-product credits 2.84 145,726 2.04 582,882 2.77 563,784 1.86
Reconciliation to IFRS:
Cash cost, net of by-product credits 63,871 126,875 252,331
By-product credits 145,726 582,882 563,784
Treatment and refining charges (21,176) (56,888) (83,481)
Share-based compensation expense 208 1,400 400
Inventory adjustments 1,668 2,302 2,272
Change in product inventory 10,677 (1,829) (7,726)
Royalties 3,933 12,807 13,762
Overhead costs related to suspension of activities (cash) - Peru - 15,810 -
Overhead costs related to suspension of activities (cash) - Manitoba - 8,232 -
Depreciation and amortization4 93,945 361,827 344,555
Cost of sales5 298,852 1,053,418 1,085,897
1 Per pound of copper 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 34 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 months and year ended December 31, 2020 the variable consideration adjustments amounted to revenue of nil and 6,668, respectively. For the three months and year ended December 31, 2019 - nil and an expense of 16,295, respectively.
4 Depreciation is based on concentrate sold.
5 As per IFRS financial statements.

All values are in US Dollars.

Peru Three months ended Year ended
(in thousands) Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Net pounds of copper produced^1^ 47,519 58,773 161,269 250,940
^1^Contained copper in concentrate.
Peru Three months ended Year ended
--- --- --- --- --- --- --- --- ---
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Cash cost per pound of copper produced $000s $/lb $000s $/lb $000s $/lb $000s $/lb
Mining 24,967 0.53 18,533 0.32 70,724 0.44 82,417 0.33
Milling 39,219 0.83 43,860 0.75 134,096 0.83 159,913 0.64
G&A 14,327 0.30 15,147 0.26 43,105 0.27 56,847 0.23
Onsite costs 78,513 1.66 77,540 1.32 247,925 1.54 299,177 1.19
Treatment & refining 10,082 0.21 15,361 0.26 36,655 0.23 59,809 0.24
Freight & other 9,989 0.21 15,121 0.26 34,794 0.21 53,016 0.21
Cash cost, before by-product credits 98,584 2.08 108,022 1.84 319,374 1.98 412,002 1.64
By-product credits (28,802) (0.61) (28,149) (0.48) (85,067) (0.53) (121,565) (0.48)
Cash cost, net of by-product credits 69,782 1.47 79,873 1.36 234,307 1.45 290,437 1.16
Peru Three months ended Year ended
--- --- --- --- --- --- --- --- ---
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Supplementary cash cost information $000s $/lb ^1^ $000s $/lb ^1^ $000s $/lb ^1^ $000s $/lb ^1^
By-product credits^2^:
Gold^3^ 5,394 0.11 5,782 0.10 17,626 0.11 24,637 0.10
Silver^3^ 13,584 0.29 19,576 0.33 41,870 0.26 68,093 0.27
Molybdenum 9,824 0.21 2,791 0.05 25,571 0.16 28,835 0.11
Total by-product credits 28,802 0.61 28,149 0.48 85,067 0.53 121,565 0.47
Reconciliation to IFRS:
Cash cost, net of by-product credits 69,782 79,873 234,307 290,437
By-product credits 28,802 28,149 85,067 121,565
Treatment and refining charges (10,082) (15,361) (36,655) (59,809)
Inventory adjustments (2,188) (100) 32 504
Share-based compensation expenses 213 27 288 75
Change in product inventory (6,550) 7,410 (3,883) (3,313)
Royalties 1,399 2,152 5,121 6,724
Overhead costs related to suspension of activities (cash) - - 15,810 -
Depreciation and amortization^4^ 50,861 56,938 184,275 209,126
Cost of sales^5^ 132,237 159,088 484,362 565,309
^1^Per pound of copper 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 34.
^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.
Manitoba Three months ended Year ended
--- --- --- --- ---
(in thousands) Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Net pounds of copper produced^1^ 12,619 12,705 48,905 51,487
^1^Contained copper in concentrate.
Manitoba Three months ended Year ended
--- --- --- --- --- --- --- --- ---
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Cash cost per pound of copper produced $000s $/lb $000s $/lb $000s $/lb $000s $/lb
Mining 46,598 3.69 46,335 3.65 178,308 3.65 186,972 3.63
Milling 11,147 0.88 13,396 1.05 46,057 0.94 49,269 0.96
Refining (zinc) 18,736 1.48 19,464 1.53 71,799 1.47 72,259 1.40
G&A 9,898 0.78 9,551 0.75 46,930 0.96 45,026 0.87
Onsite costs 86,379 6.85 88,746 6.99 343,094 7.02 353,526 6.87
Treatment & refining 4,641 0.37 5,815 0.46 20,233 0.41 23,672 0.46
Freight & other 6,929 0.55 7,014 0.55 27,056 0.55 26,915 0.52
Cash cost, before by-product credits 97,949 7.76 101,575 7.99 390,383 7.98 404,113 7.85
By-product credits (141,844) (11.24) (117,577) (9.24) (497,815) (10.18) (442,219) (8.59)
Cash cost, net of by-product credits (43,895) (3.48) (16,002) (1.26) (107,432) (2.20) (38,106) (0.75)
Manitoba Three months ended Year ended
--- --- --- --- --- --- --- --- ---
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Supplementary cash cost information $000s $/lb ^1^ $000s $/lb ^1^ $000s $/lb ^1^ $000s $/lb ^1^
By-product credits^2^:
Zinc 77,593 6.15 71,732 5.65 265,105 5.42 284,766 5.53
Gold^3^ 55,616 4.41 39,432 3.10 201,619 4.12 132,262 2.57
Silver^3^ 7,040 0.56 5,147 0.41 25,472 0.52 20,432 0.40
Other 1,595 0.13 1,266 0.10 5,619 0.11 4,759 0.09
Total by-product credits 141,844 11.24 117,577 9.24 497,815 10.18 442,219 8.59
Reconciliation to IFRS:
Cash cost, net of by-product credits (43,895) (16,002) (107,432) (38,106)
By-product credits 141,844 117,577 497,815 442,219
Treatment and refining charges (4,641) (5,815) (20,233) (23,672)
Inventory adjustments 2,270 1,768 2,270 1,768
Share-based compensation expenses 706 181 1,112 325
Change in product inventory 2,029 3,267 2,054 (4,413)
Royalties 1,419 1,781 7,686 7,038
Overhead costs related to suspension of activities (cash) 8,232 - 8,232 -
Depreciation and amortization^4^ 47,722 37,007 177,552 135,429
Cost of sales^5^ 155,686 139,764 569,056 520,588
^1^ Per pound of copper 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 34.
^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.
Consolidated Three months ended Year ended
--- --- --- --- --- --- --- --- ---
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
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 25,887 0.43 63,871 0.90 126,875 0.60 252,331 0.83
Cash sustaining capital expenditures 81,523 1.36 74,361 1.04 257,558 1.23 241,461 0.80
Capitalized exploration^1^ 8,040 0.13 8,807 0.12 8,040 0.04 12,391 0.04
Royalties 2,818 0.05 3,933 0.06 12,807 0.06 13,762 0.05
Sustaining cash cost, net of by-product credits 118,268 1.97 150,972 2.11 405,280 1.93 519,945 1.72
Corporate selling and administrative expenses & regional costs 15,709 0.26 6,702 0.09 45,010 0.21 39,950 0.13
Accretion and amortization of decommissioning and community agreements^2^ 1,006 0.02 677 0.01 4,115 0.02 2,521 0.01
All-in sustaining cash cost, net of by-product credits 134,983 2.24 158,351 2.22 454,405 2.16 562,416 1.86
^1^Only includes exploration costs incurred for locations near existing mines.
^2^ Includes accretion of decommissioning relating to non-productive sites, and accretion and amortization of current community agreements.
Peru Three months ended Year ended
--- --- --- --- --- --- --- --- ---
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Sustaining cash cost per pound of copper produced $000s $/lb $000s $/lb $000s $/lb $000s $/lb
Cash cost, net of by-product credits 69,782 1.47 79,873 1.36 234,307 1.45 290,437 1.16
Cash sustaining capital expenditures 43,542 0.92 37,676 0.64 107,994 0.67 108,420 0.43
Capitalized exploration 8,040 0.17 8,000 0.14 8,040 0.05 8,000 0.03
Royalties 1,399 0.03 2,152 0.04 5,121 0.03 6,724 0.03
Sustaining cash cost per pound of copper produced 122,763 2.58 127,701 2.17 355,462 2.20 413,581 1.65
Manitoba Three months ended Year ended
--- --- --- --- --- --- --- --- ---
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Sustaining cash cost per pound of copper produced $000s $/lb $000s $/lb $000s $/lb $000s $/lb
Cash cost, net of by-product credits (43,895) (3.48) (16,002) (1.26) (107,432) (2.20) (38,106) (0.75)
Cash sustaining capital expenditures 37,981 3.01 36,686 2.89 149,564 3.06 133,041 2.58
Capitalized exploration - - 807 0.06 - - 4,391 0.09
Royalties 1,419 0.11 1,781 0.14 7,686 0.16 7,038 0.14
Sustaining cash cost per pound of copper produced (4,495) (0.36) 23,272 1.83 49,818 1.02 106,364 2.07

Zinc Cash Cost and Zinc Sustaining Cash Cost

Cash cost per pound of zinc produced ("zinc 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 zinc as the primary metal of production as it is the largest 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:

  • Zinc 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 zinc 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 copper will occur later, and an increase in production of copper metal will tend to result in an increase in zinc cash cost under this measure.

  • Zinc cash cost, net of by-product credits - In order to calculate the net cost to produce and sell zinc, the net of by-product credits measure subtracts the revenues realized from the sale of the metals other than zinc. The by-product revenues from copper, gold, and silver are significant and are integral to the economics of our Manitoba operation. The economics that support our decision to produce and sell zinc 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 zinc 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 zinc prices, the zinc cash cost net of by-product credits would increase, requiring a higher zinc price than that reported to maintain positive cash flows and operating margins.

  • Zinc sustaining cash cost, net of by-product credits - This measure is an extension of zinc 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 zinc cash cost, which is focused on operating costs only.

Effective September 30, 2020 and for all comparably disclosed periods, we have included the period's deferred revenue amortization as a by-product credit to reflect the net cost of producing and selling the period's precious metals under our streaming arrangements as we believe doing so allows management and our investors to better evaluate the operating performance of the underlying operations. The variable consideration adjustment required under IFRS 15 related to prior periods is not included as a by-product credit in the current period and hence is disclosed as an adjustment in the non-IFRS cash cost measure reconciliation.

The tables below present a detailed build-up of zinc cash cost and zinc sustaining cash cost, net of by-product credits, for the Manitoba business unit, and reconciliations between zinc cash cost, net of by-product credits, to the most comparable IFRS measures of cost of sales for the three months and year ended December 31, 2020 and 2019. Zinc 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, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Net pounds of zinc produced^1^ 56,974 67,444 260,432 262,585
^1^ Contained zinc in concentrate.
Manitoba Three months ended Year ended
--- --- --- --- --- --- --- --- ---
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Cash cost per pound of zinc produced $000s $/lb $000s $/lb $000s $/lb $000s $/lb
Cash cost, before by-product credits^1^ 97,949 1.72 101,575 1.51 390,383 1.50 404,113 1.54
By-product credits (98,915) (1.74) (78,830) (1.17) (363,312) (1.40) (294,091) (1.12)
Zinc cash cost, net of by-product credits (966) (0.02) 22,745 0.34 27,071 0.10 110,022 0.42
^1^For additional detail on cash cost, before by-product credits please see page 62 of this MD&A.
Manitoba Three months ended Year ended
--- --- --- --- --- --- --- --- ---
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Supplementary cash cost information $000s $/lb ^1^ $000s $/lb ^1^ $000s $/lb ^1^ $000s $/lb ^1^
By-product credits^2^:
Copper 34,664 0.61 32,985 0.49 130,602 0.50 136,638 0.52
Gold^3^ 55,616 0.98 39,432 0.58 201,619 0.77 132,262 0.50
Silver^3^ 7,040 0.12 5,147 0.08 25,472 0.11 20,432 0.08
Other 1,595 0.03 1,266 0.02 5,619 0.02 4,759 0.02
Total by-product credits 98,915 1.74 78,830 1.17 363,312 1.40 294,091 1.12
Reconciliation to IFRS:
Cash cost, net of by-product credits (966) 22,745 27,071 110,022
By-product credits 98,915 78,830 363,312 294,091
Treatment and refining charges (4,641) (5,815) (20,233) (23,672)
Share-based compensation expenses 706 181 1,112 325
Inventory adjustments 2,270 1,768 2,270 1,768
Change in product inventory 2,029 3,267 2,054 (4,413)
Royalties 1,419 1,781 7,686 7,038
Overhead costs related to suspension of activities (cash) 8,232 - 8,232 -
Depreciation and amortization^4^ 47,722 37,007 177,552 135,429
Cost of sales^5^ 155,686 139,764 569,056 520,588
^1^ Per pound of zinc 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 34.
^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.
Manitoba Three months ended Year ended
--- --- --- --- --- --- --- --- ---
Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Sustaining cash cost per pound of zinc produced $000s $/lb $000s $/lb $000s $/lb $000s $/lb
Zinc cash cost, net of by-product credits (966) (0.02) 22,745 0.34 27,071 0.10 110,022 0.42
Cash sustaining capital expenditures 37,981 0.67 36,686 0.54 149,564 0.57 133,041 0.51
Capitalized exploration - - 807 0.01 - - 4,391 0.02
Royalties 1,419 0.02 1,781 0.03 7,686 0.03 7,038 0.03
Sustaining cash cost per pound of zinc produced 38,434 0.67 62,019 0.92 184,321 0.71 254,492 0.97

Combined Unit Cost & 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. In the first half of 2020, as a result of the temporary suspension of operations in Peru, fixed overhead production costs incurred during the suspension were directly charged to cost of sales. These costs did not contribute to production of inventory and were therefore excluded from the calculation of combined unit costs.

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 three months and year ended  December 31, 2020 and 2019.

Peru Three months ended Year ended
(in thousands except unit cost per tonne) Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Combined unit cost per tonne processed
Mining 24,967 18,533 70,724 82,417
Milling 39,219 43,860 134,096 159,913
G&A ^1^ 14,327 15,147 43,105 56,847
Other G&A ^2^ 213 (1,339) 865 (1,051)
Unit cost 78,726 76,201 248,790 298,126
Tonnes ore milled 7,742 7,474 26,297 31,387
Combined unit cost per tonne 10.17 10.20 9.46 9.50
Reconciliation to IFRS:
Unit cost 78,726 76,201 248,790 298,126
Freight & other 9,989 15,121 34,794 53,016
Other G&A (213) 1,339 (865) 1,051
Share-based compensation expenses 213 27 288 75
Inventory adjustments (2,188) (100) 32 504
Change in product inventory (6,550) 7,410 (3,883) (3,313)
Royalties 1,399 2,152 5,121 6,724
Overhead costs related to suspension of activities (cash) - - 15,810 -
Depreciation and amortization 50,861 56,938 184,275 209,126
Cost of sales^3^ 132,237 159,088 484,362 565,309
^1^ G&A as per cash cost reconciliation above.
^2^ Other G&A primarily includes profit sharing costs.
^3^ As per IFRS financial statements.
Manitoba Three months ended Year ended
--- --- --- --- ---
(in thousands except tonnes ore milled and unit cost per tonne) Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Combined unit cost per tonne processed
Mining 46,598 46,335 178,308 186,972
Milling 11,147 13,396 46,057 49,269
G&A ^1^ 9,898 9,551 46,930 45,026
Less: G&A allocated to zinc metal production (3,301) (2,966) (14,431) (12,507)
Less: Other G&A related to profit sharing costs - - (10) (85)
Unit cost 64,342 66,316 256,854 268,675
USD/CAD implicit exchange rate 1.30 1.32 1.34 1.33
Unit cost - C$ 83,669 87,528 344,672 356,562
Tonnes ore milled 598,287 685,151 2,618,065 2,652,306
Combined unit cost per tonne - C$ 140 128 132 134
Reconciliation to IFRS:
Unit cost 64,342 66,316 256,854 268,675
Freight & other 6,929 7,014 27,056 26,915
Refined (zinc) 18,736 19,464 71,799 72,259
G&A allocated to zinc metal production 3,301 2,966 14,431 12,507
Other G&A related to profit sharing - - 10 85
Share-based compensation expenses 706 181 1,112 325
Inventory adjustments 2,270 1,768 2,270 1,768
Change in product inventory 2,029 3,267 2,054 (4,413)
Royalties 1,419 1,781 7,686 7,038
Overhead costs related to suspension of activities (cash) 8,232 - 8,232 -
Depreciation and amortization 47,722 37,007 177,552 135,429
Cost of sales^2^ 155,686 139,764 569,056 520,588
^1^ G&A as per cash cost reconciliation above.
^2^ As per IFRS financial statements.
Manitoba Three months ended Year ended
--- --- --- --- ---
(in thousands except zinc plant unit cost per pound) Dec. 31, 2020 Dec. 31, 2019 Dec. 31, 2020 Dec. 31, 2019
Zinc plant unit cost
Zinc plant costs 18,736 19,464 71,799 72,259
G&A ^1^ 9,898 9,551 46,930 45,026
Less: G&A allocated to other areas (6,597) (6,585) (32,489) (32,434)
Less: Other G&A related to profit sharing - - (10) (85)
Zinc plant unit cost 22,037 22,430 86,230 84,766
USD/CAD implicit exchange rate 1.30 1.32 1.34 1.33
Zinc plant unit cost - C$ 28,700 29,608 115,400 112,447
Refined metal produced (in pounds) 63,533 61,324 246,117 227,828
Zinc plant unit cost per pound - C$ 0.45 0.48 0.47 0.49
Reconciliation to IFRS:
Zinc plant unit cost 22,037 22,430 86,230 84,766
Freight & other 6,929 7,014 27,056 26,915
Mining 46,598 46,335 178,308 186,972
Milling 11,147 13,396 46,057 49,269
G&A allocated to other areas 6,597 6,585 32,489 32,434
Other G&A related to profit sharing - - 10 85
Share-based compensation expenses 706 181 1,112 325
Inventory adjustments 2,270 1,768 2,270 1,768
Change in product inventory 2,029 3,267 2,054 (4,413)
Royalties 1,419 1,781 7,686 7,038
Overhead costs related to suspension of activities (cash) 8,232 - 8,232 -
Depreciation and amortization 47,722 37,007 177,552 135,429
Cost of sales^2^ 155,686 139,764 569,056 520,588
^1^ G&A as per cash cost reconciliation above.
^2^ As per IFRS financial statements.

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, 2020.

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.

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;

  • Identification of a business combination and acquisition method accounting;

  • IFRS 15 - Revenue - adoption for stream transactions

  • Determination of functional currency;

  • 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;

  • Determining whether assets meet criteria for classification as held for sale;

  • 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.

  • Valuation of acquired assets; 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):

  • Determining the accounting classification of the precious metals stream deposit;

  • 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;

  • Decommissioning, restoration and similar liabilities including estimated future costs and timing of spending;

  • Contingent liabilities; and

  • Capital commitments.

  • 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, 2020.

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, 2020, 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, 2020, 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, 2020 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, 2020.

The effectiveness of the Company's ICFR as of December 31, 2020 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, 2020.

Changes in ICFR

We did not make any changes to ICFR during the year ended December 31, 2020 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.

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, production, cost and capital and exploration expenditure guidance and potential revisions to such guidance, anticipated production at our mines and processing facilities, expectations regarding the impact of the COVID-19 pandemic on our operations, financial condition and prospects and our ability to effectively engage with local communities in Peru and other stakeholders, expectations regarding the timing of mining activities at the Pampacancha deposit and any additional delivery obligations under the Constancia stream agreement, the anticipated timing, cost and benefits of developing the Rosemont project and the outcome of litigation challenging Rosemont's permits, expectations regarding the Helvetia exploration program, expectations regarding the Lalor gold strategy, including the refurbishment, commissioning and ramp-up of the New Britannia mill and expectations regarding the mine plan for the 1901 deposit, increasing the mining rate at Lalor and optimizing the Stall and New Britannia mills, the possibility of converting inferred mineral resource estimates to higher confidence categories, the potential and our anticipated plans for advancing our mining properties surrounding Constancia and elsewhere in Peru, 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:

  • our ability to continue to operate safely and at full capacity during the COVID-19 pandemic;

  • the ability to achieve production and unit cost guidance;

  • no significant interruptions to our operations or significant delays to our development projects in Manitoba and Peru due to the COVID-19 pandemic;

  • the timing of development and production activities on the Pampacancha deposit;

  • the timing for reaching additional agreements with individual community members and no significant unanticipated delays to the development of Pampacancha;

  • the successful completion of the New Britannia project on budget and on schedule;

  • the successful outcome of the Rosemont litigation;

  • the successful renegotiation of collective agreements with the labour unions that represent certain of our employees in Manitoba and Peru;

  • 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;

  • 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 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, risks associated with the COVID-19 pandemic and its effect on our operations, financial condition, projects and prospects, the possibility of a global recession arising from the COVID-19 pandemic and attempts to control it, the political situation in Peru, risks generally associated with the mining industry, such as economic factors (including future commodity prices, currency fluctuations, energy prices and general cost escalation), uncertainties related to the development and operation of our projects, risks related to the U.S. district court's recent decisions to set aside the U.S. Forest Service's FROD and the Biological Opinion for Rosemont and related appeals and other legal challenges, risks related to the new Lalor mine plan, including the schedule for the refurbishment of the New Britannia mill and the ability to convert inferred mineral resource estimates to higher confidence categories, risks related to the schedule for mining the Pampacancha deposit (including risks associated with COVID-19 and risks associated with reaching additional agreements with individual community members and the impact of any schedule delays), dependence on key personnel and employee and union relations, risks related to political or social 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 the Company's 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 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 "Financial Risk Management" in this MD&A and under the heading  "Risk Factors" in our most recent Annual Information Form.

Should one or more risk, uncertainty, contingency or other factor materialize or should any factor or assumption prove incorrect, actual results could vary materially from those expressed or implied in the forward-looking information. Accordingly, you should not place undue reliance on forward-looking information. 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.

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

The technical and scientific information in this MD&A related to the Constancia mine and Rosemont project has been approved by Cashel Meagher, P. Geo, our Senior Vice President and Chief Operating Officer. The technical and scientific information related to our other material mineral projects contained in this MD&A has been approved by Olivier Tavchandjian, P. Geo, our Vice President, Exploration and Geology. Messrs. Meagher and Tavchandjian are qualified persons pursuant to NI 43-101. For a description of the key assumptions, parameters and methods used to estimate mineral reserves and resources at Hudbay's material properties, as well as data verification procedures and a general discussion of the extent to which the estimates of scientific and technical information may be affected by any known environmental, permitting, legal title, taxation, sociopolitical, marketing or other relevant factors, please see the technical reports for our material properties as filed by us on SEDAR at www.sedar.com.

SUMMARY OF RESULTS

The following unaudited tables set out a summary of quarterly and annual results for the Company:

2020 2019 2018
2020 Q4 Q3 Q2 Q1 2019 Q4 Q3 Q2 Q1 2018 Q4
Consolidated Financial Condition (000s)
Cash and cash equivalents $ 439,135 $ 439,135 $ 449,014 $ 391,136 $ 305,997 $ 396,146 $ 396,146 $ 398,438 $ 489,527 $ 485,867 $ 515,497 $ 515,497
Total long-term debt $ 1,135,675 1,135,675 1,175,104 988,418 988,074 985,255 985,255 976,272 977,196 977,413 981,030 981,030
Net debt1 $ 696,540 696,540 726,090 597,282 682,077 589,109 589,109 577,834 487,669 491,546 465,533 465,533
Consolidated Financial Performance<br> (000s except per share amounts)
Revenue $ 1,092,418 $ 322,290 $ 316,108 $ 208,913 $ 245,105 $ 1,237,439 $ 324,485 $ 291,282 $ 329,414 $ 292,258 $ 1,472,366 $ 351,773
Cost of sales $ 1,053,418 287,923 276,830 221,567 267,096 1,085,897 298,852 260,327 286,272 240,446 1,098,626 276,547
Earnings (loss) before tax $ (179,089) 911 (23,944) (74,604) (81,452) (452,763) (42,352) (348,367) (43,931) (18,108) 170,837 17,650
Earnings (loss) $ (144,584) 7,406 (23,955) (51,901) (76,134) (343,810) (1,455) (274,796) (54,145) (13,412) 85,416 (3,510)
Basic and diluted (loss) earnings per share $ (0.55) $ 0.03 $ (0.09) $ (0.20) $ (0.29) $ (1.32) $ (0.01) $ (1.05) $ (0.21) $ (0.05) $ 0.33 $ (0.01)
Adjusted (loss) earnings per share 1 $ (0.46) $ (0.06) $ (0.10) $ (0.15) $ (0.15) $ (0.18) $ (0.09) $ (0.09) $ (0.03) $ 0.03 $ 0.40 $ 0.05
Operating cash flow before change in non-cash working capital 1 $ 241,863 86,071 84,383 29,457 41,951 307,284 69,141 71,204 81,259 85,684 501,352 104,264
Adjusted EBITDA 1, 2 $ 306.7 106.9 96.1 49.1 55.0 358.5 82.2 76.2 95.9 104.2 554.8 120.7
Consolidated Operational Performance
Contained metal in concentrate produced 3
Copper 95,333 27,278 25,395 18,026 24,635 137,179 32,422 36,422 30,363 37,972 154,550 37,238
Gold 124,622 32,376 29,277 32,614 30,355 114,692 32,712 28,319 28,099 25,562 119,882 28,051
Silver 2,750,873 730,679 671,685 580,817 767,692 3,585,330 930,137 924,191 811,807 919,195 3,954,469 1,014,684
Zinc 118,130 25,843 30,570 31,222 30,495 119,106 30,592 28,639 31,838 28,037 115,588 27,408
Molybdenum 1,204 333 392 124 354 1,272 372 262 334 304 904 329
Payable metal in concentrate sold
Copper 88,888 22,963 25,903 15,951 24,072 128,519 33,715 29,916 33,171 31,717 147,923 36,350
Gold 122,949 35,179 30,605 30,590 26,574 108,999 30,344 25,488 30,538 22,629 113,097 25,861
Silver 2,585,586 762,384 705,495 541,785 575,922 3,452,926 909,423 756,296 804,301 982,906 3,372,353 909,500
Zinc 4 109,347 28,431 26,520 27,604 26,792 104,319 28,001 29,140 24,224 22,954 115,723 31,134
Molybdenum 1,321 457 313 120 431 1,186 199 334 419 234 819 447
Cash cost 1 0.60 $ 0.43 $ 0.65 $ 0.29 $ 0.98 $ 0.83 $ 0.90 $ 0.71 $ 0.95 $ 0.81 $ 0.66 $ 0.63
All-in sustaining cash cost 1 2.16 $ 2.24 $ 2.25 $ 1.91 $ 2.17 $ 1.86 $ 2.22 $ 1.69 $ 1.98 $ 1.58 $ 1.32 $ 1.49
1 Net debt, adjusted (loss) earnings per share, adjusted EBITDA, 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 Reporting Measures" section of this MD&A. All comparative cash cost and all-in sustaining cash cost per pound of copper produced, net of by-product credits figures have been restated as indicated on page 57.
2 In millions.
3 Metal reported in concentrate is prior to deductions associated with smelter contract terms.
4 Includes refined zinc metal sold.

All values are in US Dollars.

2020 2019 2018
2020 Q4 Q3 Q2 Q1 2019 Q4 Q3 Q2 Q1 2018 Q4
Peru Operations
Ore mined^1^ tonnes 27,529,950 9,313,784 8,455,668 2,775,286 6,985,212 33,308,369 8,049,063 8,413,367 8,211,166 8,634,773 34,372,156 7,329,423
Copper % 0.32 0.31 0.31 0.34 0.34 0.43 0.41 0.44 0.39 0.47 0.49 0.47
Gold g/tonne 0.03 0.03 0.03 0.04 0.03 0.04 0.04 0.05 0.04 0.04 0.05 0.05
Silver g/tonne 2.75 2.61 2.55 2.90 3.10 3.76 3.87 3.93 3.68 3.55 4.15 4.16
Molybdenum % 0.02 0.01 0.02 0.02 0.01 0.02 0.02 0.02 0.01 0.01 0.01 0.01
Ore milled tonnes 26,297,318 7,741,714 7,480,655 4,355,482 6,719,466 31,387,281 7,474,136 8,240,344 7,679,739 7,993,062 31,282,610 7,657,943
Copper % 0.34 0.33 0.33 0.34 0.34 0.42 0.42 0.44 0.37 0.46 0.47 0.48
Gold g/tonne 0.03 0.03 0.03 0.04 0.03 0.04 0.04 0.04 0.04 0.04 0.05 0.06
Silver g/tonne 2.87 2.74 2.68 3.04 3.13 3.64 3.86 3.76 3.40 3.53 4.08 4.26
Molybdenum % 0.02 0.02 0.02 0.01 0.02 0.02 0.02 0.02 0.01 0.01 0.01 0.01
Copper recovery % 83.0 85.3 83.3 76.6 84.3 85.7 85.6 86.0 84.7 86.2 82.6 84.8
Gold recovery % 49.8 52.7 51.6 43.4 50.2 48.1 50.0 48.3 41.3 52.2 47.4 48.5
Silver recovery % 66.9 70.1 66.7 59.6 68.2 68.2 68.2 68.9 65.7 69.9 66.5 71.6
Molybdenum recovery % 29.4 28.4 30.4 19.9 35.0 26.5 30.8 20.2 28.9 26.8 21.6 30.5
Contained metal in concentrate
Copper tonnes 73,150 21,554 20,803 11,504 19,290 113,825 26,659 31,091 24,232 31,843 122,178 30,834
Gold ounces 12,395 3,689 3,333 2,311 3,062 19,723 5,007 5,565 3,794 5,357 24,189 7,522
Silver ounces 1,622,972 477,775 430,208 253,687 461,302 2,504,769 631,774 686,258 551,807 634,930 2,729,859 750,747
Molybdenum tonnes 1,204 333 392 124 354 1,272 372 262 334 304 904 329
Precious metals^2^ ounces 30,630 9,058 8,167 5,161 8,245 55,506 14,033 15,369 11,677 14,427 63,187 18,247
Payable metal sold
Copper tonnes 68,506 18,583 21,654 9,023 19,247 106,184 28,430 25,314 25,778 26,662 116,449 31,252
Gold ounces 10,986 3,297 3,753 1,317 2,618 18,956 4,824 3,858 4,056 6,218 20,420 7,262
Silver ounces 1,518,548 480,843 433,595 242,519 361,591 2,452,496 666,839 529,139 504,259 752,259 2,255,700 672,756
Molybdenum tonnes 1,321 457 313 120 431 1,186 199 334 419 234 819 447
Peru combined unit operating cost^,3, 4^ $/tonne $ 9.46 $ 10.17 $ 9.85 $ 7.77 $ 9.31 $ 9.50 $ 10.20 $ 8.63 $ 10.39 $ 8.87 $ 9.44 $ 9.88
Peru cash cost^4^ $/lb $ 1.45 $ 1.47 $ 1.54 $ 1.31 $ 1.42 $ 1.16 $ 1.36 $ 1.06 $ 1.39 $ 0.90 $ 1.14 $ 1.05
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Peru sustaining cash cost^4^ $/lb $ 2.20 $ 2.58 $ 2.29 $ 1.84 $ 1.91 $ 1.65 $ 2.17 $ 1.53 $ 1.87 $ 1.13 $ 1.37 $ 1.40
^1^ Reported tonnes and grade for ore mined are estimates based on mine plan assumptions and may not fully reconcile to ore milled.
^2^Precious metals production includes gold and silver production on a gold-equivalent basis. For 2018 and 2019, silver is converted to gold at a ratio of 70:1. For 2020, silver is converted to gold at a ratio of 89:1.
^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,  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 Reporting Measures" section of this MD&A .All comparative cash cost and all-in sustaining cash cost per pound of copper produced, net of by-product credits figures have been restated as indicated on page 57.
2020 2019 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- ---
2020 Q4 Q3 Q2 Q1 2019 Q4 Q3 Q2 Q1 2018 ^1^ Q4
Manitoba Operations
Lalor ore mined tonnes 1,654,240 468,101 357,213 407,408 421,518 1,536,780 390,140 346,456 411,701 388,483 1,260,241 317,616
Copper % 0.74 0.80 0.66 0.77 0.70 0.75 0.80 0.68 0.73 0.76 0.74 0.82
Zinc % 5.73 5.54 5.98 6.05 5.43 6.36 6.20 6.16 6.34 6.70 6.25 6.80
Gold g/tonne 2.51 2.79 2.28 2.64 2.27 2.16 2.63 2.21 2.12 1.68 2.19 2.09
Silver g/tonne 25.31 24.96 21.23 28.4 26.18 25.51 28.38 25.56 22.32 25.96 25.39 24.66
777 ore mined tonnes 991,576 164,856 264,905 281,890 279,925 1,109,782 269,342 273,319 288,599 278,522 966,567 244,613
Copper % 1.40 1.89 0.98 1.72 1.18 1.37 1.17 1.33 1.34 1.65 1.47 1.76
Zinc % 3.88 2.98 3.95 4.13 4.11 3.22 3.33 3.01 3.37 3.18 4.43 3.46
Gold g/tonne 1.90 1.85 2.01 1.91 1.82 1.61 1.52 1.63 1.60 1.70 1.83 1.61
Silver g/tonne 24.13 21.64 24.25 25.73 23.86 18.67 18.52 15.42 18.92 21.75 28.34 24.37
Reed ore mined tonnes - - - - - - - - - - 326,363 -
Copper % - - - - - - - - - - 3.35 -
Zinc % - - - - - - - - - - 0.90 -
Gold g/tonne - - - - - - - - - - 0.77 -
Silver g/tonne - - - - - - - - - - 9.08 -
Stall Concentrator:
Ore milled tonnes 1,412,751 372,624 335,739 334,601 369,787 1,290,300 310,622 318,539 339,616 321,523 1,201,466 313,995
Copper % 0.73 0.79 0.68 0.76 0.70 0.73 0.80 0.64 0.71 0.78 0.72 0.84
Zinc % 5.76 5.47 6.11 6.16 5.38 6.39 6.24 6.22 6.36 6.75 6.38 6.83
Gold g/tonne 2.55 2.88 2.35 2.70 2.28 2.13 2.60 2.12 2.08 1.75 2.15 2.09
Silver g/tonne 25.37 24.43 22.08 28.72 26.28 25.48 28.12 25.16 22.03 26.89 25.27 24.58
Copper recovery % 86.2 87.1 84.0 86.6 86.5 85.9 85.9 84.4 85.6 87.2 85.7 88.6
Zinc recovery % 91.9 90.9 92.7 92.4 91.4 91.1 90.7 91.8 91.2 90.7 92.8 91.9
Gold recovery % 60.0 59.5 57.4 62.3 60.9 56.8 61.1 54.3 52.5 59.1 57.6 57.1
Silver recovery % 60.4 60.3 57.5 62.1 61.1 60.4 62.9 57.4 56.5 64.2 59.2 60.7
Flin Flon Concentrator:
Ore milled tonnes 1,205,314 225,663 322,156 324,906 332,589 1,362,006 374,529 331,216 367,017 289,244 1,423,744 259,569
Copper % 1.28 1.59 0.99 1.52 1.11 1.27 1.11 1.22 1.26 1.55 1.90 1.73
Zinc % 4.21 3.87 4.07 4.41 4.36 3.78 4.05 3.64 3.84 3.49 3.71 3.55
Gold g/tonne 1.96 1.99 1.99 1.99 1.88 1.72 1.75 1.74 1.71 1.66 1.63 1.62
Silver g/tonne 24.26 22.65 24.01 25.56 24.33 19.84 20.56 17.36 19.82 21.78 23.48 24.79
Copper recovery % 86.0 88.1 83.9 87.3 84.1 88.0 86.9 89.1 88.0 88.1 92.3 90.4
Zinc recovery % 85.5 83.9 87.9 84.9 85.0 85.5 85.8 86.7 86.0 82.9 84.2 83.7
Gold recovery % 56.0 56.6 55.3 58.6 53.5 59.4 56.1 59.1 61.3 61.8 64.5 62.8
Silver recovery % 45.9 46.5 42.0 50.7 44.3 50.8 49.2 48.7 53.0 52.3 60.2 54.8
^1^Mining activities at Reed were completed in August 2018.
2020 2019 2018
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
2020 Q4 Q3 Q2 Q1 2019 Q4 Q3 Q2 Q1 2018 Q4
Manitoba Operations (continued)
Total Manitoba contained metal in concentrate produced
Copper tonnes 22,183 5,724 4,592 6,522 5,345 23,354 5,763 5,331 6,131 6,129 32,272 6,404
Zinc tonnes 118,130 25,843 30,570 31,222 30,495 119,106 30,592 28,639 31,838 28,037 115,588 27,408
Gold ounces 112,227 28,687 25,944 30,303 27,293 94,969 27,705 22,754 24,305 20,205 95,693 20,529
Silver ounces 1,127,901 252,904 241,477 327,130 306,390 1,080,561 298,363 237,933 260,000 284,265 1,224,610 263,937
Precious metals^1^ ounces 124,900 31,529 28,657 33,979 30,736 110,406 31,967 26,153 28,019 24,266 113,188 24,300
Total Manitoba payable metal sold
Copper tonnes 20,382 4,380 4,249 6,928 4,825 22,335 5,285 4,602 7,393 5,055 31,474 5,098
Zinc^2^ tonnes 109,347 28,431 26,520 27,604 26,792 104,346 28,001 29,140 24,224 22,954 115,723 31,134
Gold ounces 111,963 31,882 26,852 29,273 23,956 90,043 25,520 21,630 26,482 16,411 92,677 18,599
Silver ounces 1,067,038 281,541 271,900 299,266 214,331 1,000,430 242,584 227,157 300,042 230,647 1,116,653 236,744
Manitoba combined unit operating cost^3,4^ C$/tonne $ 132 $ 140 $ 126 $ 135 $ 127 $ 134 $ 128 $ 130 $ 135 $ 146 $ 130 $ 143
Manitoba cash cost^4^ $/lb $ (2.20) $ (3.48) $ (3.41) $ (1.52) $ (0.62) $ (0.75) $ (1.26) $ (1.31) $ (0.79) $ 0.29 $ (1.16) $ (1.47)
Manitoba sustaining cash cost^4^ $/lb $ 1.02 $ (0.36) $ 0.83 $ 1.15 $ 2.53 $ 2.07 $ 1.83 $ 2.15 $ 1.55 $ 2.68 $ 0.66 $ 1.16
^1^Precious metals production includes gold and silver production on a gold-equivalent basis. For 2018 and 2019, silver is converted to gold at a ratio of 70:1. For 2020, silver is converted to gold at a ratio of 89:1.
^2^ Includes refined zinc metal sold.
^3^ Reflects combined mine, mill and G&A costs per tonne of milled ore. 
Hudbay Minerals Inc.: Exhibit 99.3 - Filed by newsfilecorp.com
TSX, NYSE - HBM
2021 No. 3
25 York Street, Suite800<br>Toronto, Ontario<br>Canada M5J 2V5<br>tel:  416 362-8181fax: 416 362-7844<br>hudbay.com News Release
--- ---

Hudbay Announces Fourth Quarter and Full Year 2020 Results and Provides Annual Guidance

Toronto, Ontario, February 18, 2021 - Hudbay Minerals Inc. ("Hudbay" or the "company") (TSX, NYSE:HBM) today released its fourth quarter and full year 2020 financial results and annual production and cost guidance. All amounts are in U.S. dollars, unless otherwise noted.

Fourth Quarter and Full Year Operating and Financial Results

  • Achieved 2020 production and unit cost guidance in Peru and Manitoba; Manitoba copper production exceeded the top end of the guidance range and refined zinc metal production was higher than it has been in over ten years.
  • Capitalized on higher gold prices as Manitoba annual gold sales volumes increased by 24% in 2020 compared to the prior year.
  • Full production resumed at 777 on November 25 following a skip hoist incident in early October; shaft repair activities were completed well ahead of schedule and below expected costs.
  • The Lalor mine and Stall concentrator both achieved record quarterly and annual production as 777 employees and equipment were redeployed to Lalor during the 777 shaft repair period.
  • Constancia mine achieved excellent operational efficiencies during the quarter with a 10% increase in ore mined compared to the third quarter of 2020.
  • Fourth quarter net earnings were $7.4 million or $0.03 per share. Fourth quarter adjusted net loss^i^ per share was $0.06 and adjusted EBITDA^i^ was $106.9 million.
  • Operating cash flow before change in non-cash working capital increased to $86.1 million in the fourth quarter of 2020, from $84.4 million in the third quarter, despite the temporary production interruption at 777 during the quarter.

2021 Annual Guidance and Outlook

  • Consolidated copper production is forecast to increase by 7%^ii^ in 2021, compared to 2020, with a further increase expected in 2022 with higher grades at the Pampacancha deposit in Peru.
  • Consolidated gold production is forecast to increase by 62%^ii^ in 2021, compared to 2020, with a further  increase expected in 2022 due to the first full year of production at the New Britannia mill and Pampacancha.
  • 2021 unit operating costs are expected to be modestly higher than 2020 with the inclusion of the New Britannia mill in Manitoba and higher input costs in Peru. Introduced new 2021 consolidated cash cost guidance of $0.65 to $0.80 and consolidated sustaining cash cost guidance of $2.05 to $2.30, in each case, per pound of copper produced, net of by-product credits^i^.
  • Updated mine plans will be issued for each of the company's Constancia and Snow Lake operations with the annual mineral reserve and resource update at the end of March 2021, incorporating the results from various optimization studies. The company will issue new three-year production guidance once the new mine plans are published.
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2021 No. 3
  • Total capital expenditures are expected to decline by 11%^ii^ year-over-year as a majority of the Peru growth spending was completed in 2020, while a portion of Manitoba growth spending was deferred from 2020 to 2021.
  • Increased exploration spending in 2021 to drill promising targets in Arizona, Peru and Snow Lake.

Executing on Growth Initiatives

  • Advanced the New Britannia gold mill refurbishment project to approximately 73% completion and the project continues to track ahead of the original schedule. Total project capital is tracking approximately $13.0 million over budget due to additions to the project scope and the impact of COVID-related costs. Commissioning of the gold plant is expected in mid-2021, three months earlier than originally planned. The new copper flotation facility is on track for commissioning and ramp-up in the fourth quarter of 2021. Operational readiness activities are progressing as planned with underground development of Lalor's gold-rich lenses well-advanced in preparation for the start-up of New Britannia.
  • Successfully completed the Consulta Previa consultation process for Pampacancha and received the final mining permit for the development and operation of the mine. Pre-development activities commenced in early January and pre-stripping activities are expected to begin once the remaining individual land user agreement has been completed.
  • Advanced the appeal of the unprecedented Rosemont court decision with oral arguments presented on February 1^st^ and continued to evaluate next steps for the project and advance drilling activities on the company's land package.

"We achieved all of our production and operating cost targets in 2020, continuing our trend of strong operating and financial performance while executing on our growth initiatives," said Peter Kukielski, President and Chief Executive Officer. "Our Peru operations continued to perform well despite COVID-19 challenges and the team successfully completed the Consulta Previa process for Pampacancha. Our Manitoba operations demonstrated strength and resilience as they remedied the 777 shaft incident quickly and efficiently, while confirming the opportunity to increase the Lalor mine production rate in the long-term. The New Britannia project remains on track for first gold pour in the third quarter of 2021. While 2021 remains a year of investment for Hudbay, it is also the year in which we expect to start to see the benefits of these high-return investments as we grow our production through Pampacancha and New Britannia, and create significant value for our stakeholders."

Summary of Fourth Quarter Results

Consolidated copper production in the fourth quarter of 2020 was 27,278 tonnes, a 7% increase from the third quarter of 2020, primarily as a result of higher mill throughput and recoveries at Constancia and higher copper grades and recoveries in Manitoba, despite the temporary production interruption at 777. Consolidated gold production increased by 11% compared to the third quarter of 2020 due to higher grades at Lalor and higher recoveries at the Stall mill. Consolidated zinc production in the fourth quarter was lower than the third quarter of 2020 due to the 777 shaft incident resulting in the suspension of hoisting operations for six weeks. The production of refined zinc metal increased quarter-over-quarter as the zinc plant continued to process available zinc concentrate inventories during the 777 shaft repair period.

In the fourth quarter of 2020, consolidated cash cost per pound of copper produced, net of by-product credits^i^, was $0.43, a decrease compared to $0.65 in the third quarter due to higher copper production and higher by-product revenue, partially offset by higher operating costs. Incorporating cash sustaining capital, capitalized exploration, royalties, selling, administrative and regional costs, consolidated all-in sustaining cash cost per pound of copper produced, net of by-product credits^i^, in the fourth quarter of 2020 was $2.24, which was relatively unchanged from the third quarter.

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2021 No. 3

Cash generated from operating activities in the fourth quarter of 2020 increased to $121.1 million compared to $77.9 million in the third quarter of 2020. Operating cash flow before change in non-cash working capital was $86.1 million during the fourth quarter of 2020, reflecting a slight increase from the third quarter. The increase in cash generated from operating activities is primarily the result of higher realized copper and zinc prices and working capital changes during the quarter.

Net earnings and earnings per share in the fourth quarter of 2020 were $7.4 million and $0.03, respectively, compared to a net loss and loss per share of $24.0 million and $0.09, respectively, in the third quarter of 2020. Fourth quarter earnings benefited from higher realized prices for base metals which was partially offset by lower sales volumes of copper. In addition, a $28.0 million mark-to-market net gain on certain financial instruments was recorded, including a $40.3 million non-cash gain on the revaluation of the embedded derivative on the senior notes due in 2025. Partially offsetting these gains was the accounting effect related to the 777 production interruption. This resulted in fixed overhead production costs of $11.7 million, which would normally be capitalized to inventories, being immediately expensed as part of cost of sales with no corresponding revenue benefit.

Adjusted net loss^i^ and adjusted EBITDA^i^ in the fourth quarter of 2020 were $16.4 million, or $0.06 per share, and $106.9 million, respectively, after adjusting for the 777 fixed overhead costs and the net mark-to-market gain on financial instruments, among other items. This compares to an adjusted net loss^i^ and adjusted EBITDA^i^ of $25.4 million, or $0.10 per share, and $96.1 million, respectively, in the third quarter of 2020. The favourable movements in adjusted EBITDA^i^ and adjusted net loss, as compared to the third quarter of 2020, primarily included the same factors that benefited net earnings.

Summary of Full Year Results

On a consolidated basis, Hudbay's copper, zinc and precious metals production met 2020 guidance ranges. Production of copper in Manitoba exceeded the top end of the guidance range, while copper production in Peru was within the revised guidance range. When compared to 2019 production levels, 2020 copper production in Peru was lower due to lower copper grades, as well as an eight-week suspension of Constancia operations due to a government declared state of emergency at the onset of the COVID-19 pandemic (which caused the company to update Peru's guidance with the second quarter results). Combined unit costs in Peru and Manitoba were within 2020 guidance ranges. Total capital expenditures were above 2020 guidance in large part due to costs associated with individual land user agreements that were not included in the company's initial growth capital guidance for Peru, as previously disclosed, due to the ongoing nature of the negotiations.

Consolidated cash cost per pound of copper produced, net of by-product credits, was $0.60 in 2020, a decrease compared to $0.83 in 2019, mainly as a result of increased by-product credit revenues, partially offset by lower copper production from lower grades at Constancia and reduced Constancia production from the eight-week suspension of operations. Incorporating cash sustaining capital, capitalized exploration, royalties, selling, administrative and regional costs, consolidated all-in sustaining cash cost per pound of copper produced, net of by-product credits, in 2020 was $2.16, which increased from $1.86 in 2019, driven mainly by increased cash sustaining capital expenditures and the same factors noted above affecting consolidated cash costs.

Cash generated from operating activities decreased to $239.5 million in 2020 from $310.9 million in 2019. Operating cash flow before change in non-cash working capital decreased to $241.9 million from $307.3 million in 2019. The decrease is the result of significantly lower copper sales volumes due to an eight-week suspension of Constancia operations in Peru following a government declared state of emergency and a six-week production interruption at the 777 mine in Manitoba. The lower copper sales volumes were only partially offset by higher realized sales prices for copper and precious metals.

TSX, NYSE - HBM
2021 No. 3

Net loss and loss per share for 2020 were $144.6 million and $0.55, respectively, compared to a net loss and loss per share of $343.8 million and $1.32, respectively, in 2019. The 2019 loss was mainly caused by an after-tax impairment charge of $242.1 million recorded in Hudbay's investment in the Rosemont project. Gross margins declined in 2020 in part due to multi-week operational suspensions at Constancia and 777 causing certain fixed overhead production costs to be immediately expensed as part of cost of sales with no corresponding revenue benefit.

Financial Condition ($000s) Dec. 31, 2020 Dec. 31, 2019
Cash and cash equivalents 439,135 396,146
Total long-term debt 1,135,675 985,255
Net debt^1^ 696,540 589,109
Working capital 306,888 271,284
Total assets 4,666,645 4,461,057
Equity 1,699,806 1,848,123

^1^ Net debt is a non-IFRS financial performance measure with no standardized definition under IFRS. For further information, please see the "Non-IFRS Financial Reporting Measures" section of this news release.

Consolidated Financial Performance **** Three Months Ended
**** Dec 31, 2020 Sep. 30, 2020 Dec. 31, 2019
Revenue $000s 322,290 316,108 324,485
Cost of sales $000s 287,923 276,830 298,852
Earnings (loss) before tax $000s 911 (23,944) (42,352)
Earnings (loss) $000s 7,406 (23,955) (1,455)
Basic and diluted earnings (loss) per share $/share 0.03 (0.09) (0.01)
Adjusted earnings (loss) per share^1^ $/share (0.06) (0.10) (0.09)
Operating cash flow before change in non-cash working capital $ millions 86.1 84.4 69.1
Adjusted EBITDA^1^ $ millions 106.9 96.1 82.2
Year Ended
Dec 31, 2020 Dec. 31, 2019
Revenue $000s 1,092,418 1,237,439
Cost of sales $000s 1,053,418 1,085,897
Earnings (loss) before tax $000s (179,089) (452,763)
Earnings (loss) $000s (144,584) (343,810)
Basic and diluted earnings (loss) per share $/share (0.55) (1.32)
Adjusted earnings (loss) per share^1^ $/share (0.46) (0.18)
Operating cash flow before change in non-cash working capital $ millions 241.9 307.3
Adjusted EBITDA^1^ $ millions 306.7 358.5

^1^ Adjusted loss per share and adjusted EBITDA are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the "Non-IFRS Financial Reporting Measures" section of this news release.

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2021 No. 3
Consolidated Operational Performance
--- --- --- --- --- ---
Sep. 30, 2020 Dec. 31, 2019
Contained metal in concentrate produced^1^
Copper tonnes 25,395 32,422
Gold ounces 29,277 32,712
Silver ounces 671,685 930,137
Zinc tonnes 30,570 30,592
Molybdenum tonnes 392 372
Precious metals^2^ ounces 36,824 46,000
Payable metal in concentrate sold
Copper tonnes 25,903 33,715
Gold ounces 30,605 30,344
Silver ounces 705,495 909,423
Zinc^3^ tonnes 26,520 28,001
Molybdenum tonnes 313 199
Precious metals^2^ ounces 38,532 43,336
Cash cost^4^ /lb 0.65 0.90
Sustaining cash cost^4^ /lb 2.02 2.11
All-in sustaining cash cost^4^ /lb 2.25 2.22
**** Year Ended
Dec. 31, 2020 Dec. 31, 2019
Contained metal in concentrate produced^1^ ****
Copper tonnes 95,333 137,179
Gold ounces 124,622 114,692
Silver ounces 2,750,873 3,585,330
Zinc tonnes 118,130 119,106
Molybdenum tonnes 1,204 1,272
Precious metals^2^ ounces 155,531 165,911
Payable metal in concentrate sold ****
Copper tonnes 88,888 128,519
Gold ounces 122,949 108,999
Silver ounces 2,585,586 3,452,926
Zinc^3^ tonnes 109,347 104,319
Molybdenum tonnes 1,321 1,186
Precious metals^2^ ounces 152,001 158,327
Cash cost^4^ /lb 0.60 0.83
Sustaining cash cost^4^ /lb 1.93 1.72
All-in sustaining cash cost^4^ /lb 2.16 1.86

All values are in US Dollars.

^1^ Metal reported in concentrate is prior to deductions associated with smelter contract terms.

^2^Precious metals production includes gold and silver production on a gold-equivalent basis. For 2019, silver is converted to gold at a ratio of 70:1. For 2020, silver is converted to gold at a ratio of 89:1.

^3^Includes refined zinc metal sold.

^4^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, please see the "Non-IFRS Financial Reporting Measures" section of this news release.

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2021 No. 3

Peru Operations Review

Peru Operations Three Months Ended Year Ended
****** Dec. 31, 2020 Sep. 30, 2020 Dec. 31, 2019 Dec. 31,2020 Dec. 31, 2019
Ore mined^1^ tonnes 9,313,784 8,455,668 8,049,063 27,529,950 33,308,369
Copper % 0.31 0.31 0.41 0.32 0.43
Gold g/tonne 0.03 0.03 0.04 0.03 0.04
Silver g/tonne 2.61 2.55 3.87 2.75 3.76
Molybdenum 0.01 0.02 0.02 0.02 0.02
Ore milled tonnes 7,741,714 7,480,655 7,474,136 26,297,318 31,387,281
Copper % 0.33 0.33 0.42 0.34 0.42
Gold g/tonne 0.03 0.03 0.04 0.03 0.04
Silver g/tonne 2.74 2.68 3.86 2.87 3.64
Molybdenum 0.02 0.02 0.02 0.02 0.02
Copper recovery % 85.3 83.3 85.6 83.0 85.7
Gold recovery % 52.7 51.6 50.0 49.8 48.1
Silver recovery % 70.1 66.7 68.2 66.9 68.2
Molybdenum recovery 28.4 30.4 30.8 29.4 26.5
Contained metal in concentrate **** ****
Copper tonnes 21,554 20,803 26,659 73,150 113,825
Gold ounces 3,689 3,333 5,007 12,395 19,723
Silver ounces 477,775 430,208 631,774 1,622,972 2,504,769
Molybdenum tonnes 333 392 372 1,204 1,272
Precious metals^2^ ounces 9,058 8,167 14,033 30,630 55,506
Payable metal sold **** ****
Copper tonnes 18,583 21,654 28,430 68,506 106,184
Gold ounces 3,297 3,753 4,824 10,986 18,956
Silver ounces 480,843 433,595 666,839 1,518,548 2,452,496
Molybdenum tonnes 457 313 199 1,321 1,186
Combined unit operating cost^3^^,4^ $/tonne 10.17 9.85 10.20 9.46 9.50
Cash cost^4^ $/lb 1.47 1.54 1.36 1.45 1.16
Sustaining cash cost^4^ $/lb 2.58 2.29 2.17 2.20 1.65

^1^ Reported tonnes and grade for ore mined are estimates based on mine plan assumptions and may not reconcile fully to ore milled.

^2^Precious metals production includes gold and silver production on a gold-equivalent basis. For 2019, silver is converted to gold at a ratio of 70:1. For 2020, silver is converted to gold at a ratio of 89:1.

^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 cost, cash cost and sustaining cash cost are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the "Non-IFRS Financial Reporting Measures" section of this news release.

The Constancia team continues to deliver strong operating performance despite the environment of strict ongoing COVID-19 measures and controls. Hudbay continues to work collaboratively with the local health authorities to ensure the company's workforce and partners adhere to COVID-19 protocols while continuing to operate safely and efficiently. Full year production of all metals and unit operating costs at Constancia achieved the revised guidance ranges for 2020.

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2021 No. 3

During the quarter, the Constancia mine produced 21,554 tonnes of copper, 9,058 ounces of precious metals and 333 tonnes of molybdenum. Production was higher than the third quarter of 2020 as a result of the ramp-up to full production after the temporary suspension of operations. Full year 2020 production of copper, gold and silver were 36%, 37%, and 35% lower, respectively, compared to 2019 due to lower grades, in line with mine plan, and the temporary suspension of operations in the second quarter of 2020.

The Constancia mine achieved excellent operational efficiencies during the quarter with a 10% increase in ore mined compared to the third quarter of 2020. Ore milled during the fourth quarter of 2020 was 3% higher compared to the third quarter due to the deferral of a fourth quarter plant maintenance shutdown to January 2021. Milled grades for all metals in the fourth quarter were relatively consistent with third quarter levels. Recoveries of copper, gold and silver were all higher than the third quarter due to ongoing recovery optimization efforts and actively managing the characteristics of the ore feed.

Combined mine, mill and G&A unit operating costs in the fourth quarter of 2020 were $10.17/lb, and higher than the third quarter of 2020, primarily due to higher mining costs during the quarter. Full year combined unit operating costs were in line with 2019 as lower production, caused by an eight-week suspension of operations, was offset by a corresponding decrease in mine, mill and general and administrative costs.

Peru's cash cost per pound of copper produced, net of by-product credits, in the fourth quarter of 2020 was $1.47, lower than the previous quarter primarily due to higher by-product credits and higher copper production. Peru's sustaining cash cost per pound of copper produced, net of by-product credits, for the fourth quarter 2020 increased compared to the prior quarter due to capitalized exploration related to option payments for properties surrounding Constancia and elevated sustaining capital spending in the fourth quarter.

Peru cash cost per pound of copper produced, net of by-product credits, for the full year 2020 was $1.45, and 25% higher than the full year 2019 primarily due to an eight-week suspension of Constancia operations during the second quarter and lower grades as the company progresses through the mine plan. Peru sustaining cash cost per pound of copper produced, net of by-product credits, was $2.20 for the full year 2020. This represents a 33% increase from 2019 primarily due to the same factors affecting cash costs.

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2021 No. 3

Manitoba Operations Review

Manitoba Operations Three Months Ended Year Ended
****** Dec. 31, 2020 Sep. 30, 2020 Dec. 31,2019 Dec. 31, 2020 Dec. 31,2019
Lalor ore mined tonnes 468,101 357,213 390,140 1,654,240 1,536,780
Copper % 0.80 0.66 0.80 0.74 0.75
Zinc % 5.54 5.98 6.20 5.73 6.36
Gold g/tonne 2.79 2.28 2.63 2.51 2.16
Silver g/tonne 24.96 21.23 28.38 25.31 25.51
777 ore mined tonnes 164,856 264,905 269,342 991,576 1,109,782
Copper % 1.89 0.98 1.17 1.40 1.37
Zinc % 2.98 3.95 3.33 3.88 3.22
Gold g/tonne 1.85 2.01 1.52 1.90 1.61
Silver g/tonne 21.64 24.25 18.52 24.13 18.67
Stall Concentrator: **** ****
Ore milled tonnes 372,624 335,739 310,622 1,412,751 1,290,300
Copper % 0.79 0.68 0.80 0.73 0.73
Zinc % 5.47 6.11 6.24 5.76 6.39
Gold g/tonne 2.88 2.35 2.60 2.55 2.13
Silver g/tonne 24.43 22.08 28.12 25.37 25.48
Copper recovery % 87.1 84.0 85.9 86.2 85.9
Zinc recovery % 90.9 92.7 90.7 91.9 91.1
Gold recovery % 59.5 57.4 61.1 60.0 56.8
Silver recovery % 60.3 57.5 62.9 60.4 60.4
Flin Flon Concentrator: **** ****
Ore milled tonnes 225,663 322,156 374,529 1,205,314 1,362,006
Copper % 1.59 0.99 1.11 1.28 1.27
Zinc % 3.87 4.07 4.05 4.21 3.78
Gold g/tonne 1.99 1.99 1.75 1.96 1.72
Silver g/tonne 22.65 24.01 20.56 24.26 19.84
Copper recovery % 88.1 83.9 86.9 86.0 88.0
Zinc recovery % 83.9 87.9 85.8 85.5 85.5
Gold recovery % 56.6 55.3 56.1 56.0 59.4
Silver recovery % 46.5 42.0 49.2 45.9 50.8
Total contained metal in concentrate
Copper tonnes 5,724 4,592 5,763 22,183 23,354
Zinc tonnes 25,843 30,570 30,592 118,130 119,106
Gold ounces 28,687 25,994 27,705 112,227 94,969
Silver ounces 252,904 241,477 298,363 1,127,901 1,080,561
Precious metals^1^ ounces 31,529 28,657 31,967 124,900 110,406
Total payable metal sold **** ****
Copper tonnes 4,380 4,249 5,285 20,382 22,335
Zinc^2^ tonnes 28,431 26,520 28,001 109,347 104,319
Gold ounces 31,882 26,852 25,520 111,963 90,043
Silver ounces 281,541 271,900 242,584 1,067,038 1,000,430
Combined unit operating cost^3,4^ C$/tonne 140 126 128 132 134
Cash cost^4^ $/lb (3.48) (3.41) (1.26) (2.20) (0.75)
Sustaining cash cost^4^ $/lb (0.36) 0.83 1.83 1.02 2.07
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^1^Precious metals production includes gold and silver production on a gold-equivalent basis. For 2019, silver is converted to gold at a ratio of 70:1. For 2020, silver is converted to gold at a ratio of 89:1.

^2^Includes refined zinc metal sold and payable zinc in concentrate sold.

^3^ Reflects combined mine, mill and G&A costs per tonne of ore milled.

^4^ Combined unit cost, cash cost and sustaining cash cost are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the "Non-IFRS Financial Reporting Measures" section of this news release.

The Manitoba business unit had strong operating performance across the mines, mills and zinc plant during the fourth quarter despite the 777 shaft incident, which resulted in the suspension of hoisting operations for six weeks. Despite the fourth quarter production interruption at the 777 mine, annual guidance for all metals and unit costs was achieved in Manitoba, with copper production exceeding the upper end of the guidance range.

In the face of the growing COVID-19 pandemic, new controls were added at the Snow Lake camp by introducing point of care PCR testing while maintaining the existing controls that were developed in the early part of the year. The company's health and safety committees have continued to work collaboratively with local health units with a focus on keeping Hudbay's employees and communities safe.

The coordinated business unit response to the 777 shaft incident focused on mitigating production losses by efficiently completing the repairs in the shaft, allowing the mine to return to normal operations quicker than expected.  A business continuity plan was established that relocated employees and equipment from 777 to Lalor and utilized Lalor's ramp to truck additional ore to surface from the upper parts of the mine at a rate of approximately 650 tonnes per day. This plan was successfully executed allowing Lalor to achieve record quarterly production, averaging over 5,000 tonnes per day in the quarter. Lalor continued to produce at a higher tonnage rate through the month of December mainly due to ongoing continuous improvement initiatives.

Production during the quarter included 25,843 tonnes of zinc, 5,724 tonnes of copper and 31,529 ounces of precious metals. Copper and gold production results were higher than the previous quarter primarily due to higher head grades and recoveries. Zinc production for the fourth quarter 2020 was lower compared to the third quarter primarily as a result of the 777 production interruption, lower head grades and recoveries. Full year gold and silver production increased by 18% and 4%, respectively, due to higher gold and silver head grades and higher recoveries at Stall compared to prior year. Full year copper production decreased by 5% as reduced production at 777 was not fully offset by the higher throughput at Stall.

The Stall concentrator achieved record throughput of 4,050 tonnes per day during the fourth quarter and approximately 3,870 tonnes per day on an annual basis. Ore processed during the fourth quarter of 2020 was higher than the third quarter of 2020 as additional resources from 777 were deployed to Lalor and incremental ore mined was sent to Stall. Full year ore processed at Stall increased by 9% as a result of ongoing continuous improvement initiatives and higher ore availability from the Lalor mine as indicated above. Although Stall recoveries were generally below levels experienced during the first half of 2020, the trend of improving gold recoveries has continued when compared to the same periods in 2019 due to improved ore characteristics and numerous operational improvement projects implemented at the Stall mill. Ore processed at the Flin Flon concentrator in the fourth quarter of 2020 decreased compared to the previous quarter due to the production interruption at 777. Full year ore processed at the Flin Flon concentrator was 12% lower than 2019 primarily for the same reason as noted above.

Combined mine, mill and G&A unit operating costs in the fourth quarter increased by 11% compared to the third quarter of 2020, but remained within the annual guidance range despite the 777 production interruption. The increase was primarily due to less ore milled in Flin Flon during the fourth quarter. Full year combined mine, mill and G&A unit operating costs in 2020 were slightly lower than 2019 levels as the mines and mills continued to deliver efficient results despite the production interruption at 777.

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Manitoba's cash cost per pound of copper produced, net of by-product credits, for the fourth quarter of 2020 was negative $3.48 and relatively in line with the prior quarter. Manitoba's sustaining cash cost per pound of copper produced, net of by-product credits, in the fourth quarter of 2020 was negative $0.36, lower than the previous quarter due to higher copper production and lower cash sustaining capital expenditures and royalties.

Manitoba's cash cost per pound of copper produced, net of by-product credits was lower in 2020 compared to 2019 due to lower mining costs and higher by-product credits, partially offset by lower copper production. Sustaining cash cost per pound of copper produced, net of by-product credits, were lower in 2020 compared to 2019, primarily due to the same factors affecting cash costs, partially offset by higher cash sustaining capital expenditures.

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2021 Key Objectives and Annual Guidance

Hudbay's annual production and operating cost guidance, along with its annual capital and exploration expenditure forecasts are discussed in detail below. As a result of the COVID-19 global pandemic, Hudbay has experienced operational, supply chain, travel, labour and shipping disruptions, and may continue to experience similar disruptions in the future. Given the uncertainty of the duration and magnitude of the impact of COVID-19, including its impact on the development timeline for Pampacancha, the company's 2021 production and cost guidance are subject to a higher-than-normal degree of uncertainty. The guidance below does not reflect any potential for additional suspensions or other significant disruption to operations or delays to development activities.

Hudbay's key objectives for 2021 are to:

  • Focus on operational efficiencies and maintain the company's low-costs of production to continue to generate positive cash flow and strong returns on invested capital;
  • Execute development and commence mining activities at the high-grade Pampacancha satellite deposit, further enhancing Constancia's production and cost profile;
  • Deliver the refurbishment of the New Britannia gold mill to significantly increase gold production from Lalor, completing the second phase of the Snow Lake gold strategy;
  • Advance the appeals process and alternative options to unlock value at Rosemont;
  • Progress the third phase of our Snow Lake gold strategy to further increase annual production scale by advancing studies to optimize recoveries, throughput, resource conversion and exploration;
  • Maintain Constancia's industry-leading efficiency metrics by identifying areas of upside through continuous improvement initiatives at the mill and ongoing near-mine exploration;
  • Drill regional copper exploration targets near Constancia, in northern Peru, and at Rosemont while continuing to advance exploration programs in the Snow Lake region, Peru and Nevada;
  • Support Hudbay's workforce, their families and the communities in which the company operates through continuing to make health and safety a priority and providing ongoing COVID-19 support; and,
  • Evaluate exploration, organic growth and acquisition opportunities that meet Hudbay's stringent strategic criteria and allocate capital to pursue those opportunities that create sustainable value for the company and its stakeholders.

Production Guidance

Contained Metal in Concentrate^1^ 2021 Guidance Year Ended<br>Dec. 31, 2020 2020 Guidance^2^
Peru
Copper tonnes 72,000 - 88,000 73,150 65,000 - 75,000
Gold^3^ oz 40,000 - 50,000 12,395 -
Silver^3^ oz 1,800,000 - 2,170,000 1,622,972 -
Molybdenum tonnes 1,400 - 1,700 1,204 1,100 - 1,300
Precious metals^3^ oz - 30,630 25,000 - 35,000
Manitoba
Zinc tonnes 96,000 - 107,000 118,130 105,000 - 125,000
Gold^3^ oz 150,000 - 165,000 112,227 -
Copper tonnes 20,000 - 24,000 22,183 18,000 - 22,000
Silver^3^ oz 1,200,000 - 1,400,000 1,127,901 -
Precious metals^3^ oz - 124,900 110,000 - 135,000
Total
Copper tonnes 92,000 - 112,000 95,333 83,000 - 97,000
Gold^3^ oz 190,000 - 215,000 124,622 -
Zinc tonnes 96,000 - 107,000 118,130 105,000 - 125,000
Silver^3^ oz 3,000,000 - 3,570,000 2,750,873 -
Molybdenum tonnes 1,400 - 1,700 1,204 1,100 - 1,300
Precious metals^3^ oz - 155,530 135,000 - 170,000

^1^Metal reported in concentrate is prior to refining losses or deductions associated with smelter terms.

^2^ Original 2020 guidance for Peru was revised on August 11, 2020 to account for a government-mandated temporary mine closure.

^3^ Precious metals production includes gold and silver production on a gold-equivalent basis and is only reported for 2020 since separate guidance for each of gold and silver was introduced in 2021. For 2020, silver is converted to gold at a ratio of 89:1.

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On a consolidated basis, the company met 2020 production guidance for all metals, and copper production exceeded the guidance range in Manitoba. Consolidated copper production was 6% higher than the mid-point of the guidance range due to strong performance at the Constancia operations in the second half of the year and the mining of higher copper grade stopes at 777.

In 2021, consolidated copper production is forecast to increase by 7%^ii^ compared to 2020 production primarily as a result of higher expected copper production in Peru, given 2020 production was impacted by an eight-week temporary mine interruption related to a government-declared state of emergency. Consolidated gold production in 2021 is expected to increase by 62%^ii^ year-over-year due to higher gold production in both Manitoba and Peru. In Manitoba, gold production is expected to increase by 40%^ii^ in 2021 due to the planned early startup of the New Britannia gold mill. In Peru, gold production is expected to more than triple in 2021 as the company expects to see the benefits from the higher grades at the Pampacancha satellite deposit. Zinc production is expected to decline by 14%^ii^ year-over-year as a result of prioritizing the mining of the gold-rich zones at Lalor in connection with the early startup of the New Britannia mill, which will result in mining less of the zinc-rich base metal zones at Lalor.

Peru's 2021 production guidance assumes mining of Pampacancha will begin in the second quarter, with the initial phase of lower copper grades, but higher gold grades, expected to continue for the balance of the year before higher copper grades are forecast to enter the mine plan in 2022. Manitoba's 2021 production guidance reflects an increase in Lalor's mine throughput to 4,650 tonnes per day, from the previous 4,500 tonnes per day, as the recent trend of stronger production from the mine is expected to continue.

Hudbay expects to publish updated mine plans for each of its Constancia and Snow Lake operations with its annual mineral reserve and resource update at the end of March 2021, as discussed in the "Other Key Strategic Initiatives" section in this news release. The new Constancia mine plan is expected to reflect an increase in copper and gold production from 2022 to 2025 as the higher grades from the Pampacancha deposit enter the mine plan. This is expected to offset the lost copper production from the 777 closure in mid-2022 and enable a steady state in Hudbay's consolidated copper production. The new Constancia mine plan will incorporate new reserves from the Constancia North property, which will extend the Constancia pit. The new mine plan will also include updated unit cost assumptions based on recent operational and business activities. The new Snow Lake mine plan is expected to reflect an increase in Lalor's mine production rate beyond 4,650 tonnes per day, and incorporate the results of the 1901 prefeasibility study and the Stall mill recovery improvement study. Given the pending mine plan updates, the company expects to issue its new three-year production outlook once the updated mine plans have been released.

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Capital Expenditure Guidance

Capital Expenditures1<br> (in millions) Year Ended<br><br> <br>Dec. 31, 2020 2020 Guidance^2^
Sustaining capital **** ****
Peru3 91.1 80.0
Manitoba 95.3 100.0
Total sustaining capital 186.4 180.0
Growth capital
Peru4 107.0 70.0
Manitoba 61.4 80.0
Arizona5 15.6 20.0
Total growth capital 184.0 170.0
Capitalized exploration 11.9 15.0
Total capital expenditures 382.3 365.0
1 Excludes capitalized costs not considered to be sustaining or growth capital expenditures. Capital expenditures are converted into U.S. dollars using the following rates: 1.30 Canadian dollars and 3.45 Peruvian soles.<br> 2 Original 2020 guidance for Peru was revised on August 11, 2020 to account for a government-mandated temporary mine closure.<br> 3 Includes capitalized stripping costs and Pampacancha capital after pre-stripping.4 Peru growth capital expenditures guidance of 70.0 million in 2020 related to expected expenditures for developing the Pampacancha deposit and acquiring surface rights, but excluded any costs related to the individual land user agreements due to the ongoing nature of the negotiations. The actual costs incurred in 2020 included the costs for acquiring the surface rights and amounts committed under the land user agreements completed during 2020. A portion of the development expenditures was deferred to 2021. Peru growth capital guidance of 5.0 million includes the project development expenditures but excludes the additional costs related to the remaining individual land user agreements.<br> 5 Arizona spending includes capitalized costs associated with the Rosemont project.

All values are in US Dollars.

Total capital expenditures are expected to decline by 11% year-over-year primarily due to lower expected growth spending in Peru in 2021.

Total sustaining capital expenditures in 2021 are expected to increase from 2020 levels primarily due to the deferral of heavy civil works and capitalized stripping expenditures in Peru from 2020 into 2021, partially offset by expected lower sustaining spending in Manitoba. A tailings dam raise is underway at Constancia and the associated heavy civil works accounts for a significant portion of the 2021 sustaining costs in Peru. Also, a portion of the Pampacancha heavy civil works, previously classified as growth capital, has been reclassified to sustaining capital expenditures in 2021. It is expected that Peru sustaining capital expenditures will begin to decline in 2022.

In Manitoba, Hudbay continues to implement improvements on the legacy Flin Flon tailings impoundment area, in line with the higher industry-wide standards for tailings dam safety. Spending under the tailings upgrade program is expected to average approximately $20.0 million per year from 2020 to 2022. These expenditures will not impact sustaining capital expenditures since they are associated with the decommissioning and restoration liability, and therefore, will be accounted for as a drawdown of the liability through operating cash flow.

Manitoba growth capital spending of $75.0 million in 2021 includes approximately $70.0 million for the completion of the New Britannia mill refurbishment project and approximately $5.0 million for the construction of a new long-term camp facility in Snow Lake. Manitoba growth capital spending in 2020 was lower than expected due to the deferral of approximately $20.0 million into 2021, despite the New Britannia refurbishment project continuing to track ahead of the original schedule. Total project spending on the New Britannia refurbishment project in 2021 includes an approximate $13.0 million increase in project costs as a result of the completion of a definitive estimate that incorporates project scope additions and COVID-19 related costs.

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Peru growth capital spending of $5.0 million in 2021 includes a portion of the Pampacancha project development expenditures that was deferred from 2020, but excludes the costs associated with completing the remaining individual land user agreement due to the ongoing nature of the negotiations. As stated previously, the 2020 Peru growth capital guidance similarly excluded the land user agreement costs; however, a significant portion of the actual growth expenditures incurred in 2020 related to costs associated with land user agreements completed during the year.

Exploration Guidance

Exploration Expenditures<br><br> <br>(in $ millions) 2021 Guidance Year Ended<br><br> <br>Dec. 31, 2020 2020 Guidance
Peru 20.0 14.3 15.0
Manitoba 10.0 10.1 10.0
Arizona and other 10.0 4.7 -
Total exploration expenditures 40.0 29.1 25.0
Capitalized spending (15.0) (11.9) (15.0)
Total exploration expense 25.0 17.2 10.0

Hudbay's total exploration spending in 2021 is expected to be higher than 2020 levels as the company plans to conduct additional drilling activities in Peru and Arizona.

In Peru, 2021 drilling activities will be focused on the Quehuincha North skarn target property located approximately 10 kilometres north of Constancia, and on the Llaguen greenfield project located near the city of Trujillo in northern Peru. In Manitoba, Hudbay expects to complete a winter drill program focused on expanding the 1901 deposit and testing drill targets identified between 1901 and the Lalor mine. In Arizona, the company plans to continue the drilling activities in the Helvetia copper region, in addition to a portion of exploration expenditures allocated for generative purposes.

Unit Operating Cost Guidance

Combined Mine/Mill Unit Operating Cost^1^^,2^ 2021 Guidance Year Ended<br>Dec. 31, 2020 2020 Guidance^3^
Peru $/tonne 8.90 - 10.90 9.46 8.30 - 10.00
Manitoba C$/tonne 145 - 155 132 130 - 140
^1^Reflects combined mine, mill and G&A costs per tonne of milled ore. Peru costs reflect the deduction of expected capitalized stripping costs.<br><br> <br>^2^ Combined unit costs are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the "Non-IFRS Financial Reporting Measures" section of this news release.<br><br> <br>^3^  Original 2020 guidance for Peru was revised on August 11, 2020 to account for a government-mandated temporary mine closure.

Combined unit costs for Manitoba in 2021 are forecast to be modestly higher than 2020 levels due to the reduction in capitalized underground development at both 777 and Lalor, which increases the portion of mining costs that are expensed and included in unit costs. In addition, combined unit costs in Manitoba are expected to trend higher with the inclusion of the New Britannia mill given the New Britannia milling unit costs are higher than the Flin Flon and Stall milling costs as disclosed in the company's Snow Lake operations mine plan released in March 2020. Combined unit costs for Peru in 2021 are approximately 5%^ii^ higher than 2020 as a result of higher consumable and mill maintenance costs and the impact of blasting harder ore in the Constancia pit.

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Flin Flon Zinc Plant Guidance 2021 Guidance Year Ended<br><br> <br>Dec. 31, 2020 2020 Guidance
--- --- --- --- ---
Zinc metal produced tonnes 96,000 - 103,000 111,637 100,000 - 112,000
Unit operating costs^1^ C$/lb 0.50 - 0.55 0.47 0.45 - 0.52

^1^ Unit costs are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the "Non-IFRS Financial Reporting Measures" section of this news release.

Cash Cost and Sustaining Cash Cost Guidance

Consolidated Cash Cost per pound of copper produced^1,2^ 2021 Guidance Year Ended<br><br> <br>Dec. 31, 2020 2020 Guidance^3^
Cash cost $/lb 0.65 - 0.80 0.60 -
Sustaining cash cost $/lb 2.05 - 2.30 1.93 -

^1^ Cash cost and sustaining cash cost, net of by-product credits, per pound of copper contained in concentrate. By-product credits are calculated using the gold and silver deferred revenue drawdown rates in effect on December 31, 2020 and the following commodity prices: $1.07 per pound zinc (includes premium), $1,800 per ounce gold, $21.00 per ounce silver, $8.00 per pound molybdenum and an exchange rate of 1.30 C$/US$.

^2^ Cash cost and sustaining cash cost are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the "Non-IFRS Financial Reporting Measures" section of this news release. ^3^ Cash cost and sustaining cash cost guidance was introduced in 2021 and is not available for 2020.

Hudbay is introducing consolidated cash cost and sustaining cash cost guidance in 2021. Consolidated cash cost per pound of copper produced, net of by-product credits, is expected to slightly increase from 2020 levels due to the expected increase in unit costs as described above, partially offset by expected higher copper production and higher by-product credits. Consolidated sustaining cash cost per pound of copper produced, net of by-product credits, is expected to be consistent with 2020 as lower sustaining capital expenditures are expected to offset the increase in cash costs.

Metal production in any particular quarter may vary from the implied annual guidance rate based on variations in grades and recoveries due to the areas mined in that quarter, the timing of planned maintenance, and other factors. Mining and processing costs in any particular quarter can vary from the annual guidance rate above based on a variety of factors, including the scheduling of maintenance events and seasonal heating requirements, particularly in Manitoba. Cash cost and sustaining cash cost may also vary based on changes in commodity prices affecting by-product credits. In Peru, the regularly scheduled semi-annual mill maintenance shutdowns at Constancia are expected to occur during the first and third quarters of 2021.

COVID-19 Business Update

Hudbay continues to manage and respond to the COVID-19 pandemic and has implemented preventative measures to ensure the safety of its workforce, their families, and the communities in which the company operates. During the fourth quarter, production disruptions due to COVID-19 were minimal and there was no material impact on the delivery of goods to or from the company's operations. Hudbay continues to closely monitor the evolution of the pandemic in each operating region and are reviewing and adapting procedures based on the latest local situation. While the company has had members of its workforce contract COVID-19, to date there have been no identified cases of transmission within its workplaces, or transmission between rotational employees and local communities.

On January 26, 2021, the Peruvian government announced heightened restrictions in order to help mitigate the spread of COVID-19. Under these new measures, all provinces of Peru are categorized as High, Very High, or Extreme, with corresponding levels of restrictions, including daily curfews and restrictions on domestic travel. Parts of Lima and Cusco, two regions where Hudbay operates, are currently classified as Extreme and Very High, respectively. The new measures are expected to remain in place at least until February 28, 2021, at which point the government of Peru is expected to reevaluate the classifications and the associated restrictions.

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On January 28, 2021, in an effort to continue to reduce the COVID-19 cases in the province, the Manitoba government issued a public health order mandating a 14-day self-isolation period for anyone returning or coming to Manitoba from all jurisdictions. This order provides certain allowances for workers travelling to work and is not expected to impact Hudbay's ability to maintain required workforce levels. The company's protocols of testing and pre-screening incoming workers continue to be in effect.

Lalor Mine and the New Britannia Mill Refurbishment Update

The New Britannia refurbishment project is ahead of the original schedule. Overall project progress is approximately 73% complete. Construction of the new copper flotation building continues to advance as planned and construction of the pipeline between the New Britannia and Stall mills has been completed.

Total project spending on the New Britannia refurbishment project is forecast to be approximately $13.0 million higher than budget due to project scope additions and COVID-19 related costs, identified through a higher classification of the project capital estimate as the project nears completion. The additions to the project scope were as a result of changes to the Stall tailings pipeline configuration due to processing considerations, in addition to the implemented scope changes relating to the installation of temporary modular copper flotation cells to achieve early gold production at the gold plant. COVID-19 related costs are as a result of the additional costs associated with remote project management and pandemic safety protocols.

Refurbishment activities at the gold plant continue to remain ahead of the original schedule with commissioning expected to be completed in mid-2021. Ramp-up and first production at the gold plant is expected early in the third quarter of 2021. Copper flotation building construction activities are on track for commissioning and ramp-up during the fourth quarter of 2021.

Operational readiness activities in support of the early start-up of New Britannia are on track. Lalor continues to exceed underground development rates in gold-rich lenses 25 and 27, and in preparation for the mid-year startup of New Britannia, a stockpile of 12,000 tonnes of gold ore was established on surface during the fourth quarter of 2020. The gold ore stockpile is expected to grow over the first half of 2021 and supply sufficient feed to facilitate a quick ramp up of the gold plant.

Once the New Britannia mill is fully ramped-up, average annual gold production from Lalor is expected to increase to over 150,000 ounces commencing in 2022 at cash costs and sustaining cash costs, net of by-product credits, of approximately $480 and $655 per ounce, respectively, during the first eight years of the gold plant's operation.

Pampacancha Update

Hudbay completed the Pampacancha surface rights agreement with the local community of Chilloroya in February 2020. Throughout the remainder of the year, the company focused on advancing the consultation process between the government and the Chilloroya community as per Peru's Consulta Previa law. Despite challenges presented by the pandemic, the Consulta Previa process was completed at the end of the year, and in early January 2021, Hudbay received the final mining permit for the development and operation of Pampacancha.

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In January 2021, Hudbay commenced limited pre-development activities for Pampacancha, including haul road construction and site preparation work. The company continues to advance discussions with the remaining land user family at Pampacancha. Pre-stripping activities are expected to commence once the remaining land user agreement has been completed.

In late January 2021, new COVID-19 restrictions were announced by the government of Peru. As a result of these restrictions and the need to complete the remaining land user agreements, Hudbay no longer expects to mine four million tonnes of ore from the Pampacancha deposit by June 30, 2021. If we fail to meet this milestone, the company will be required to deliver an additional 8,020 ounces of gold to Wheaton Precious Metals ("Wheaton") in equal quarterly installments, at prevailing market prices, starting September 30, 2021. Hudbay and Wheaton are currently in discussions about, among other things, alternatives to defer the additional gold deliveries over the Pampacancha mine life.

Rosemont Update

The appeal of the unprecedented Rosemont court decision with the U.S. Court of Appeals for the Ninth Circuit ("Ninth Circuit") continues to advance with final briefs filed in November 2020 and the oral hearing completed in early February 2021. A decision from the Ninth Circuit is expected in the second half of 2021.

Hudbay has completed the initial drill program on its wholly owned private land located near Rosemont in a historic mining district called Helvetia. The focus of the program was to complete condemnation drilling for Rosemont and to test the Helvetia copper district for future exploration potential. The drill program consisted of 60 holes with several intersecting sulphide or oxide mineralization. Full assay results are pending.

Other Key Strategic Initiatives

Snow Lake Expansion Potential

Hudbay continues to advance various studies as part of phase three of its Snow Lake gold strategy. The company expects to publish an updated mine plan for its Snow Lake operations with its annual mineral reserves and resources update at the end of March 2021. The updated mine plan is expected to incorporate the following upside opportunities:

  • Increased Lalor Mine Production Rate - At the Lalor mine, Hudbay was pleased with the production increase achieved during the fourth quarter as a result of the allocation of additional mining resources from 777 to Lalor while the 777 shaft repairs were being completed. During this period, Lalor's mine output increased by an average of 650 tonnes per day above the normal level. The updated mine plan will contemplate a higher production rate at the Lalor mine after the 777 mine closes in mid-2022.
  • 1901 Deposit Prefeasibility Study - After releasing an upgraded resource estimate for the 1901 deposit in August 2020, Hudbay initiated engineering activities to develop a viable mine plan for the 1901 deposit that could supplement production from Lalor to take advantage of the future processing capacity of its mills in the Snow Lake region. The study will initially focus on the base metal zones with the gold zone in the inferred category remaining as future upside potential for the deposit. The results will be reflected in the company's updated mine plan for Snow Lake.
  • Stall Recovery Improvement Study - Hudbay is exploring various technological enhancements at the Stall mill to potentially increase gold and copper recoveries, which could create further value for Lalor and the other deposits in the Snow Lake region.
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Hudbay believes the updated mine plan will optimize the company's milling capacity in Snow Lake with an expected higher production rate at Lalor and the incorporation of the 1901 deposit into the operations. There remains the potential to expand the New Britannia mill capacity beyond the currently planned 1,500 tonnes per day, and this opportunity is expected to be examined in the future once the updated mine plan enhancements have been implemented.

Constancia Regional Exploration

Hudbay is evaluating and integrating the results from the recent drill programs at Constancia North into its annual mineral reserves and resources update for Constancia at the end of March 2021. The drill program intersected copper porphyry and high-grade skarn mineralization within 300 metres of the northern edge of the current Constancia pit. The mineralization remains open to the north.

The company continues to advance the regional exploration programs in Peru. In early 2021, drilling commenced on the Quehuincha North high-grade skarn target located approximately 10 kilometres from Constancia's processing facilities. Exploration agreement discussions with the community of Uchucarcco on the Maria Reyna and Caballito properties are progressing. Maria Reyna is a prospective copper skarn-porphyry target and Caballito is a past-producing copper oxide mine, both of which are located within 10 kilometers north of Constancia. Hudbay also expects to commence drilling at its Llaguen property in the second quarter of 2021, after receiving all required drill permits in 2020. Llaguen is a copper porphyry target located in northern Peru, near the city of Trujillo and in close proximity to existing infrastructure.

Collective Bargaining Agreements

The three-year collective bargaining agreements with Hudbay's unionized workforces at each of its Peru and Manitoba operations expired on or about December 31, 2020. The company is engaged in discussions with the labour unions in each jurisdiction as it works toward renewing the collective agreements.

Dividend Declared

A semi-annual dividend of C$0.01 per share was declared on February 18, 2021. The dividend will be paid out on March 26 to shareholders of record as of March 9, 2021.

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, 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.

Hudbay believes adjusted net earnings (loss) and adjusted net earnings (loss) per share better reflect the company's performance for the current period and are better indications of 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. The company provides adjusted EBITDA to help users analyze its results and to provide additional information about the company's ongoing cash generating potential in order to assess its 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 its financial position. Cash cost, sustaining and all-in sustaining cash cost per pound of copper produced are shown because the company believes they help investors and management assess the performance of its operations, including the margin generated by the operations and the company. Combined unit cost is shown because the company believes it helps investors and management assess the cost structure and margins that are not impacted by variability in by-product commodity prices.

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In the first half of 2020, a government-imposed shutdown of non-essential businesses led to a temporary suspension of the Constancia mining operations. Similarly, in the fourth quarter, a shaft incident led to a production interruption at 777 in Manitoba. Fixed overhead production costs incurred during the suspension were directly charged to cost of sales. These costs did not contribute to production of inventory and were therefore excluded from the calculations of adjusted net earnings (loss), adjusted EBITDA and cash costs.

For further details on these measures, including reconciliations to the most comparable IFRS measures, please refer to page 53 of Hudbay's management's discussion and analysis for the year ended December 31, 2020 available on SEDAR at www.sedar.com.

Website Links

Hudbay:

www.hudbay.com

Management's Discussion and Analysis:

http://www.hudbayminerals.com/files/doc_financials/2020/Q4/MDA204.pdf

Financial Statements:

http://www.hudbayminerals.com/files/doc_financials/2020/Q4/FS204.pdf

Conference Call and Webcast

Date: Friday, February 19, 2021
Time: 9:00 a.m. ET
Webcast: http://services.choruscall.ca/links/hudbay20210219.html
Dial in: 1-416-915-3239 or 1-800-319-4610

Qualified Person

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The technical and scientific information in this news release related to the Constancia mine and Rosemont project has been approved by Cashel Meagher, P. Geo, Hudbay's Senior Vice President and Chief Operating Officer. The technical and scientific information related to the company's other material mineral projects contained in this news release has been approved by Olivier Tavchandjian, P. Geo, Hudbay's Vice President, Exploration and Geology. Messrs. Meagher and Tavchandjian are qualified persons pursuant to NI 43-101. For a description of the key assumptions, parameters and methods used to estimate mineral reserves and resources at Hudbay's material properties, as well as data verification procedures and a general discussion of the extent to which the estimates of scientific and technical information may be affected by any known environmental, permitting, legal title, taxation, sociopolitical, marketing or other relevant factors, please see the technical reports for the company's material properties as filed by Hudbay on SEDAR at www.sedar.com.

Forward-Looking Information

This news release contains forward-looking information within the meaning of applicable Canadian and United States securities legislation. All information contained in this news release, 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 news release is qualified by this cautionary note.

Forward-looking information includes, but is not limited to, production, cost and capital and exploration expenditure guidance and potential revisions to such guidance, anticipated production at Hudbay's mines and processing facilities, expectations regarding the impact of the COVID-19 pandemic on its operations, financial condition and prospects and its ability to effectively engage with local communities in Peru and other stakeholders, expectations regarding the timing of mining activities at the Pampacancha deposit and any additional delivery obligations under the Constancia stream agreement, the anticipated timing, cost and benefits of developing the Rosemont project and the outcome of litigation challenging Rosemont's permits, expectations regarding the Helvetia exploration program, expectations regarding the Lalor gold strategy, including the refurbishment, commissioning and ramp-up of the New Britannia mill and expectations regarding the mine plan for the 1901 deposit, increasing the mining rate at Lalor and optimizing the Stall and New Britannia mills, the potential and anticipated plans for advancing the company's mining properties surrounding Constancia and elsewhere in Peru, anticipated mine plans, anticipated metals prices and the anticipated sensitivity of Hudbay's financial performance to metals prices, events that may affect the company's 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 the company at the date the forward-looking information is provided, inherently are subject to significant risks, uncertainties, contingencies and other factors that may cause actual results and events to be materially different from those expressed or implied by the forward-looking information.

The material factors or assumptions that Hudbay has identified and applied in drawing conclusions or making forecasts or projections are set out in the forward-looking information include, but are not limited to:

  • the ability to continue to operate safely and at full capacity during the COVID-19 pandemic;
  • the ability to achieve production and unit cost guidance;
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  • no significant interruptions to operations or significant delays to development projects in Manitoba and Peru due to the COVID-19 pandemic;
  • the timing of development and production activities on the Pampacancha deposit;
  • the timing for reaching additional agreements with individual community members and no significant unanticipated delays to the development of Pampacancha;
  • the successful completion of the New Britannia project on budget and on schedule;
  • the successful outcome of the Rosemont litigation;
  • the successful renegotiation of collective agreements with the labour unions that represent certain of Hudbay employees in Manitoba and Peru;
  • the success of mining, processing, exploration and development activities;
  • the scheduled maintenance and availability of the company's processing facilities;
  • the accuracy of geological, mining and metallurgical estimates;
  • anticipated metals prices and the costs of production;
  • the supply and demand for metals Hudbay produces;
  • the supply and availability of all forms of energy and fuels at reasonable prices;
  • no significant unanticipated operational or technical difficulties;
  • the execution of Hudbay's business and growth strategies, including the success of strategic investments and initiatives;
  • the availability of additional financing, if needed;
  • the ability to complete project targets on time and on budget and other events that may affect the company's ability to develop the company's projects;
  • the timing and receipt of various regulatory and governmental approvals;
  • the availability of personnel for exploration, development and operational projects and ongoing employee relations;
  • maintaining good relations with the labour unions that represent certain of Hudbay's employees in Manitoba and Peru;
  • maintaining good relations with the communities in which the company operates, including the neighbouring Indigenous communities and local governments;
  • no significant unanticipated challenges with stakeholders at various projects;
  • no significant unanticipated events or changes relating to regulatory, environmental, health and safety matters;
  • no contests over title to Hudbay's properties, including as a result of rights or claimed rights of Indigenous peoples or challenges to the validity of the company's 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 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, risks associated with the COVID-19 pandemic and its effect on Hudbay's operations, financial condition, projects and prospects, the possibility of a global recession arising from the COVID-19 pandemic and attempts to control it, the political situation in Peru, risks generally associated with the mining industry, such as economic factors (including future commodity prices, currency fluctuations, energy prices and general cost escalation), uncertainties related to the development and operation of projects, risks related to the U.S. district court's recent decisions to set aside the U.S. Forest Service's FROD and the Biological Opinion for Rosemont and related appeals and other legal challenges, risks related to the new Lalor mine plan, including the schedule for the refurbishment of the New Britannia mill and the ability to convert inferred mineral resource estimates to higher confidence categories, risks related to the schedule for mining the Pampacancha deposit (including risks associated with COVID-19 and risks associated with reaching additional agreements with individual community members and the impact of any schedule delays), dependence on key personnel and employee and union relations, risks related to political or social 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 the company's 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 Hudbay's reserves, volatile financial markets that may affect the company's 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, Hudbay's ability to comply with the company's pension and other post-retirement obligations, the ability to abide by the covenants in the company's debt instruments and other material contracts, tax refunds, hedging transactions, as well as the risks discussed under the heading "Financial Risk Management" in the company's Management's Discussion and Analysis dated February 18, 2021 and under the heading "Risk Factors" in Hudbay's most recent Annual Information Form.

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Should one or more risk, uncertainty, contingency or other factor materialize or should any factor or assumption prove incorrect, actual results could vary materially from those expressed or implied in the forward-looking information. Accordingly, you should not place undue reliance on forward-looking information. Hudbay does not assume any obligation to update or revise any forward-looking information after the date of this news release or to explain any material difference between subsequent actual events and any forward-looking information, except as required by applicable law.

Note to United States Investors

This news release 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.

About Hudbay

Hudbay (TSX, NYSE: HBM) is a diversified mining company primarily producing copper concentrate (containing copper, gold and silver) and zinc metal. Directly and through its subsidiaries, Hudbay owns three polymetallic mines, four ore concentrators and a zinc production facility in northern Manitoba and Saskatchewan (Canada) and Cusco (Peru), and copper projects in Arizona and Nevada (United States). The company's growth strategy is focused on the exploration, development, operation and optimization of properties it already controls, as well as other mineral assets it may acquire that fit its strategic criteria. Hudbay's vision is to be a responsible, top-tier operator of long-life, low-cost mines in the Americas. Hudbay's mission is to create sustainable value through the acquisition, development and operation of high-quality, long-life deposits with exploration potential in jurisdictions that support responsible mining, and to see the regions and communities in which the company operates benefit from its presence. The company is governed by the Canada Business Corporations Act and its shares are listed under the symbol "HBM" on the Toronto Stock Exchange, New York Stock Exchange and Bolsa de Valores de Lima. Further information about Hudbay can be found on www.hudbay.com.

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For further information, please contact:

Candace Brûlé

Director, Investor Relations (416) 814-4387

^___________________________________________i^ Adjusted net loss, adjusted net loss per share, adjusted EBITDA, cash cost, all-in sustaining cash cost per pound of copper produced, net of by-product credits, and net debt are non-IFRS financial performance measures with no standardized definition under IFRS. For further information, please see the "Non-IFRS Financial Reporting Measures" section of this news release.

^ii^ Year-over-year forecast changes assume the mid-point of the respective guidance range is achieved.

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