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6-K

Hudbay Minerals Inc. (HBM)

6-K 2020-05-15 For: 2020-03-31
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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 May, 2020

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 May 14, 2020, 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) Unaudited Condensed Consolidated Interim Financial Statements for the period ended March 31, 2020, (2) Management's Discussion and Analysis for the period ended March 31, 2020, (3) Form 52-109F2 Certification of Interim Filings Full Certificate - CEO, (4) Form 52-109F2 Certification of Interim Filings Full Certificate - CFO, and (5) News Release dated May 15, 2020.

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

  • Exhibit 99.1 — Unaudited Condensed Consolidated Interim Financial Statements for the period ended March 31, 2020
  • Exhibit 99.2 — Management's Discussion and Analysis for the period ended March 31, 2020
  • Exhibit 99.3 — Form 52-109F2 Certification of Interim Filings Full Certificate - CEO
  • Exhibit 99.4 — Form 52-109F2 Certification of Interim Filings Full Certificate - CFO
  • Exhibit 99.5 — News Release dated May 15, 2020

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/ Eugene Lei
Name: Eugene Lei
Title: Senior Vice President, Corporate Development <br>and Strategy and Interim Chief Financial Officer

Date: May 15, 2020

EXHIBIT INDEX

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

Exhibit Description
99.1 Unaudited Condensed Consolidated Interim Financial Statements for the period ended March 31, 2020
99.2 Management's Discussion and Analysis for the period ended March 31, 2020
99.3 Form 52-109F2 Certification of Interim Filings Full Certificate - CEO
99.4 Form 52-109F2 Certification of Interim Filings Full Certificate - CFO
99.5 News Release dated May 15, 2020 
Hudbay Minerals Inc.: Exhibit 99.1 - Filed by newsfilecorp.com

Unaudited Condensed Consolidated Interim Financial Statements

(In US dollars)

HUDBAY MINERALS INC.

For the three months ended March 31, 2020 and 2019

**HUDBAY MINERALS INC.**Condensed Consolidated Interim Balance Sheets<br>(Unaudited and in thousands of US dollars)
Mar. 31, Dec. 31,
--- --- --- --- --- --- --- ---
Note 2020 2019
Assets
Current assets
Cash and cash equivalents $ 305,997 $ 396,146
Trade and other receivables 6 86,179 105,994
Inventories 7 137,289 138,820
Prepaid expenses and other current assets 11,221 12,737
Other financial assets 8 18,248 2,049
Taxes receivable 8,015 7,289
566,949 663,035
Receivables 6 18,156 19,264
Inventories 7 17,125 19,455
Other financial assets 8 6,974 11,287
Intangibles and other assets 9 22,877 10,411
Property, plant and equipment 10 3,666,655 3,662,559
Deferred tax assets 18b 67,490 69,950
$ 4,366,226 $ 4,455,961
Liabilities
Current liabilities
Trade and other payables $ 143,441 $ 192,404
Taxes payable 1,304 2,146
Other liabilities 11 42,474 49,411
Other financial liabilities 12 70,123 28,076
Lease liabilities 13 31,521 32,781
Deferred revenue 15 85,041 86,933
373,904 391,751
Other financial liabilities 12 71,709 39,784
Lease liabilities 13 41,945 49,166
Long-term debt 14 988,074 985,255
Deferred revenue 15 478,338 476,823
Provisions 16 303,827 280,850
Pension obligations 17 13,661 29,599
Other employee benefits 17 90,202 116,778
Deferred tax liabilities 18b 226,289 237,832
2,587,949 2,607,838
Equity
Share capital 19b 1,777,340 1,777,340
Reserves (16,158 ) (24,250 )
Retained earnings 17,095 95,033
1,778,277 1,848,123
$ 4,366,226 $ 4,455,961
Commitments (note 21)
**HUDBAY MINERALS INC.**Condensed Consolidated Interim Statements of Cash Flows<br>(Unaudited and in thousands of US dollars)
---
Three months ended<br>March 31,
--- --- --- --- --- --- --- ---
Note 2020 2019<br>(Note 22a)
Cash generated from operating activities:
Loss for the period $ (76,134 ) $ (13,412 )
Tax recovery 18a (5,318 ) (4,696 )
Items not affecting cash:
Depreciation and amortization 5b 86,857 77,681
Share-based payment (recoveries) expenses 5c (2,713 ) 5,342
Finance expense, net 5e 41,695 42,450
Change in fair value of derivatives 5e 2,871 (4,602 )
Inventory writedowns 7 10,375 -
Amortization of deferred revenue 15 (9,760 ) (9,510 )
Loss (gain) on investments 5e 3,373 (790 )
Pension and other employee benefit payments, net of accruals 2,184 843
Decommissioning and restoration payments (2,936 ) -
Other and foreign exchange (5,875 ) 963
Taxes paid (2,668 ) (8,585 )
Operating cash flow before change in non-cash working capital 41,951 85,684
Change in non-cash working capital 22a (32,865 ) (23,984 )
9,086 61,700
Cash used in investing activities:
Acquisition of property, plant and equipment (51,085 ) (42,283 )
Change in restricted cash - 737
Net interest received 1,138 2,283
(49,947 ) (39,263 )
Cash used in financing activities:
Interest paid on long-term debt (37,375 ) (37,375 )
Financing costs (3,736 ) (5,474 )
Lease payments (9,017 ) (7,449 )
Dividends paid 19b (1,804 ) (1,955 )
(51,932 ) (52,253 )
Effect of movement in exchange rates on cash and cash equivalents 2,644 186
Net decrease in cash and cash equivalents (90,149 ) (29,630 )
Cash and cash equivalents, beginning of the period 396,146 515,497
Cash and cash equivalents, end of the period $ 305,997 $ 485,867
For supplemental information, see note 22.
**HUDBAY MINERALS INC.**Condensed Consolidated Interim Income Statements<br>(Unaudited and in thousands of US dollars)
---
Three Months Ended<br>March 31,
--- --- --- --- --- --- --- ---
Note 2020 2019
Revenue 5a $ 245,105 $ 292,258
Cost of sales
Mine operating costs 180,657 163,316
Depreciation and amortization 5b 86,439 77,130
267,096 240,446
Gross (loss) profit (21,991 ) 51,812
Selling and administrative expenses 5,103 14,900
Exploration and evaluation expenses 5,773 5,407
Other operating expenses 5d 5,492 11,696
Results from operating activities (38,359 ) 19,809
Finance income 5e (1,106 ) (2,578 )
Finance expenses 5e 42,801 45,028
Other finance losses (gains) 5e 1,398 (4,533 )
Net finance expense 43,093 37,917
Loss before tax (81,452 ) (18,108 )
Tax recovery 18a (5,318 ) (4,696 )
Loss for the period $ (76,134 ) $ (13,412 )
Loss per share
Basic and diluted $ (0.29 ) $ (0.05 )
Weighted average number of common shares outstanding:
Basic and diluted 261,272,151 261,272,151
**HUDBAY MINERALS INC.**Condensed Consolidated Interim Statements of Comprehensive Loss<br>(Unaudited and in thousands of US dollars)
---
Three months ended<br>March 31,
--- --- --- --- --- --- ---
2020 2019
Loss for the period $ (76,134 ) $ (13,412 )
Other comprehensive income (loss):
Item that will be reclassified subsequently to profit or loss:
Recognized directly in equity:
Net (loss) gain on translation of foreign currency balances (20,120 ) 3,768
(20,120 ) 3,768
Items that will not be reclassified subsequently to profit or loss:
Recognized directly in equity:
Remeasurement - actuarial gain (loss) 31,496 (5,719 )
Tax effect (3,284 ) (640 )
28,212 (6,359 )
Other comprehensive income (loss) net of tax, for the period 8,092 (2,591 )
Total comprehensive loss for the period $ (68,042 ) $ (16,003 )
**HUDBAY MINERALS INC.**Condensed Consolidated Interim Statements of Changes in Equity<br>(Unaudited and in thousands of US dollars)
---
Share capital<br>(note 19) Other capital <br>reserves Foreign currency <br>translation reserve Remeasurement <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 - - - - (13,412 ) (13,412 )
Other comprehensive income (loss) - - 3,768 (6,359 ) - (2,591 )
Total comprehensive income (loss) - - 3,768 (6,359 ) (13,412 ) (16,003 )
Contributions by and distributions to owners:
Dividends (note 19b) - - - - (1,955 ) (1,955 )
Total contributions by and distributions to owners - - - - (1,955 ) (1,955 )
Balance, March 31,2019 $ 1,777,340 $ 28,837 $ (8,051 ) $ (64,631 ) $ 427,403 $ 2,160,898
Loss - - - - (330,398 ) (330,398 )
Other comprehensive income (loss) - - 5,452 (11,835 ) - (6,383 )
Total comprehensive income (loss) - - 5,452 (11,835 ) (330,398 ) (336,781 )
Dilution of Partner's investor in Rosemont - 25,978 - - - 25,978
Contributions by and distributions to owners:
Dividends (note 19b) - - - - (1,972 ) (1,972 )
Total contributions by and distributions to owners - - - - (1,972 ) (1,972 )
Balance, December 31, 2019 $ 1,777,340 $ 54,815 $ (2,599 ) $ (76,466 ) $ 95,033 $ 1,848,123
**HUDBAY MINERALS INC.**Condensed Consolidated Interim Statements of Changes in Equity<br>(Unaudited and in thousands of US dollars)
---
Share capital<br>(note 19) Other capital <br>reserves Foreign currency <br>translation reserve Remeasurement <br>reserve Retained <br>earnings Total equity
--- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Balance, January 1, 2020 $ 1,777,340 $ 54,815 $ (2,599 ) $ (76,466 ) $ 95,033 $ 1,848,123
Loss - - - - (76,134 ) (76,134
Other comprehensive (loss) income - - (20,120 ) 28,212 - 8,092
Total comprehensive (loss) income - - (20,120 ) 28,212 (76,134 ) (68,042 )
Contributions by and distributions to owners:
Dividends (note 19b) - - - - (1,804 ) (1,804 )
Total contributions by and distributions to owners - - - - (1,804 ) (1,804 )
Balance, March 31, 2020 $ 1,777,340 $ 54,815 $ (22,719 ) $ (48,254 ) $ 17,095 $ 1,778,277
**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 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 unaudited condensed consolidated interim financial statements ("interim financial statements") of the Company for the three months ended March 31, 2020 and 2019 represent the financial position and the financial performance of the Company and its subsidiaries (together referred to as the "Group" or "Hudbay" and individually as "Group entities").

Wholly owned subsidiaries as at March 31, 2020 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, the Group 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). The Group 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.

These interim financial statements have been prepared on the basis that the Company will be able to realize its assets and discharge its liabilities, including any current portions of liabilities in the normal course of business into the foreseeable future.

2. Basis of preparation

(a)   Statement of compliance:

These interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting as issued by the International Accounting Standards Board ("IASB") and do not include all of the information required for full annual financial statements by International Financial Reporting Standards ("IFRS").

These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2019 which includes information necessary or useful to understanding the Company's business and financial statement presentation. In particular, the Company's significant accounting policies are presented as note 3 in the audited consolidated financial statements for the year ended December 31, 2019 and have been consistently applied in the preparation of these interim financial statements.

The Board of Directors approved these interim financial statements on May 14, 2020.

**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

(b)   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 the Group operates in. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. During the first quarter of 2020 containment measures have resulted in decreased economic activity, which has adversely affected the broader global economy.

The current and expected impacts on global commerce are anticipated to be far-reaching. To date there has been significant 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. There is significant ongoing short to medium-term uncertainty surrounding COVID-19 and the extent and duration of the impacts that it may have on demand and prices for the commodities the Group produces, on its suppliers, on its employees and on global financial markets. As a result, the Group may experience production below estimated levels, increased costs and significantly reduced revenue.

The Company is evaluating the potential impacts arising from COVID-19 on all aspects of its business and, in particular, those that may pertain to subsequent financial statements. Such impacts on the financial statements include possible indicators of impairment of non-financial assets from sustained low base metal prices. In addition, the valuation of inventories and receivables may be impacted by lower realizable base metal prices. Lastly, the Company will continue to evaluate the impact of changes in short-term cashflow forecasts on its liquidity position and monitor its ability to comply with its debt covenants and meet its financial obligations.

The Company acted in compliance with government-ordered shut down of non-essential businesses, resulting in operations at its Constancia mine being temporarily suspended commencing March 19, 2020. The Company has taken steps to safeguard the health of its employees while implementing measures to minimize the overall impact on its operations.

(c)   Use of judgements and estimates:

The preparation of the interim financial statements in conformity with IFRS requires the Group to make judgements, estimates and assumptions, in applying accounting policies that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements, as well as reported amounts of revenue and expenses during the reporting period. Actual results may differ from these judgements, estimates and assumptions. The interim financial statements reflect the judgements and estimates outlined by the Group in its audited consolidated financial statements for the year ended December 31, 2019.

The following are critical and significant judgements and estimates impacting these interim financial statements that were not previously outlined by the Group in its audited consolidated financial statements for the year ended December 31, 2019.

- Indicators and testing of impairment (reversal of impairment) of non-financial assets (note 10) - There are a number of potential indicators that could lead to 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 the Group's overall assessment of the recoverability of non-financial assets. The business changes as a result of COVID-19 have resulted in changes to short-term mine plans from the suspension of operations at the Constancia mine which include possible deferrals of growth capital projects, changes to short term budgets, and changes to short-term commodity prices. While it was determined that the changes to the short term mine plan are insignificant and are not an indicator of impairment, there is significant judgement required in making this determination. If an impairment 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 the Group's most recent Life-of-Mine ("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, Manitoba and Arizona LOM plans, production based on current estimates of recoverable reserves, discount rates, future operating and capital costs and future foreign exchange rates. Most critical to the value of the recoverable amount are the assumptions of future commodity prices and the value of mineral resources not included in the Constancia, Manitoba and Arizona LOM plans. Expected future cash flows used to determine the recoverable amount during impairment testing are inherently uncertain and could materially change over time. Should management's estimate of the future not reflect actual events, impairments may be identified, which could have a material effect on the Group'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.

**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

- Tax provisions (note 18)- 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 the 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. As a result of COVID-19, operations at Constancia have been suspended and, following from an expected economic slowdown, short-term commodity price forecasts have declined which reduces cash flows from operations. The estimated cash flow and taxable income impacts require significant judgement. 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.

  • Pensions and other employee benefits (note 17) -The Group's post retirement obligations relate mainly to ongoing health care benefits plans. The Group 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, a 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, the Group considers the interest rates on corporate bonds in the respective currency with at least a 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 the Group bases future salary increases and pension increases on expected future inflation rates for the respective country. As a result of COVID-19, there were significant declines in interest rates on corporate bonds and high levels of volatility in equity and fixed income markets which rapidly changed the assumptions since the December 31, 2019 actual valuation. There is a significant level of estimation risk in these assumptions which created material changes in the valuation of the pension and other employee benefit obligations as at March 31, 2020.
**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

3. Significant accounting policies

These interim financial statements reflect the accounting policies applied by the Group in its audited consolidated financial statements for the year ended December 31, 2019 and comparative periods.

4. New standards

New standards and interpretations adopted

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 treated prospectively. The Group will apply these amendments to future acquisition transactions.

5. Revenue and expenses

(a) Revenue

The Group's revenue by significant product types:

Three months ended<br>March 31,
2020 2019
Copper $ 139,178 $ 202,293
Zinc 63,554 67,206
Gold 48,498 28,484
Silver 12,050 26,618
Molybdenum 9,164 6,333
Other 902 1,065
273,346 331,999
Variable consideration adjustments ^1^ (2,813 ) (16,295 )
Pricing and volume adjustments ^2^ (9,733 ) (3,303 )
260,800 312,401
Treatment and refining charges (15,695 ) (20,143 )
$ 245,105 $ 292,258
^1^See note 15.
^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 Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019
---

(b) Depreciation and amortization

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

Three months ended<br>March 31,
2020 2019
Cost of sales $ 86,439 $ 77,130
Selling and administrative expenses 418 551
$ 86,857 $ 77,681

(c) Share-based payment (recoveries) expenses

Share-based payment (recoveries) expenses are reflected in the condensed consolidated interim income statements as follows:

Cash-settled Total share-based<br>payment expense
RSUs DSUs
Three months ended March 31, 2020
Cost of sales $ (215 ) $ - $ (215 )
Selling and administrative (879 ) (1,534 ) (2,413 )
Other operating (85 ) - (85 )
$ (1,179 ) $ (1,534 ) $ (2,713 )
Three months ended March 31, 2019
Cost of sales $ 426 $ - $ 426
Selling and administrative 2,192 2,473 4,665
Other operating 251 - 251
$ 2,869 $ 2,473 $ 5,342

(d) Other operating expenses

Three months ended<br>March 31,
2020 2019
Regional costs $ 885 $ 1,216
Pampacancha delivery obligation - 7,499
Loss on disposal 2,400 962
Allocation of community costs 728 -
Other 1,479 2,019
$ 5,492 $ 11,696
**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019
---

During the first quarter of 2019, the Group recognized an obligation to deliver additional precious metal credits to Wheaton Precious Metals ("Wheaton") as a result of the Group's expectation that mining at the Pampacancha deposit will not begin until 2020. The obligation is to be paid in four quarterly installments, with the first payment having been paid in March 2020.

(e) Finance income and expenses

Three months ended<br>March 31,
2020 2019
Finance income $ (1,106 ) $ (2,578 )
Finance expenses
Interest expense on long-term debt 19,635 19,530
Accretion on community agreements measured at amortized cost 1,121 300
Finance costs on deferred revenue (note 15) 16,299 21,968
Unwinding of discounts on provisions 1,350 1,184
Withholding taxes 1,893 2,190
Other finance expense 2,503 3,152
42,801 48,324
Interest capitalized - (3,296 )
42,801 45,028
Other finance losses (gains)
Net foreign exchange (gains) losses (4,846 ) 859
Change in fair value of financial assets and liabilities at fair value through profit or loss:
Embedded derivatives 2,871 (4,602 )
Investments 3,373 (790 )
1,398 (4,533 )
Net finance expense $ 43,093 $ 37,917

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, the Group 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 the Group's revolving credit facilities and capitalized leases.

**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

6. Trade and other receivables

Mar. 31, 2020 Dec. 31, 2019
Current
Trade receivables $ 57,438 $ 87,332
Statutory receivables 23,995 16,543
Other receivables 4,746 2,119
86,179 105,994
Non-current
Taxes receivable 16,696 17,669
Other receivables 1,460 1,595
18,156 19,264
$ 104,335 $ 125,258

7. Inventories

Mar. 31, 2020 Dec. 31, 2019
Current
Stockpile $ 14,005 $ 10,396
Work in progress 8,241 14,420
Finished goods 60,655 62,230
Materials and supplies 54,388 51,774
137,289 138,820
Non-current
Stockpile 12,582 14,626
Materials and supplies 4,543 4,829
17,125 19,455
$ 154,414 $ 158,275

The cost of inventories recognized as an expense, including depreciation, and included in cost of sales amounted to $229,193 for the three months ended March 31, 2020 (three months ended March 31, 2019 - $214,514).

As a result of the state of emergency declared by the Peruvian government in response to the COVID-19 pandemic during the first quarter of 2020, Constancia underwent a temporary and orderly suspension of operations. Fixed overhead costs incurred during the temporary suspension of operations commencing March 19, 2020 through to March 31, 2020 amounted to $6,310 and were recognized directly to cost of sales.

During the three months ended March 31, 2020, the Group recognized an expense of $10,375 in cost of sales related to write-downs of the carrying value of copper concentrate inventories to net realizable value. There were no write-downs in the three months ended March 31, 2019.

**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

8. Other financial assets

Mar. 31, 2020 Dec. 31, 2019
Current
Derivative assets $ 17,911 $ 1,712
Restricted cash 337 337
18,248 2,049
Non-current
Investments at fair value through profit or loss 6,974 11,287
$ 25,222 $ 13,336

The change in the Group's non-hedge derivative assets (Note 20b) is attributed to sharp declines in copper prices in the first quarter of 2020.

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.

9. Intangibles and other assets

Intangibles and other assets of $22,877 includes $18,122 of other assets (December 31, 2019 - $5,384) and $4,755 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 12).  Amortization of the carrying amount is recorded in the consolidated income statements within other operating expenses (note 5d). The increase in other assets during the three months ended March 31, 2020 primarily relate 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.

**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

10. Property, plant and equipment

Mar. 31, 2020 Cost Accumulateddepreciation and amortization Carrying amount
Exploration and evaluation assets 68,702 $ - $ 68,702
Capital works in progress 709,491 - 709,491
Mining properties 2,169,723 (948,051 ) 1,221,672
Plant and equipment 2,652,467 (1,071,456 ) 1,581,011
Plant and equipment-ROU Assets1 199,821 (114,042 ) 85,779
5,800,204 $ (2,133,549 $ 3,666,655
Dec. 31, 2019 Cost Accumulated <br>depreciation<br>and<br>amortization Carrying amount
Exploration and evaluation assets 69,903 $ - $ 69,903
Capital works in progress 733,874 - 733,874
Mining properties 2,146,583 (963,530 ) 1,183,053
Plant and equipment 2,653,752 (1,069,687 ) 1,584,065
Plant and equipment-ROU Assets1 201,972 (110,308 ) 91,664
5,806,084 $ (2,143,525 ) $ 3,662,559
1 Includes 4,316 of Capital works in progress - ROU assets related to the Arizona Business unit (December 31, 2019 - 4,481)

All values are in US Dollars.

For the three months ended March 31, 2020, the movement in property, plant and equipment was negatively impacted by effects of movements in exchange rates in the amount of $159,927, which was offset by fixed asset and construction in progress asset additions of $115,986 and increases in decommissioning and restoration assets of $41,759 (producing assets) as a result of lower discount rates.

As a result of the temporary suspension of mining and production activities at Constancia, the Group has reviewed its depreciation methods and remaining useful lives. No changes in depreciation or useful lives were noted.

11. Other liabilities

Mar. 31, 2020 Dec. 31, 2019
Current
Provisions (note 16) $ 25,661 $ 33,575
Pension liability 12,020 12,015
Other employee benefits 2,858 2,806
Unearned revenue 1,935 1,015
$ 42,474 $ 49,411
**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019
---

12. Other financial liabilities

Mar. 31, 2020 Dec. 31, 2019
Current
Derivative liabilities $ 3,512 $ 10,295
Other financial liabilities at amortized cost 59,452 8,707
Embedded derivatives (note 20c) 7,159 9,074
70,123 28,076
Non-current
Deferred Rosemont acquisition consideration 24,850 24,491
Other financial liabilities at amortized cost 46,859 15,293
71,709 39,784
$ 141,832 $ 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 in other finance (gain) loss.

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 increase in other financial liabilities at amortized cost during the three months ended March 31, 2020 primarily relates to changes in estimated community payments arising from the execution of the Pampacancha surface rights agreement.

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 83,214
Disbursements (1,430 )
Accretion 1,121
Effects of changes in foreign exchange (594 )
Balance, March 31, 2020 $ 106,311
**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019
---

13. Lease Liability

Mar. 31, 2020 Dec. 31, 2019
Total minimum lease payments - lease liabilities $ 77,949 $ 88,096
Effect of discounting (4,483 ) (6,149 )
Present value of minimum lease payments 73,466 81,947
Less: current portion (31,521 ) (32,781 )
$ 41,945 $ 49,166
Minimum payments under leases:
Less than 12 months $ 33,761 $ 27,557
13 - 36 months 38,579 48,503
37 - 60 months 2,623 7,798
More than 60 months 2,986 4,238
$ 77,949 $ 88,096

The Group 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 implicit interest rates between 1.95% to 5.13%, per annum. The range of interest rates utilized for discounting varies depending mostly on the Hudbay Group entity acting as lessee and duration of the lease. For certain leases, the Group has the option to purchase the equipment and vehicles leased at the end of the terms of the leases. The Group'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 the Group by entering into these leases.

The following outlines expenses recognized within the Company's consolidated income statement for the periods ended March 31, 2020, relating to leases for which a recognition exemption was applied.

Three months ended<br>March 31,
2020 2019
Short-term leases $ 12,697 $ 11,742
Low value leases 80 39
Variable leases 10,531 12,019
Total $ 23,308 $ 23,800

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.

For the Company, the incremental borrowing rate utilized for new leases effective January 1, 2020 was re-considered given the lower interest rates associated with COVID-19 and the impact of the new lower rates was deemed insignificant given the small number of new leases. In addition, there were no lease modifications as a result of the COVID-19 pandemic and adjustments to expected lease terms to both significant short term and capitalized leases were considered and no material changes were noted.

**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

14. Long-term debt

Long-term debt is comprised of the following:

Mar. 31, 2020 Dec. 31, 2019
Senior unsecured notes (a) $ 994,451 $ 991,558
Less: Unamortized transaction costs - <br> revolving credit facilities (b) (6,377 ) (6,303 )
988,074 985,255

(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
Change in fair value of embedded derivative (prepayment option) 2,585
Accretion of transaction costs and premiums 308
Balance, March 31, 2020 $ 994,451

The $1,000,000 aggregate principal amount of senior notes are comprised of two series: (i) a series of 7.25% senior notes due 2023 in an aggregate principal amount of $400,000 and (ii) a series of 7.625% senior notes due 2025 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**.** The Group's revolving credit facilities are secured against substantially all of the Group's assets, other than those associated with the Arizona business unit.

(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 (639 )
Transaction costs 713
Balance, March 31, 2020 $ 6,377
**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019
---

As at March 31, 2020, 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. In addition, the Peru business unit had $24,795 in letters of credit issued under the Peru revolving credit facility to support its reclamation obligations and the Manitoba business unit had $79,353 in letters of credit issued under the Canada revolving credit facility to support its reclamation and pension obligations. The Peru business unit also 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 or surety bonds.

15.    Deferred revenue

On August 8, 2012 and November 4, 2013, the Group entered into precious metals stream transactions with Wheaton whereby the Group has received aggregate deposit payments of $885,000 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 (ii) 100% of payable silver and 50% of payable gold from the Constancia mine.

In addition to the deposit payments, as gold and silver is delivered to Wheaton, the Group 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.

The Group recorded the deposits received as deferred revenue and recognizes amounts in revenue as gold and silver are delivered to Wheaton. The Group 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 to Wheaton over the life of the 777 and Constancia life-of-mine plans. The Group estimates the current portion of deferred revenue based on deliveries anticipated over the next twelve months.

The Group 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. The Group's streaming arrangements are secured against the mining properties and other business unit assets associated with the applicable stream.

The Group 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 2036.

As part of the streaming agreement with Wheaton for the 777 mine, the Group must repay, with precious metals credits, the legal deposit provided by Wheaton 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. As a result of changes in the remaining 777 mine reserves and lower precious metals prices, there is a possibility that an amount of Wheaton's legal deposit may not be repaid by means of 777 mine's precious metals credits over its expected remaining mine life. As at March 31, 2020, this prepayment amount does not meet the definition of a financial liability. The Group 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 Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 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 adjustment 16,295
Finance costs
Current year additions 63,725
Variable consideration adjustment 6,047
Effects of changes in foreign exchange 4,009
Balance, December 31, 2019 $ 563,756
Amortization of deferred revenue
Liability drawdown (12,573 )
Variable consideration adjustment 2,813
Finance costs (note 5e)
Current year additions 15,339
Variable consideration adjustment 960
Effects of changes in foreign exchange (6,916 )
Balance, March 31, 2020 $ 563,379

Consideration from the Company's stream agreement is considered variable. Gold and silver 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 reserve and resource estimate in the first quarter of 2020, the amortization rate by which deferred revenue is drawn down into income is 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 a revenue reversal of $2,813 and finance expense of $960.

During the year ended December 31, 2019, and first quarter of 2020, the Company recognized an adjustment to gold and silver revenue and finance costs due to a net increase in the Company's reserve and resource estimates.

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

Mar. 31, 2020 Dec. 31, 2019
Current $ 85,041 $ 86,933
Non-current 478,338 476,823
$ 563,379 $ 563,756
**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019
---

16. Provisions

Reflected in the condensed consolidated interim balance sheets as follows:

Mar. 31, 2020 Decommissioning, restoration andsimilar liabilities Deferredshare units Restricted share units Other Total
Current (note 11) $ 22,162 $ 1,800 $ 870 $ 829 $ 25,661
Non-current 302,085 - 398 1,344 303,827
$ 324,247 $ 1,800 $ 1,268 $ 2,173 $ 329,488
Dec. 31, 2019 Decommissioning, restoration and similar liabilities Deferred share units Restricted share units Other Total
Current (note 11) $ 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, exchange rates, and timing and extent of cash outflows which can significantly affect the liabilities. During the first quarter of 2020, the liabilities increased by $22,131. This was mainly the result of lower discount rates associated with discounting the provisions increasing the liabilities by $42,171, which was partially offset by a weaker Canadian dollar impacting the liabilities of the Manitoba segment by $18,535.

During the first quarter of 2020, the carrying amount of the outstanding liability related to the restricted share unit and deferred share unit plans decreased by $4,209 and $2,076, respectively, primarily as a result of the revaluation of previously issued shares to lower share prices during the first quarter of 2020. The restricted share unit liabilities were also impacted by payments made on vested shares.

**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

17. Pension and other employee benefits

Pension obligations

The Group uses a December 31 measurement date for all of its plans. As at March 31, 2020, the discount rate applied to most recent actuarial valuation increased to 4.04% compared to the December 31, 2019 discount rate of 3.08%, reflecting higher corporate bond yields utilized for discounting pension liabilities. The significant increase in the discount rate has resulted in a significant decline in the defined benefit pension obligation offset partially by decreases in plan assets.

Other employee benefits

The Group sponsors both other long-term employee benefit plans and non-pension post-employment benefits plans and uses a December 31 measurement date. As at March 31, 2020, the discount rate applied to the most recent actuarial valuation increased to 4.26% compared to the December 31, 2019 discount rate of 3.17%, reflecting higher corporate bond yields utilized for discounting other employee benefit liabilities. The significant increase in the discount rate has resulted in a significant decline in the long-term employee benefit plans and non-pension post-employment benefit plans obligation.

18. Income and mining taxes

(a) Tax recoveries:

The tax expense (recoveries) is applicable as follows:

Three months ended<br>March 31,
2020 2019
Current:
Income taxes $ 13 $ 7,074
Mining taxes (17 ) (1,335 )
Adjustments in respect of prior years (349 ) (1,065 )
(353 ) 4,674
Deferred:
Income tax recoveries - origination, revaluation and/or<br>  reversal of temporary differences (4,190 ) (12,172 )
Mining tax (recoveries) expenses - origination, revaluation<br>  and/or reversal of temporary difference (1,161 ) 3,009
Adjustments in respect of prior years 386 (207 )
(4,965 ) (9,370 )
$ (5,318 ) $ (4,696 )

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 Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

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

Mar. 31, 2020 Dec. 31, 2019
Deferred income tax asset $ 67,490 $ 69,950 )
Deferred income tax liability (216,932 ) (233,218 )
Deferred mining tax liability (9,357 ) (4,614 )
(226,289 ) (237,832 )
Net deferred tax liability balance, end of period $ (158,799 ) $ (167,882 )

(c) Changes in deferred tax assets and liabilities:

Three months ended<br>March 31, 2020 Year ended<br>Dec. 31, 2019
Net deferred tax liability balance, beginning of year $ (167,882 ) $ (308,577 )
Deferred tax recovery 4,965 144,865
OCI transactions (3,284 ) 1,878
Foreign currency translation on the deferred tax liability 7,402 (6,048 )
Net deferred tax liability balance, end of period $ (158,799 ) $ (167,882 )

19. Share capital

(a) Preference shares:

Authorized: Unlimited preference shares without par value

(b) Common shares:

Authorized: Unlimited common shares without par value

Issued and fully paid:

Three Months Ended<br>March 31, 2020 Year ended<br>Dec. 31, 2019
Common shares Amount Common shares Amount
Balance, beginning of year 261,272,151 $ 1,777,340 261,272,151 $ 1,777,340
Balance, end of period 261,272,151 $ 1,777,340 261,272,151 $ 1,777,340

During the three months ended March 31, 2020, the Company paid $1,804 in dividends on March 27, 2020 to shareholders of record as of March 10, 2020. During the three months ended March 31, 2019, the Company paid $1,955 in dividends on March 29, 2019 to shareholders of record as of March 8, 2019.

**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

20. Financial instruments

(a) Fair value and carrying value of financial instruments:

The following presents the fair value ("FV") and carrying value ("CV") of the Group's financial instruments and non-financial derivatives:

Mar. 31, 2020 Dec. 31, 2019
FV CV FV CV
Financial assets at amortized cost
Cash and cash equivalents ^1^ $ 305,997 $ 305,997 $ 396,146 $ 396,146
Restricted cash^1^ 337 337 337 337
Fair value through profit or loss
Trade and other receivables^1,^ ^2^ 63,644 63,644 91,046 91,046
Non-hedge derivative assets^3^ 17,911 17,911 1,712 1,712
Prepayment option - embedded derivatives^7^ - - 2,585 2,585
Investments at FVTPL^4^ 6,974 6,974 11,287 11,287
Total financial assets 394,863 394,863 503,113 503,113
Financial liabilities at amortized cost
Trade and other payables^1,^ ^2^ 133,196 133,196 184,604 184,604
Deferred Rosemont acquisition consideration^8^ 24,850 24,850 24,491 24,491
Other financial liabilities^5^ 81,843 106,311 21,338 24,000
Senior unsecured notes^6^ 829,014 994,451 1,050,126 994,143
Fair value through profit or loss
Embedded derivatives^3^ 7,159 7,159 9,074 9,074
Non-hedge derivative liabilities^3^ 3,512 3,512 10,295 10,295
Total financial liabilities 1,079,574 1,269,479 1,299,928 1,246,607
Net financial liability $ (684,711 ) $ (874,616 ) $ (796,815 ) $ (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^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.
^4^All investments are carried at their fair value, which is determined using quoted market bid prices in active markets for listed shares.
^5^These financial liabilities relate to agreements with communities near the Constancia project in Peru (note 12). Fair values have been determined using a discounted cash flow analysis based on expected cash flows and a credit adjusted discount rate.
^6^Fair value of the senior unsecured notes (note 14) has been determined using the quoted market price at the period end.
^7^Fair value of the prepayment option embedded derivative related to the long-term debt (note 14) 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.
**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 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.

March 31, 2020 Level 1 Level 2 Level 3 Total
Financial assets measured at fair value
Financial assets at FVTPL:
Non-hedge derivatives $ - $ 17,911 $ - $ 17,911
Investments at FVTPL 6,974 - - 6,974
$ 6,974 $ 17,911 $ - $ 24,885
Financial liabilities measured at fair value
Financial liabilities at FVTPL:
Embedded derivatives $ - $ 7,159 $ - $ 7,159
Non-hedge derivatives - 3,512 - 3,512
$ - $ 10,671 $ - $ 10,671
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 at FVTPL 11,287 - - 11,287
Prepayment option embedded derivative - 2,585 - 2,585
$ 11,287 $ 4,297 $ - $ 15,584
Financial liabilities measured at fair value
Financial liabilities at FVTPL:
Embedded derivatives $ - $ 9,074 $ - $ 9,074
Non-hedge derivatives - 10,295 - 10,295
$ - $ 19,369 $ - $ 19,369

The Group'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 three months ended March 31, 2020 and 2019 the Group did not make any transfers.

**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

(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 March 31, 2020, the Group had 24,500 tonnes of net copper swaps outstanding at an effective average price of $2.55/lb and settling across April to August 2020. As at December 31, 2019, the Group had 30,000 tonnes 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 March 31, 2020 was an asset position of $16,730 (December 31, 2019 was a liability position of $8,362).

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

Non-hedge derivative zinc contracts

Hudbay enters into fixed price sales contracts with zinc customers and, to ensure that the Group 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 March 31, 2020, the Group held contracts for forward zinc purchased of 9,254 tonnes (December 31, 2019 - 5,755 tonnes) that related to forward customer sales of zinc. Prices range from $0.84/lb to $1.09/lb (December 31, 2019 - $1.00/lb to $1.15/lb) and settlement dates extend to January 2021. The aggregate fair value of the transactions at March 31, 2020 was a net liability position of $2,331 (December 31, 2019 - a net liability position of $221).

(c) Embedded derivatives

Changes in fair value of provisionally priced receivables

The Group 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 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 Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

As at March 31, 2020 and 2019, the Group's net position consisted of contracts awaiting final pricing which are as indicated below:

Sales awaiting final pricing Average YTD price (/unit)
Metal in concentrate Unit Mar. 31, 2020 Dec. 31, 2019 Mar. 31, 2020
Copper tonnes 25,097 33,102 2.24
Zinc tonnes - - -
Gold oz 18,167 16,152 1,582
Silver oz 122,542 124,371 14.13

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 March 31, 2020, was a liability position of $21,197 (December 31, 2019 - an asset position of $10,165).

Prepayment option embedded derivative

The senior unsecured notes (note 14) 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 unrealized gains or losses in finance income and expense (note 5e). The fair value of the embedded derivative at March 31, 2020 was nil (December 31, 2019 - an asset of $2,585).

Pampacancha delivery obligation-embedded derivative

The Group has recognized an obligation to deliver additional precious metal credits to Wheaton as a result of the Pampacancha deposit not being mined until 2020 (note 12). The fair value of the embedded derivative at March 31, 2020 was a liability of $7,159 (December 31, 2019 - a liability of $9,074).

21. Commitments and contingencies

Capital commitments

As at March 31, 2020, the Group had outstanding capital commitments in Canada of approximately $18,319 of which $12,982 can be terminated, approximately $34,422 in Peru, all of which can be terminated, and approximately $178,870 in Arizona, primarily related to the Rosemont project, of which approximately $87,888 can be terminated by the Group.

**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

22. Supplementary cash flow information

(a) Change in non-cash working capital:

Three months ended<br>March 31, 2020
2020 2019
Change in:
Trade and other receivables $ 13,086 $ (7,526 )
Other financial assets/liabilities (22,858 ) 10,654
Inventories (7,284 ) (20,041 )
Prepaid expenses 962 (1,507 )
Trade and other payables (16,835 ) (5,811 )
Provisions and other liabilities 64 247
$ (32,865 $ (23,984 )

The Group has retroactively changed its presentation of changes in taxes payable/receivable in the statements of cash flows to report all changes in taxes payable/receivable within the operating cash flow before changes in non-cash working capital. There is no net impact to cash flows from operating activities. All comparative periods have been revised.

(b) Non-cash transactions:

During the three months ended March 31, 2020, the Group entered into the following non-cash investing and financing activities which are not reflected in the consolidated statements of cash flows:

  • Remeasurement of the Group's decommissioning and restoration liabilities for the three months ended March 31, 2020 led to a net increase in related property, plant and equipment assets of $41,759 (three months ended March 31, 2019 - increase of $13,705) related to lower discount rates associated with remeasurement of the liabilities.

  • Property, plant and equipment included $2,421 (three months ended March 31, 2019 - $2,543) of net additions related to capital additions due to the recognition of ROU assets.

**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

23. Segmented information

Corporate and other activities include the Group's exploration activities in Chile, Canada and the State of Nevada. The exploration entities are not individually significant, as they do not meet the minimum quantitative thresholds. Corporate and other activities are not considered a segment and are included as a reconciliation to total consolidated results.

Three months ended March 31, 2020
Manitoba Peru Arizona Corporate and other activities Total
Revenue from external customers $ 123,833 $ 121,272 $ - $ - $ 245,105
Cost of sales
Mine operating costs 93,844 86,813 - - 180,657
Depreciation and amortization 39,197 47,242 - - 86,439
Gross profit (9,208 ) (12,783 ) - - (21,991 )
Selling and administrative expenses - - - 5,103 5,103
Exploration and evaluation 3,846 1,744 - 183 5,773
Other operating expense 3,378 1,464 110 540 5,492
Results from operating activities $ (16,432 ) $ (15,991 ) $ (110 ) $ (5,826 ) $ (38,359 )
Finance income (1,106 )
Finance expenses 42,801
Other finance loss 1,398
Loss before tax (81,452 )
Tax recovery (5,318 )
Loss for the period $ (76,134 )
**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019
---
Three months ended March 31, 2019
--- --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Manitoba Peru Arizona Corporate and other activities Total
Revenue from external customers $ 107,132 $ 185,126 $ - $ - $ 292,258
Cost of sales
Mine operating costs 85,121 78,195 - - 163,316
Depreciation and amortization 27,814 49,316 - - 77,130
Gross profit (5,803 ) 57,615 - - 51,812
Selling and administrative expenses - - - 14,900 14,900
Exploration and evaluation 3,822 893 - 692 5,407
Other operating expenses 2,182 8,715 162 637 11,696
Results from operating activities $ (11,807 ) $ 48,007 $ (162 ) $ (16,229 ) $ 19,809
Finance income (2,578 )
Finance expenses 45,028
Other finance gain (4,533 )
Loss before tax (18,108 )
Tax recovery (4,696 )
Loss for the period $ (13,412 )
March 31, 2020
--- --- --- --- --- --- --- --- --- ---
Manitoba Peru Arizona Corporate and other activities Total
Total assets 750,880 $ 2,573,252 $ 704,005 $ 338,089 $ 4,366,226
Total liabilities 506,422 983,574 76,979 1,020,974 2,587,949
Property, plant and equipment1 629,530 2,309,561 695,055 32,509 3,666,655
1 Included in Corporate and other activities are 27,273 of property, plant and equipment that is located in Nevada.

All values are in US Dollars.

December 31, 2019
Manitoba Peru Arizona Corporate and other activities Total
Total assets 774,800 $ 2,556,895 $ 700,799 $ 423,467 $ 4,455,961
Total liabilities 551,171 926,642 78,988 1,051,037 2,607,838
Property, plant and equipment1 684,679 2,253,404 691,538 32,938 3,662,559
1 Included in Corporate and other activities are 27,273 of property, plant and equipment that is located in Nevada.

All values are in US Dollars.

**HUDBAY MINERALS INC.**Notes to Unaudited Condensed Consolidated Interim Financial Statements<br>(in thousands of US dollars, except where otherwise noted)<br>For the three months ended March 31, 2020 and 2019

24. Events after the reporting period

Amendment to Pampacancha target date with Wheaton

On April 20, 2020, the Company executed an amendment to the Constancia precious metals streaming agreement with Wheaton whereby both parties have agreed to extend the target date for mining four million tonnes of ore from the Pampacancha deposit, and the associated trigger for the delivery of additional gold ounces, by six months to June 30, 2021. This Pampacancha target date extension was agreed to by Wheaton in light of the current state of emergency in Peru and the potential for development timelines to be delayed.

Execution of Gold Forward Sale Transaction

On May 7, 2020, the Company announced a gold forward sale transaction with a syndicate of its existing lenders whereby the Company received an upfront payment of $115 million in exchange for an agreement to deliver 79,954 ounces of gold in 2022 and 2023 based on gold forward curve prices averaging approximately $1,682 per ounce.

Constancia Shutdown and COVID-19 Impacts

In response to COVID-19, the Peruvian government declared a state of emergency on March 15, 2020 requiring the suspension of non-essential businesses. This resulted in a temporary shutdown of the Constancia mining operations through to the date of this report. The state of emergency has since been extended to May 24, 2020, however, the government of Peru has permitted a number of activities to resume operations in four phases, with certain mining operations commencing mid-May as part of the first phase.

The Company has submitted a reopening plan as part of phase one with Peru's Ministry of Energy and Mines for a safe and orderly restart of operations at Constancia. Included in the reopening plan are measures the Company intends to undertake to minimize the risk of COVID-19 infections at site. On May 14, Constancia received recognition and approval from Peru's Ministry of Energy and Mines for its restart protocols and is planning to ramp up operations over the next week. The Constancia mill is currently performing testing of major equipment as part of its restart and ramp-up procedures.

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

Management's Discussion and Analysis of

Results of Operations and Financial Condition

For the three months ended

March 31, 2020

May 14, 2020

TABLE OF CONTENTS Page
Introduction 1
Our Business 1
Summary 2
Key Financial Results 5
Key Production Results 6
Recent Developments 7
Constancia Operations Review 10
Manitoba Operations Review 13
Outlook 18
Financial Review 19
Liquidity and Capital Resources 26
Financial Risk Management 30
Trend Analysis and Quarterly Review 31
Non-IFRS Financial Performance Measures 32
Accounting Changes and Critical Estimates 43
Changes in Internal Control over Financial Reporting 43
Notes to Reader 43

INTRODUCTION

This Management's Discussion and Analysis ("MD&A") dated May 14, 2020 is intended to supplement Hudbay Minerals Inc.'s unaudited condensed consolidated interim financial statements and related notes for the three months ended March 31, 2020 and 2019 (the "consolidated interim financial statements"). The consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), including International Accounting Standard 34, Interim Financial Reporting, 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 March 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.

  • This MD&A includes an updated discussion of certain of the risks associated with the COVID-19 pandemic and its effect on our operations, financial condition, projects and prospects, and supplements the discussion of these risks in our most recent Annual Information Form ("AIF").

  • 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 43 of this MD&A and to carefully review the risks associated with the COVID-19 pandemic that are discussed throughout this MD&A.

Additional information regarding Hudbay, including the risks related to our business and those that are reasonably likely to affect our financial statements in the future, is contained in our continuous disclosure materials, including our most recent 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.

SUMMARY

First Quarter Operating and Financial Results

  • Delivered a solid operating quarter in Manitoba, which included record mine production at Lalor and record throughput at the Stall concentrator.

  • Lalor ore mined and Stall concentrator throughput increased by 9% and 15%, respectively, in the first quarter of 2020 compared to the same period in 2019.

  • Constancia achieved target mill throughput during the quarter prior to its temporary shutdown.

  • Net loss of $76.1 million or $0.29 per share for the first quarter of 2020 reflects lower realized base metal prices, lower Constancia grades in line with the mine plan and higher cost of sales in Peru as a result of the temporary suspension of Constancia and certain inventory valuation adjustments versus the same period in 2019.

  • Cash generated from operating activities decreased to $9.1 million in the first quarter of 2020 from $61.7 million in the same quarter of 2019, while operating cash flow before change in non-cash working capital decreased to $42.0 million in the first quarter from $85.7 million in the same quarter of 2019 due to lower realized base metal prices and lower Constancia grades.

  • Cash and cash equivalents of $306.0 million as at March 31, 2020 continued to provide us with financial flexibility during the temporary production disruption at Constancia and the current low base metal price environment and have since been bolstered by the gold prepay proceeds described below.

COVID-19 and Annual Guidance

  • The COVID-19 global pandemic has had a significant impact on our business and the prices of the products we produce. We experienced operational and supply chain disruptions, including a temporary suspension of operations at Constancia for a period of approximately eight weeks as a result of a government declared state of emergency in March. Operations continued in Manitoba without any impact to production or our ability to ship concentrate and zinc metal.

  • We are affirming our 2020 Manitoba production, operating cost and capital expenditure guidance. Peru guidance has been suspended due to the ongoing uncertainty surrounding COVID-19 and the recent temporary Constancia mine shutdown.

  • On May 14, Constancia received recognition and approval from Peru's Ministry of Energy and Mines for its restart protocols and is planning to ramp up operations over the next week. We expect to provide an update to our Peru guidance with second quarter results.

  • We have been prudently managing our business and the impact of the pandemic. This has resulted in approximately $150 million in incremental liquidity this year, including $115 million in cash proceeds received from a gold forward sale and prepay transaction, an approximate $25 million deferral in Peru's 2020 sustaining capital and company-wide discretionary and input cost reductions of approximately $10 million. In addition, the Company's forecasted cash flows are expected to benefit from the Canadian dollar cost structure of our Manitoba operations and the anticipated increase in cash flows from Lalor due to higher precious metals production expected this year and the prevailing commodity prices and foreign exchange rates.

Recent Developments

  • Received $115 million from a gold forward sale and prepay transaction completed in early May 2020, which prefunds the entire capital budget for the low-risk, high-return New Britannia gold mill refurbishment at attractive terms and low cost of capital.

  • In February, prior to the COVID-19 pandemic, we re-negotiated the covenants of our revolving credit facilities which resulted in an increase of $443 million in our liquidity available as of March 31, 2020, providing additional financial flexibility to execute its growth initiatives.

  • Executed amendment with Wheaton Precious Metals extending the target date for mining four million tonnes of ore from Pampacancha by six months to June 30, 2021.

  • March 2020 update to reserves and resources increased Lalor's life-of-mine gold production by 41% from the previous mine plan and expected annual gold production to over 150,000 ounces by 2022, while total Snow Lake gold reserves increased by 35% to 2.2 million ounces, which supports an expanded 18-year mine life for the Snow Lake operations.

  • The New Britannia gold mill refurbishment on track to be completed before the end of 2021 with orders placed for long-lead items and early works construction underway.

Summary of First Quarter Results

Cash generated from operating activities in the first quarter of 2020 decreased substantially to $9.1 million compared to $61.7 million in the same quarter of 2019. Operating cash flow before change in non-cash working capital was $42.0 million during the first quarter of 2020, reflecting a decrease of $43.7 million compared to the first quarter of 2019. The decrease in operating cash flow is primarily the result of the significant negative impact of COVID-19 on realized base metal prices as well as lower copper and silver sales volumes compared to the first quarter of 2019.

Copper-equivalent production in the first quarter of 2020 decreased by 18% compared to the same period in 2019 primarily as a result of planned lower copper grades at Constancia, in line with the mine plan, and lower ore production from Constancia due to the temporary suspension of operations in March 2020 following a government declared state of emergency in Peru due to COVID-19. This was partially offset by record mine production at Lalor contributing to higher overall ore production in Manitoba.

Net loss and loss per share in the first quarter of 2020 were $76.1 million and $0.29, respectively, compared to a net loss and loss per share of $13.4 million and $0.05, respectively, in the first quarter of 2019. The decrease in earnings was caused by declining base metal prices, lower Constancia grades in line with the mine plan, and lower sales volumes due to the temporary suspension of Constancia in March. In addition, the temporary suspension of mining operations at Constancia required a portion of overhead costs to be directly charged to cost of sales and lower metal prices led to the write-down of certain inventories in Peru, as further described below.

Net loss and loss per share in the first quarter of 2020 were affected by, among other things, the following items:

(in $ millions, except per share amounts) Pre-tax loss After-tax loss Per share<br><br> <br>loss
Mark-to-market adjustments (2.7 ) (3.0 ) (0.01 )
Peru inventory write-down (10.4 ) (6.7 ) (0.03 )
Peru cost of sales direct charges from temporary suspension of operations (6.3 ) (4.1 ) (0.02 )
Deferred revenue adjustment from increased reserves and resources (3.8 ) (2.8 ) (0.01 )
Non-cash deferred tax adjustments - (22.5 ) (0.09 )

In the first quarter of 2020, consolidated cash cost per pound of copper produced, net of by-product credits^1^, was $1.21, a modest increase compared to $1.11 in the same period last year. This increase was a result of lower production of copper and lower silver and zinc by-product credits offset by higher gold by-product credits. 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 first quarter of 2020 was $2.40, which increased from $1.88 in the same period last year, driven mainly by increased sustaining capital expenditures as forecasted this year and the same factors noted above affecting consolidated cash costs offset by lower corporate selling and administrative expenses.

Our first quarter results were significantly impacted by the COVID-19 global pandemic, which caused the temporary suspension of mining and processing activities at Constancia after the Peruvian government declared a state of emergency on March 15, 2020. The temporary suspension of operations at Constancia starting March 19, 2020 resulted in fixed overhead production costs of $6.3 million that would normally be capitalized to inventories and property, plant, and equipment, to be immediately expensed as part of our cost of sales. As Constancia operations remained suspended into the second quarter of 2020, we expect that there will be a charge for fixed overhead costs incurred during the suspension period in the second quarter. In addition, we recorded an inventory write-down of $10.4 million in the first quarter to reflect lower realizable inventory values in Peru resulting from low copper prices.

During the first quarter of 2020, we also recorded a non-cash true up adjustment on our streaming revenues due mainly to an increase in reserves and resources for the 777 and Constancia mines as announced in our annual reserves and resources news release on March 30, 2020. The reduced deferred revenue drawdown rate, which is recalculated back to the inception of the streams, resulted in a pre-tax non-cash earnings impact of approximately $3.8 million.

As at March 31, 2020, our liquidity includes $306.0 million in cash and cash equivalents as well as $445.9 million in undrawn availability under our revolving credit facilities. Although undrawn availability under our revolving credit facilities is expected to be negatively affected by lower metals prices and the suspension of operations at Constancia, we have significantly enhanced our liquidity position since March 31, 2020 by executing the $115 million gold forward sale transaction. We expect that our current liquidity together with cash flows from operations will be sufficient to meet our liquidity needs for 2020.

^1^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.

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 4,455,961
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
(in $ thousands, except per share amounts) Mar. 31, 2020 Mar. 31, 2019
Revenue 245,105 292,258
Cost of sales 267,096 240,446
Loss before tax (81,452 ) (18,108 )
Loss (76,134 ) (13,412 )
Basic and diluted loss per share (0.29 ) (0.05 )
Operating cash flow before change in non-cash working capital 41,951 85,684

KEY PRODUCTION RESULTS

Three months ended
Mar. 31, 2020 Mar. 31, 2019
Peru Manitoba Total Peru Manitoba Total
Contained metal in concentrate produced ^1^
Copper tonnes 5,345 24,635 31,843 6,129 37,972
Gold oz 27,293 30,355 5,357 20,205 25,562
Silver oz 306,390 767,692 634,930 284,265 919,195
Zinc tonnes 30,495 30,495 - 28,037 28,037
Molybdenum tonnes - 354 304 - 304
Payable metal sold
Copper tonnes 4,825 24,072 26,662 5,055 31,717
Gold oz 23,956 26,574 6,218 16,411 22,629
Silver oz 214,331 575,922 752,259 230,647 982,906
Zinc ^2^ tonnes 26,792 26,792 - 22,954 22,954
Molybdenum tonnes - 431 234 - 234
Cash cost ^3^ /lb (0.30 ) 1.21 1.18 0.77 1.11
Sustaining cash cost ^3^ /lb 2.85 1.41 3.16
All-in sustaining cash cost^3^ /lb 2.40 1.88
^1^Metal reported in concentrate is prior to deductions associated with smelter contract terms.
^2^ Includes refined zinc metal sold and payable zinc in concentrate 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

Following the onset of the COVID-19 pandemic, the Company's business response planning commenced in January and company-wide crisis plans were activated in early-March as part of our crisis management protocols. Throughout the rapidly changing environment, we have remained focused on the health and safety of our workforce and local communities and we are actively engaging with local stakeholders and public health authorities to ensure effective implementation of our business response plans. We continue to closely monitor the evolving situation and are taking steps to protect the safety of our workforce, and their families and the communities we operate in, while implementing measures to minimize the overall impact on operations. Our business response plans include planning for the possible need to reduce or suspend operations and for the restart of suspended operations, as well as appropriately managing our liquidity. The overall impact on each of our sites will depend on the progression of the pandemic, measures in place for preventing transmission and on market conditions.

In Peru, the government declared a state of emergency on March 15, 2020, requiring non-essential businesses to be shut down, initially for 15 days. On March 19, we commenced the temporary and orderly suspension of operations at Constancia. During the suspension period, a smaller workforce was maintained at the site to oversee critical aspects of the operation in order to facilitate a quick and efficient restart and ramp up of the mine. As part of its restart preparation activities, we have performed mine plan optimization activities, continuous supply chain management to ensure sufficient levels of critical supplies, and logistics and workforce planning initiatives including successfully completing workforce shift changes during the suspension. The Peruvian government has since extended the state of emergency to May 24 but issued a decree on May 3 indicating larger mines would be allowed to reopen, including Constancia, subject to approval of certain protocols. On May 14, we received recognition and approval from Peru's Ministry of Energy and Mines for our Constancia restart protocols and we are planning to ramp up operations over the next week.

In Manitoba, our mines continue to operate and ship concentrate and zinc metal. Our focus is on maintaining business continuity and a safe environment for our workers and the communities in which we operate.

Each of our business units has worked to develop site-specific measures to limit and identify COVID-19 exposure and transmission and maintain a safe environment for our workers and our communities. Site-specific measures include, pre-screening protocols, quarantine periods for incoming workers, workplace physical distancing protocols, adjustment of work rotation schedules, deferral of certain project activity and working from home for office staff where possible. These measures will continue to evolve as the status of the state of emergency changes in each of the company's operating regions and the company's measures are adapted to the latest regional health authorities' restrictions and guidelines.

In addition to our onsite response measures, the Company has been providing COVID-19 relief funding and services to our neighbouring communities. Each region has different emergency needs at this critical time. In Peru, we have donated medical equipment and supplies to the regional hospitals and have delivered food to nearby communities in need. In Manitoba, we have donated to charities that provide various forms of support to families in need. We are also pleased to have our valued partners join us in these coordinated relief efforts, including the generous donations from Wheaton Precious Metals Corp. ("Wheaton") to various community initiatives in Peru and Manitoba and from Altius Minerals Corporation to a community service provider in Flin Flon, Manitoba.

Annual Guidance Update

We are affirming our 2020 Manitoba production, operating cost and capital expenditure guidance. However, due to the temporary suspension of our operations at Constancia and the ongoing uncertainty surrounding COVID-19, we have suspended our previously issued 2020 annual guidance for our Peru business unit. We have continued to sell zinc metal and copper concentrate from our Manitoba operations, and our concentrate sales in Peru continued as planned, prior to the temporary suspension of operations on March 19, 2020.

In Peru, sustaining capital expenditures are currently tracking approximately $25 million lower than previously issued guidance due to the mine suspension and resequencing of capital activities such as tailings and capitalized stripping. The site team has taken the opportunity to complete additional mill maintenance work during the temporary shutdown that was previously planned for later this year. Growth capital expenditures in Peru related to the Pampacancha community surface rights payment and project development capital have been impacted by the state of emergency. We recently received approval for our Constancia restart protocols and mine restart activities are underway due to proactive ramp up planning. The mill is expected to reach normal operating levels over the next week. We expect to provide an update our Peru guidance with second quarter results.

In Manitoba, 2020 precious metals production is expected to benefit from the planned mining of approximately 90,000 tonnes from the gold zones as part of stope sequencing in preparation for the restart of the New Britannia gold mill. Production and costs can vary in any particular quarter based on a variety of factors, including the scheduling of maintenance events. We expect to perform maintenance on the Stall concentrator during the second quarter of 2020 and on the Lalor mine hoist facilities in the third quarter of 2020.

Liquidity Update

We are prudently managing our business and the impact of the pandemic. This has resulted in approximately $150 million in incremental liquidity this year, including $115 million in cash proceeds received from a gold forward sale and prepay transaction, an approximate $25 million deferral in Peru's 2020 sustaining capital and company-wide discretionary and input cost reductions of approximately $10 million. In addition, our forecasted cash flows are expected to benefit from the Canadian dollar cost structure of our Manitoba operations and the anticipated increase in cash flows from Lalor due to higher precious metals production expected this year based on the prevailing commodity prices and foreign exchange rates.

On February 12, 2020, we amended our credit facilities to provide additional flexibility during the development of the New Britannia and Pampacancha projects. As a result of the re-negotiated terms, the availability under the credit facilities was $443 million higher as of March 31, 2020.

On April 20, 2020, we executed an amendment to our Constancia precious metals streaming agreement with Wheaton whereby both parties have agreed to extend the target date for mining four million tonnes of ore from the Pampacancha deposit, and the associated trigger for the delivery of additional gold ounces, by six months to June 30, 2021. This Pampacancha target date extension was agreed to by Wheaton in light of the current state of emergency in Peru and the potential for development timelines to be delayed.

On May 7, 2020, we announced a gold forward sale and prepay transaction which generated $115 million in cash proceeds to further improve our liquidity position and prefund the entire capital budget for the low-risk, high-return New Britannia gold mill refurbishment at attractive terms and low cost of capital. Under the prepay, we have agreed to deliver a total of 79,954 gold ounces in 2022 and 2023, which was valued at gold forward curve prices averaging approximately $1,682 per ounce at the time of the transaction. The transaction offered an attractive cost of capital of approximately 5.95% per annum using the average forward price per ounce, or an implied cost of capital of approximately 2.7% using current consensus gold prices for 2022 and 2023. The delivery ounces represent approximately 25% of Lalor's forecasted annual gold production in each of 2022 and 2023 and approximately 3.6% of total Snow Lake gold reserves. Under the revolving credit facilities and note indenture, the gold prepay arrangement will be treated as deferred revenue and will not be considered as debt. As a result, the gold prepay adds to our cash balance and will be accretive to our credit facility availability under the recently renegotiated net debt to EBITDA covenants.

As of May 13, 2020 our liquidity includes approximately $370 million in cash and cash equivalents and $446 million in undrawn availability under its revolving credit facilities.

New Britannia Refurbishment Activities Underway

The New Britannia gold mill refurbishment activities are underway with detailed engineering approximately 60% complete and timelines on track with the original project schedule. Orders have been placed for long-lead items and early works construction has commenced, including the construction of the pipeline between the New Britannia and Stall mills. The civil contractor for the flotation building has been mobilized and construction is expected to commence next week. Construction and refurbishment activities are expected to continue until August 2021, with plant commissioning and ramp up occurring during the second half of 2021. We intend to use local construction contractors from the Manitoba and Saskatchewan regions as much as possible in order to mitigate any potential risks due to COVID-19 considerations.

Increased Snow Lake Gold Reserves and Revised Mine Plan

On March 30, 2020, Hudbay announced its annual reserve and resource update, which included a 35% increase in Snow Lake gold reserves to 2.2 million ounces and extended the mine life to 18 years. The company also released an updated mine plan for its Lalor mine that increased life-of-mine gold production by 41% compared to the previous mine plan, and more than doubled the expected average annual gold production to more than 150,000 ounces over the first eight years after the New Britannia mill is refurbished. Lalor's gold and copper-gold zones are expected to be processed at the nearby New Britannia gold mill in Snow Lake, which capitalizes on existing infrastructure, and the $115 million refurbishment cost is a short-payback, high-return investment opportunity. The New Britannia gold mill is expected to achieve gold recoveries of approximately 93% compared to current gold recoveries of approximately 53% at the Stall mill, which enables increased reserves and increases the potential for future conversion of resources to reserves due to the significantly higher gold recoveries and increased value per tonne of ore. Based on the updated reserve, Lalor will remain a low-cost gold mine with expected cash costs and sustaining cash costs, net of by-product credits, of approximately $480 and $655 per ounce, respectively, over the first eight years once New Britannia is in production, positioning Lalor in the lowest quartile on the global cost curves^1^.

The updated resource model at Lalor includes 4.4 million tonnes of inferred mineral resources, which have the potential to extend the Lalor mine. A new copper-gold rich lens, Lens 17, was included in the updated inferred mineral resource estimate for Lalor. Lens 17 and other lenses at Lalor, including the copper-gold rich Lens 27, remain open down plunge and offer opportunities to further expand Lalor's resource base once suitable underground drilling platforms have been established over the next two years.

The 1901 deposit is located approximately half-way between the former Chisel North mine and the Lalor mine at a depth between 500 metres and 700 metres, within 1,000 metres of the existing haulage ramp to Lalor. The 1901 deposit could provide additional feed for the processing facilities in Snow Lake. Since publishing the initial inferred resource estimate in August 2019, the Company has considered various options to develop the 1901 deposit and has completed a drill program aimed at converting a significant portion of the inferred mineral resources to an indicated category and to define an initial inferred mineral resource for the gold mineralization previously intersected between two lenses of zinc-rich mineralization. Hudbay intends to provide an update on the mineral resource estimates and development options for the 1901 deposit with its annual reserve and resource update in March 2021.

In 2020 and 2021, additional technical studies and exploration activities will be conducted to consider if and how the Lalor in-mine exploration targets and the regional gold and base metal satellite deposits could be incorporated in the consolidated business plan of the Snow Lake operations.

^1^Based on S&P Global's 2020 all-in sustaining cost curve.

CONSTANCIA OPERATIONS REVIEW

Three months ended Guidance
Mar. 31, 2019 Annual
2020 ^1^
Ore mined ^2^ tonnes 6,985,212 8,634,773
Copper % 0.34 0.47
Gold g/tonne 0.03 0.04
Silver g/tonne 3.10 3.55
Molybdenum % 0.02 0.01
Ore milled tonnes 6,719,466 7,993,062
Copper % 0.34 0.46
Gold g/tonne 0.03 0.04
Silver g/tonne 3.13 3.53
Molybdenum % 0.02 0.01
Copper concentrate tonnes 84,015 134,723
Concentrate grade % Cu 22.96 23.64
Copper recovery % 84.3 86.2
Gold recovery % 50.2 52.2
Silver recovery % 68.2 69.9
Molybdenum recovery % 35.0 26.8
Combined unit operating costs^3,4^ /tonne 9.31 8.87
^1^ Peru guidance suspended due to the ongoing uncertainty surrounding COVID-19 and the recent temporary Constancia mine shutdown.
^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.

Ore milled at our Constancia mine during the first quarter of 2020 was 16% lower compared to the same period in 2019 primarily due to the temporary suspension of operations on March 19 as a result of the COVID-19 pandemic and the state of emergency initiated by the Peruvian government. However, the mill achieved targeted throughput levels during the quarter prior to the temporary shutdown. Milled copper grades in the first quarter were approximately 26% lower than the same period in 2019 as lower grade phases continue to be mined, in line with the mine plan.

Copper, gold, and silver recoveries in the first quarter of 2020 decreased by 2%, 4% and 2%, respectively, compared to the same period in 2019, mainly due to lower grade ore feed as more ore from Phase 4 is being mined. While recoveries of individual metals vary from quarter to quarter depending on the complexity and grade of the ore feed, we have been seeing consistent results from ongoing recovery optimization initiatives since the beginning of 2019. Molybdenum recovery in the first quarter of 2020 increased by 31% compared to the same period in 2019 mainly due to higher head grades.

Combined mine, mill and G&A unit operating costs in the first quarter of 2020 were 5% higher than the same period in 2019, primarily due to lower ore throughput and harder ore, but were in line with targeted levels prior to the temporary shutdown.

Contained metal in concentrate produced Three months ended Guidance
Mar. 31, 2020 Mar. 31, 2019 Annual
2020 ^1^
Copper tonnes 19,290 31,843
Gold oz 3,062 5,357
Silver oz 461,302 634,930
Molybdenum tonnes 354 304
Precious metals^2^ oz 8,245 14,427
^1^ Peru guidance suspended due to the ongoing uncertainty surrounding COVID-19 and the recent temporary Constancia mine shutdown.
^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 first quarter of 2020 production of copper, gold and silver were 39%, 43%, and 27% lower, respectively, than the same period in 2019, mainly due to lower mill grades and lower throughput due to the suspension of operations in March 2020. Molybdenum production was higher than the same period in 2019 due to a higher head grade and higher recoveries.

Peru's 2020 production and cost guidance has been suspended due to the ongoing uncertainty surrounding COVID-19 and the recent temporary Constancia mine suspension. Constancia has received recognition and approval from Peru's Ministry of Energy and Mines for its restart protocols and is planning to ramp up operations over the next week. We expect to provide an update to our Peru guidance with second quarter results.

Peru Cash Cost and Sustaining Cash Cost

Three months ended
Mar. 31, 2019
Cash cost per pound of copper produced, net of by-product credits^1^ /lb 1.63 1.18
Sustaining cash cost per pound of copper produced, net of by-product credits^1^ /lb 2.12 1.41
^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 ended March 31, 2020 was $1.63. This represents an increase of 38% from the same period in 2019 primarily due to lower copper production as a result of lower grades, harder ore and lower throughput as well as lower gold and silver by-product credits.

Sustaining cash costs per pound of copper produced, net of by-product credits, for the three months ended March 31, 2020 was $2.12. This represents an increase of 50% from the same period in 2019 primarily due to the same factors noted above affecting cash costs as well as higher sustaining capital expenditures arising from upgrades to warehouse infrastructure, general process plant improvements, and higher capitalized stripping costs.

Metal Sold

Three months ended
Mar. 31, 2020 Mar. 31, 2019
Payable metal in concentrate
Copper tonnes 19,247 26,662
Gold oz 2,618 6,218
Silver oz 361,591 752,259
Molybdenum tonnes 431 234

Payable copper, gold and silver, for the three months ended March 31, 2020 were lower than the same period in 2019 primarily due to lower production in the period. Payable molybdenum for the three months ended March 31, 2020 was higher than the same period in 2019 due to a higher volume of molybdenum concentrate production and sales.

MANITOBA OPERATIONS REVIEW

Mines

Three months ended
Mar. 31, 2020 Mar. 31, 2019
777
Ore tonnes 279,925 278,522
Copper % 1.18 1.65
Zinc % 4.11 3.18
Gold g/tonne 1.82 1.70
Silver g/tonne 23.86 21.75
Lalor
Ore tonnes 421,518 388,483
Copper % 0.70 0.76
Zinc % 5.43 6.70
Gold g/tonne 2.27 1.68
Silver g/tonne 26.18 25.96
Total Mines
Ore tonnes 701,443 667,005
Copper % 0.89 1.13
Zinc % 4.90 5.23
Gold g/tonne 2.09 1.69
Silver g/tonne 25.26 24.21
Unit Operating Costs^1,2^ Three months ended
--- --- --- --- ---
Mar. 31, 2019
Mines
777 C/tonne 74.21 76.03
Lalor C/tonne 93.16 101.68
Total Mines C/tonne 85.60 90.97
^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.

Ore mined at our Manitoba operations during the first quarter of 2020 increased by 5% compared to the same period in 2019 with production volumes at 777 and Lalor increasing by 1% and 9%, respectively. The higher production results are mainly due to record production at Lalor from the successful implementation of several 2019 initiatives as part of the production ramp up to 4,500 tonnes per day.  Ore grades mined during the quarter are in line with the planned stope sequencing based on life of mine production schedules at 777 and Lalor. Higher gold grades are mainly due to mining of gold enriched base metal stopes at Lalor in the quarter.

Unit operating costs for 777 and Lalor decreased by 2% and 8%, respectively, for the first quarter of 2020 as compared to the same period in 2019 due to a combination of higher production volumes and lower costs.

Processing Facilities

Three months ended
Mar. 31, 2020 Mar. 31, 2019
Flin Flon Concentrator
Ore tonnes 332,589 289,244
Copper % 1.11 1.55
Zinc % 4.36 3.49
Gold g/tonne 1.88 1.66
Silver g/tonne 24.33 21.78
Copper concentrate tonnes 13,522 16,744
Concentrate grade % Cu 22.91 23.54
Zinc concentrate tonnes 24,372 16,910
Concentrate grade % Zn 50.58 49.41
Copper recovery % 84.1 88.1
Zinc recovery % 85.0 82.9
Gold recovery % 53.5 61.8
Silver recovery % 44.3 52.3
Contained metal in concentrate produced
Copper tonnes 3,098 3,941
Zinc tonnes 12,327 8,354
Precious metals^1^ oz 12,060 11,033
Stall Concentrator
Ore tonnes 369,787 321,523
Copper % 0.70 0.78
Zinc % 5.38 6.75
Gold g/tonne 2.28 1.75
Silver g/tonne 26.28 26.89
Copper concentrate tonnes 11,638 11,112
Concentrate grade % Cu 19.31 19.69
Zinc concentrate tonnes 36,130 38,493
Concentrate grade % Zn 50.28 51.13
Copper recovery % 86.5 87.2
Zinc recovery % 91.4 90.7
Gold recovery % 60.9 59.1
Silver recovery % 61.1 64.2
Contained metal in concentrate produced
Copper tonnes 2,247 2,188
Zinc tonnes 18,168 19,683
Precious metals^1^ oz 18,676 13,233
^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 Guidance
--- --- --- --- --- --- ---
Mar. 31, 2019 Annual
2020
Concentrators
Flin Flon C/tonne 21.75 25.74
Stall C/tonne 22.38 25.79
Combined mine/mill unit operating costs ^2,3^
Manitoba C/tonne 127 146 130 - 140
^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.

Ore processed in the Flin Flon and Stall concentrators in the first quarter of 2020 was 15% higher than the same period of 2019 due to higher ore availability from the 777 and Lalor mines.  At Flin Flon, copper, gold and silver recoveries in the first quarter of 2020 were 5%, 13%, and 15% lower, respectively, compared with the same period in 2019, which is in line with the metallurgical models based on the head grades processed. At Stall, recoveries during the quarter were overall in line with the same period in 2019 with improvements in zinc recoveries attributed to the ongoing optimization work in the zinc circuit.

Unit operating costs at Flin Flon and Stall were 16% and 13% lower, respectively, in the first quarter of 2020 compared to the same period in 2019 due to a combination of higher plant throughput and lower costs. Manitoba combined mine, mill and G&A unit operating costs in the first quarter of 2020 were 13% lower than in the same period in 2019 as a result of the successful production ramp up at the Lalor mine.

Manitoba contained metal in concentrate produced^1^ Three months ended Guidance
Mar. 31, 2020 Mar. 31, 2019 Annual
2020
Copper tonnes 5,345 6,129 18,000 - 22,000
Gold oz 27,293 20,205
Silver oz 306,390 284,265
Zinc tonnes 30,495 28,037 105,000 - 125,000
Precious metals^2^ oz 30,736 24,266 110,000 - 135,000
^1^Metal reported in concentrate is prior to deductions associated with smelter terms.
^3^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 first quarter of 2020, copper production was 13% lower compared to the same period in 2019 due to the lower copper head grades at 777, partially offset by increased ore production at 777 and Lalor. Gold, silver, and zinc production increased by 35%, 8%, and 9%, respectively, in the first quarter of 2020.

Full year production of all metals and combined unit operating costs are expected to be within the annual guidance ranges for Manitoba.

Zinc Plant

Zinc Production Three months ended Guidance
Mar. 31, 2020 Mar. 31, 2019 Annual
2020
Zinc Concentrate Treated
Domestic tonnes 61,351 50,094
Refined Metal Produced
Domestic tonnes 28,466 23,719 100,000 - 112,000
Unit Operating Costs Three months ended Guidance
--- --- --- --- --- --- ---
Mar. 31, 2019 Annual
2020
Zinc Plant ^1,2^ C/lb 0.49 0.51 0.45 - 0.52
^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.

All values are in US Dollars.

Production of cast zinc in the first quarter of 2020 was 20% higher than the same period in 2019 due to higher zinc concentrate availability while operating costs per pound of zinc metal produced were 4% lower than the same period in 2019 due to higher throughput.

Full year production guidance of cast zinc and zinc plant unit operating cost is expected to be within the annual guidance ranges.

Manitoba Cash Cost and Sustaining Cash Cost

Three months ended
Mar. 31, 2019
Cost per pound of copper produced
Cash cost per pound of copper produced, net of by-product credits ^1^ /lb (0.30 ) 0.77
Sustaining cash cost per pound of copper produced, net of by-product credits ^1^ /lb 2.85 3.16
Cost per pound of zinc produced
Cash cost per pound of zinc produced, net of by-product credits ^1^ /lb 0.51 0.68
Sustaining cash cost per pound of zinc produced, net of by-product credits ^1^ /lb 1.06 1.20
^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, for the first quarter of 2020 was negative $0.30. These costs were lower compared to the same period in 2019, primarily as a result of significantly higher by-product credits, partially offset by lower copper production.

Sustaining cash cost per pound of copper produced, net of by-product credits, in the first quarter of 2020 was $2.85. These costs were lower compared to the same period in 2019, primarily due to higher by-product credits, partially offset by higher sustaining capital expenditures.

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

Metal Sold

Three months ended
Mar. 31, 2020 Mar. 31, 2019
Payable metal in concentrate
Copper tonnes 4,825 5,055
Gold oz 23,956 16,411
Silver oz 214,331 230,647
Zinc tonnes - -
Refined zinc tonnes 26,792 22,954

OUTLOOK

This outlook includes forward-looking information about the markets for the commodities we produce. 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. In addition to this section, refer to the "Operations Review" and "Financial Review" sections for additional details on our outlook for 2020.

Commodity Markets

In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. The current and future impacts on global commerce are anticipated to be far-reaching. To date there has been significant 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 has become restricted.

Our 2020 operational and financial performance will be influenced by a number of factors. At the macro-level, the impact of COVID-19 and the general performance of the Chinese, North American and global economies will influence the demand for our products. The realized prices we achieve in the commodity markets significantly affect our financial performance.

While commodity prices have declined in U.S. dollar terms during the first quarter of 2020, our operations in Canada have benefited from the weakening of local currencies relative to the U.S. dollar. During the first quarter, we recorded inventory net realizable value write-downs of $10.4 million related to inventories in Peru as a result of the current low realizable value of copper metal. Additional write-downs of inventory or reversals of the write-downs taken this period may occur over the balance of 2020 as commodity prices and foreign exchange rates fluctuate. We also suspended our operations in Peru to safeguard the health of our employees in conjunction with requirements of local governments.

We remain confident in the longer-term outlook for the commodities we produce, however there is significant ongoing short to medium-term uncertainty surrounding COVID-19 and the extent and duration of the impacts that it may have on demand and prices for the commodities we produce, on our suppliers, on our employees and on global financial markets. As a result, we may experience production below estimated levels, increased costs and significantly reduced revenue. This could lead to a material adverse effect on our financial performance, liquidity and results of operations.

FINANCIAL REVIEW

Financial Results

In the first quarter of 2020, we recorded a net loss of $76.1 million compared to a loss of $13.4 million for the same period in 2019, a decrease in profit of $62.7 million.

The following table provides further details on these variances:

(in $ millions) Three months ended<br>March 31, 2020
(Decrease) increase in components of profit or loss:
Revenues (47.2 )
Cost of sales
Mine operating costs (17.3 )
Depreciation and amortization (9.3 )
Selling and administrative expenses 9.8
Other operating expenses 6.2
Net finance expense (5.2 )
Other (0.4 )
Tax 0.7
Decrease in profit for the period (62.7 )

Revenue

Revenue for the first quarter of 2020 was $245.1 million, $47.2 million lower than the same period in 2019, primarily as a result of lower metal prices for copper and zinc and sales volumes for copper and silver, partially offset by higher zinc sales volumes, higher gold prices and a lower relative variable consideration adjustment.

(in $ millions) Three months ended<br>March 31, 2020
Metals prices^1^
Lower copper prices (13.5)
Lower zinc prices (14.5)
Higher gold prices 10.3
Higher silver prices 0.9
Sales volumes
Lower copper sales volumes (51.4)
Higher zinc sales volumes 11.1
Higher gold sales volumes 5.2
Lower silver sales volumes (11.9)
Other
Change in derivative mark-to-market on zinc (3.2)
Molybdenum and other volume and pricing differences 1.9
Variable consideration adjustments 13.5
Effect of lower treatment and refining charges 4.4
Decrease in revenue in 2020 compared to 2019 (47.2)
^1^ See discussion below for further information regarding metals prices.

Our revenue by significant product type is summarized below:

Three months ended
(in $ millions) Mar. 31, 2020 Mar. 31, 2019
Copper 139.2 202.3
Zinc 63.6 67.2
Gold 48.5 28.5
Silver 12.0 26.6
Molybdenum 9.1 6.3
Other metals 0.9 1.1
Revenue from contracts 273.3 332.0
Variable consideration adjustments (2.8 ) (16.3 )
Pricing and volume adjustments^1^ (9.7 ) (3.3 )
Treatment and refining charges (15.7 ) (20.1 )
Revenue 245.1 292.3
^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 15 of our consolidated interim 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 first quarter in 2020 and 2019, respectively, are summarized below:

Realized prices^1^ for the
Three months ended
Mar. 31, 2020 Mar. 31, 2019
Prices
Copper /lb 2.52 2.84
Zinc^3^ /lb 1.06 1.31
Gold^4^ /oz 1,730 1,347
Silver^4^ /oz 24.23 25.34
Molybdenum /lb 9.01 12.47
^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 ended March 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 23.

All values are in US Dollars.

The following table provides a reconciliation of average realized price per unit sold, by metal, to revenues as shown in the consolidated interim financial statements.

Three months ended March 31, 2020
(in $ millions) ^1^ Copper Zinc Gold Silver Molybdenum Other Total
Revenue per financial statements 139.2 63.6 48.5 12.0 9.1 0.9 273.3
Pricing and volume adjustments^2^ (5.5 ) (3.0 ) (2.5 ) 1.9 (0.6 ) - (9.7 )
Derivative mark-to-market^3^ - 2.2 - - - - 2.2
Revenue, excluding mark-to-market on non-QP hedges 133.7 62.8 46.0 13.9 8.5 0.9 265.8
Payable metal in concentrate sold^4^ 24,072 26,792 26,574 575,922 431 - -
Realized price^5^ 5,555 2,342 1,730 24.23 19,870 - -
Realized price ^6^ 2.52 1.06 - - 9.01 - -
Three months ended March 31, 2019
(in $ millions) ^1^ Copper Zinc Gold Silver Molybdenum Other Total
Revenue per financial statements 202.3 67.2 28.5 26.6 6.3 1.1 332.0
Pricing and volume adjustments^2^ (3.7 ) - 2.0 (1.7 ) 0.1 - (3.3 )
Derivative mark-to-market^3^ - (1.0 ) - - - - (1.0 )
Revenue, excluding mark-to-market on non-QP hedges 198.6 66.2 30.5 24.9 6.4 1.1 327.7
Payable metal in concentrate sold^4^ 31,717 22,954 22,629 982,906 234 - -
Realized price^5^ 6,264 2,884 1,347 25.34 27,489 - -
Realized price ^6^ 2.84 1.31 - - 12.47 - -

^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^Derivative mark-to-market excludes mark-to-market on QP hedges.

^4^Copper and zinc shown in metric tonnes and gold and silver shown in ounces.

^5^Realized price for copper, zinc and molybdenum in $/metric tonne and realized price for gold and silver in $/oz.

^6^Realized price for copper, zinc and molybdenum in $/lb.

The price, quantity and mix of metals sold, affect our revenue, operating cash flow and profit. Revenue from metals sales can vary from quarter to quarter due to production levels, shipping volumes and transfer of risk and title to customers.

Stream Sales

The following table shows stream sales included within realized prices and their respective deferred revenue and cash payment rates:

Three months ended
Mar. 31, 2020
Manitoba Peru
Gold 2,440 1,326
Silver 41,400 349,622
Gold deferred revenue drawdown rate1,2 1,164 976
Gold cash rate3 420 404
Silver deferred revenue drawdown rate1,2 22.09 21.52
Silver cash rate3 6.20 5.96
Three months ended
Peru
Gold 3,614 3,507
Silver 99,433 734,525
Gold deferred revenue drawdown rate1,2 1,176 948
Gold cash rate 3 416 400
Silver deferred revenue drawdown rate1,2 22.50 21.77
Silver cash rate 3 6.14 5.90
1 For the three months ended March 31, 2020 deferred revenue amortization is recorded in Manitoba at C1,556/oz and C29.58/oz for gold and silver (March 31, 2019 - C1,562/oz and C29.89/oz for gold and silver), respectively, 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
Mar. 31, 2020 Mar. 31, 2019
Peru
Mining 19,942 23,886
Milling 33,338 35,036
Changes in product inventory (243 ) (7,327 )
Depreciation and amortization 47,242 49,316
G&A 19,058 12,525
Overhead costs related to suspension of activities (cash) 3,454 -
Freight, royalties and other charges 11,264 14,075
Total Peru cost of sales 134,055 127,511
Manitoba
Mining 44,666 45,646
Milling 11,543 11,837
Zinc plant 18,942 17,031
Changes in product inventory (3,296 ) (9,890 )
Depreciation and amortization 39,197 27,814
G&A 13,932 13,281
Freight, royalties and other charges 8,057 7,216
Total Manitoba cost of sales 133,041 112,935
Cost of sales 267,096 240,446

Total cost of sales for the first quarter of 2020 was $267.1 million, reflecting an increase of $26.6 million from the first quarter of 2019. Cost of sales related to Peru increased for the first quarter of 2020 compared to the same period of 2019 by $6.5 million. The increase is primarily the result an inventory write-down in Peru of $10.4 million to reflect lower realizable inventory values resulting from the current low copper prices. In addition, the temporary suspension of operations at Constancia in March 2020 following the declaration of a state of emergency resulted in an adjustment to cost of sales by $6.3 million of fixed overhead costs (cash: $3.5 million, non-cash: $2.8 million) that would ordinarily have been capitalized to inventories and property, plant, and equipment. This change was offset by lower mining and milling costs resulting from lower production. In Manitoba, cost of sales increased by $20.1 million compared to the first quarter of 2019 primarily as a result of higher depreciation associated with higher mining activities and relative product inventory changes.

For details on unit operating costs refer to the respective tables in the "Operations Review" section of this MD&A.

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

  • Selling and administrative expenses decreased by $9.8 million compared to the same period in 2019. This decrease was mainly due to lower administration costs and lower stock-based compensation charges as a result of the relative impact of the revaluation of previously issued share units to lower share prices.

- Other operating expenses decreased by $6.2 million compared to the first quarter of 2019 primarily as a result of a delivery obligation of $7.5 million recorded in the first quarter of 2019 related to the Pampacancha deposit whereas no comparable charge was booked in the current quarter.

- Net finance expense increased by $5.2 million compared to the same period in 2019 primarily as a result of losses recorded for our embedded derivatives, unrealized losses on investments at fair value through profit or loss as well as higher costs due to the cessation of capitalizing interest costs on the Rosemont project as of October 1, 2019. This was partially offset by higher foreign exchange gains due to the effect of a weaker Canadian dollar and lower financing costs on deferred revenue from a lower relative variable consideration adjustment.

Tax Recovery

For the three months ended March 31, 2020, tax recovery increased by $0.7 million compared to the same period in 2019. The following table provides further details:
Mar. 31, 2019
(in thousands)
Deferred tax recovery - income tax 1 (3,804 ) $ (12,379 )
Deferred tax (recovery) expense - mining tax 1 ) 3,009
Total deferred tax recovery ) (9,370)
Current tax (recovery) expense - income tax ) 6,009
Current tax recovery - mining tax ) (1,335)
Total current tax (recovery) expense ) 4,674
Tax recovery (5,318 ) $ (4,696 )
1 Deferred tax (recovery) expense 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 27.0% to our loss before taxes of $81.5 million for the first quarter in 2020 would have resulted in a tax recovery of approximately $22.0 million; however, we recorded an income tax recovery of $4.1 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 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 $7.8 million.

  • Decrease in the deferred tax recovery of approximately $14.5 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 with respect to our foreign operations are recorded using an income tax rate other than the Canadian statutory income tax rate of 27%, resulting in a deferred tax recovery of $3.2 million.

  • An increase to the expected tax recovery of $2.2 million due to a change in the period in which temporary differences are expected to reverse in Peru under the tax stability agreement currently in place.

Mining Tax Recovery

Applying the estimated Manitoba mining tax rate of 10.0% to our loss before taxes of $81.5 million for 2020 would have resulted in a tax recovery of approximately $8.1 million and we recorded a mining tax recovery of $1.2 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 March 31, 2020, at the tax rate we expect to apply when temporary differences reverse.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

As at March 31, 2020, our liquidity includes $306.0 million in cash and cash equivalents as well as $445.9 million in undrawn availability under our revolving credit facilities. Although undrawn availability under our revolving credit facilities is expected to be negatively affected by lower metal prices and the suspension of operations at Constancia, we continue to take prudent steps to manage our balance sheet and maintain a strong liquidity position. This includes amendments to our revolving credit facility covenants made during the first quarter of 2020 that included replacing total debt to EBITDA with net debt to EBITDA which increased our March 31, 2020 available liquidity by $443 million. Subsequently, in the second quarter of 2020, we also announced a gold forward sale and prepay transaction that generated $115 million in cash proceeds to further improve our liquidity position and prefund our growth expenditures in Manitoba. We expect that our current liquidity together with cash flows from operations will be sufficient to meet our liquidity needs for 2020.

To the extent that metals prices remain depressed for a protracted period or decline materially from current levels, the Peru state of emergency results in a prolonged suspension of our Constancia operations or we experience additional COVID-19 related interruptions to our business or we have other unanticipated demands on liquidity, we may need to raise additional financing, further amend our credit facility covenants, reduce discretionary sustaining, growth or exploration spending or pursue other corporate initiatives.

Senior Secured Revolving Credit Facilities and Surety Bonds

We have two revolving credit facilities (the "Credit Facilities") for our Canadian and Peruvian businesses, with combined total availability of $550 million and substantially similar terms and conditions. As at March 31, 2020, between our Credit Facilities we have drawn $104.1 million in letters of credit, leaving total undrawn availability of $445.9 million. As at March 31, 2020, we were in compliance with our covenants under the Credit Facilities.

The Credit Facilities were amended on February 12, 2020 to provide us with additional flexibility during the development of the New Britannia and Pampacancha projects.

As a result of the re-negotiated terms, we have increased our availability under the Credit Facilities by $443 million as of March 31, 2020.

As at March 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. In addition, the Peru business unit had $24.8 million in letters of credit issued under the Peru revolving credit facility to support its reclamation obligations and the Manitoba business unit had $79.3 million in letters of credit issued under the Canada revolving credit facility to support its reclamation and pension 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 March 31, 2020 compared to December 31, 2019

Cash and cash equivalents decreased by $90.1 million to $306.0 million as at March 31, 2020. This decrease was mainly a result of $51.1 million of funding for capital investments primarily at our Peru and Manitoba operations, together with interest and other financing payments of $51.9 million, partially offset by cash flow from operating activities of $9.1 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 decreased by $78.2 million to $193.0 million from December 31, 2019 to March 31, 2020, primarily due to the decrease in our cash and cash equivalents position by $90.1 million, an increase in our other current financial liabilities by $42.0 million arising mostly from the execution of the Pampacancha surface rights agreement and other community agreements, a decrease of accounts receivable by $19.8 million due to the timing of cash receipts, partially offset by a decrease of accounts payable by $49.0 million due to reduced accruals from lower Peruvian operational activity and lower interest accruals due to timing of payments***.***

Cash Flows

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

(in $ thousands) Three months ended
Mar. 31, 2020 Mar. 31, 2019
Operating cash flow before changes in non-cash working capital 41,951 85,684
Change in non-cash working capital (32,865) (23,984)
Cash generated from operating activities 9,086 61,700
Cash (used in) generated by investing activities (49,947) (39,263)
Cash (used in) generated by financing activities (51,932) (52,253)
Effect of movement in exchange rates on cash and cash equivalents 2,644 186
(Decrease) increase in cash and cash equivalents (90,149) (29,630)

Cash Flow from Operating Activities

Cash generated from operating activities was $9.1 million during the first quarter of 2020, a decrease of $52.6 million compared with the same period last year. Operating cash flow before change in non-cash working capital was $42.0 million during the first quarter of 2020, reflecting a decrease of $43.7 million compared to the first quarter of 2019. The decrease in operating cash flow is primarily the result of the significant negative impact of COVID-19 on realized base metal prices as well as lower copper and silver sales volumes compared to the first quarter of 2019.

Cash Flow from Investing and Financing Activities

During the first quarter of 2020, we used $101.9 million in investing and financing activities, primarily driven by $51.1 million of capital expenditures, interest payments of $37.4 million, capitalized lease payments of $9.0 million, and net financing fees paid of $3.7 million.

Capital Expenditures

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

Guidance
Mar. 31, 2019 Annual
(in millions) 2020 ^1^
Manitoba sustaining capital expenditures 24.1 100.0
Peru sustaining capital expenditures 2 10.5 * ^1^
Total sustaining capital expenditures 34.6
Arizona capitalized costs 4.6 20.0
Peru growth capitalized expenditures 0.3 * ^1^
Manitoba growth capitalized expenditures - 80.0
Other capitalized costs 3 10.1
Capitalized exploration 0.9 15.0
Capitalized interest 3.3
Total other capitalized costs 19.2
Total capital additions 53.8
Reconciliation to cash capital additions:
Decommissioning and restoration obligation ) (13.7 )
Capitalized interest (3.3 )
Right-of-use asset additions ) (2.5 )
Community agreement accruals ) -
Changes in capital accruals and other 8.0
Total cash capital additions 42.3
1 Previously issued Constancia guidance suspended pending further review.
2 Peru sustaining capital expenditures includes capitalized stripping costs.
3 Other capitalized costs include decommissioning and restoration adjustments.

All values are in US Dollars.

Sustaining capital expenditures in Manitoba for the three months ended March 31, 2020 were $23.8 million, a decrease of $0.3 million compared to the same period in 2019. Sustaining capital expenditures in Peru for the three months ended March 31, 2020 were $12.5 million, representing an increase of $2.0 million, from the same period in 2019. The increase in Peru sustaining capital expenditures compared to the same period last year was mainly due to process plant projects partially offset by lower tailings management construction costs.

Peru growth capital of $70.2 million includes the recognition of future spending obligations arising from the execution of the surface rights agreement with the local community and agreements related to current uses of the land by certain community members. To date, these amounts have not been spent and the majority of expenditures under these agreements will become payable upon the finalization of all remaining agreements in recognition of current uses of the land and the successful transfer of land access rights to Hudbay.

Other capitalized costs of $43.1 million relates primarily to the remeasurement of previously recognized decommissioning and restoration liabilities at our Peru and Manitoba operations as a result of substantially lower discount rates at the end of the first quarter versus December 31, 2019.

We continue to monitor the impact of COVID-19 on reduced global economic activity and the corresponding effects on our operations and the demand for the metals we produce. We are taking prudent steps to manage our balance sheet, including the execution of the $115 million gold forward sale transaction to fund the New Britannia project. To the extent that metals prices decline materially from current levels, we have the ability to defer some of our capital growth project capital spend in Manitoba and Peru, with the potential for a further reduction in capital spending if the prevailing economic environment persists over a longer period.

Capital Commitments

As at March 31, 2020, we had outstanding capital commitments in Canada of approximately $18.3 million of which  $13.0 million can be terminated, approximately $34.4 million in Peru primarily related to exploration option agreements, all of which can be terminated, and approximately $178.9 million in Arizona, primarily related to our Rosemont project, of which approximately $87.9 million can be terminated.

Contractual Obligations

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

Less than<br><br> <br>12 months 13 - 36<br><br> <br>months 37 - 60<br><br> <br>months More than<br><br> <br>60 months
Payment Schedule (in $ millions) Total
Long-term debt obligations^1^ 1,321.7 79.2 551.0 691.5 0.0
Lease obligations 161.9 89.6 66.7 2.6 3.0
Purchase obligation - capital commitments 231.6 31.7 39.7 14.9 145.3
Purchase obligation - other commitments^2^ 704.9 312.7 223.3 127.0 41.9
Pension and other employee future benefits obligations^3^ 145.0 13.8 32.8 6.6 91.8
Community agreement obligations 112.8 62.0 9.4 7.7 33.7
Decommissioning and restoration obligations^4^ 252.7 21.9 36.3 11.3 183.2
Total 2,930.6 610.9 959.2 861.6 498.9
^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^ 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,

  • Various royalty agreements related to the Constancia mine.

Outstanding Share Data

As of May 13, 2020, there were 261,272,151 common shares of Hudbay issued and outstanding. In addition, there were options for an aggregate of 1,455,309 common shares 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, and may continue to experience similar disruptions in the future. As a result, we may experience production below anticipated levels, increased costs or significantly reduced revenue. This may lead to a material adverse effect on our financial performance, liquidity and operating results. The resumption of normal operating activities is highly dependent on the global response and impact of the COVID-19 global pandemic.

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;

  • To offset fixed price zinc sales contracts with customers.

On May 7, 2020, we announced a gold forward sale and prepay transaction which generated $115 million in cash proceeds. The transaction eliminates commodity price risk for 79,954 gold ounces in 2022 and 2023. The transaction valued the future gold ounce delivery obligation 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.

On an ongoing basis, we typically enter into copper hedging transactions intended to manage the risk associated with provisional pricing terms in concentrate sales agreements.

As at March 31, 2020, we had 24,500 tonnes of copper fixed for floating swaps outstanding at an average fixed receivable price of $2.55/lb associated with provisional pricing risk in concentrate sales agreements. These swaps settle across April to August 2020.

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 interim income statements.

At March 31, 2020, approximately $271.0 million of our cash and cash equivalents was held in US dollars, approximately $22.5 million of our cash and cash equivalents was held in Canadian dollars, and approximately $12.5 million of our cash and cash equivalents was held in Peruvian soles.

TREND ANALYSIS AND QUARTERLY REVIEW

The following table sets forth selected consolidated financial information for each of our eight most recently completed quarters:

2020 2019 2018
(in $ millions) Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2
Revenue 245.1 324.5 291.3 329.4 292.3 351.8 362.6 371.3
Gross margin (22.0) 25.6 31.0 43.1 51.8 75.2 85.3 92.5
Profit (loss) before tax (81.5) (42.4) (348.4) (43.9) (18.1) 17.7 30.3 49.8
(Loss) profit (76.1) (1.5) (274.8) (54.1) (13.4) (3.5) 22.8 24.7
(Loss) earnings per share:
Basic and Diluted (0.29) (0.01) (1.05) (0.21) (0.05) (0.01) 0.09 0.09
Operating cash flow^1^ 42.0 69.1 71.2 81.3 85.7 104.3 122.9 134.0
^1^Operating cash flow before changes in non-cash working capital

The COVID-19 pandemic had a significant impact on our business in the first quarter of 2020, negatively impacting both production and the prices we received for our products. Due to the temporary suspension of operations at Constancia in March 2020, we had lower mill throughput and sales volumes, and higher production costs by $6.3 million as a result of the immediate recognition of fixed overhead production costs during the suspension period in our cost of sales. As Constancia operations remained suspended into the second quarter of 2020, we expect that there will be a charge for fixed overhead costs incurred during the suspension period in the second quarter. Also during the first quarter, the impact of the COVID-19 pandemic led to a decline in copper prices resulting in an inventory write-down of $10.4 million to reflect lower realizable inventory values.  Higher reserves and resources declared in the first quarter of 2020 led to a negative pre-tax revenue and finance expense adjustment totaling $3.8 million.

In 2019, the lower realized prices for copper and zinc, combined with a trend towards lower copper grades in the Constancia mine plan and the closure of the Reed copper mine in August 2018 resulted in lower revenues and gross margin, despite the lower Constancia grades being partially offset by higher mill throughput and recoveries. Earnings in 2019 were also impacted by an after-tax impairment charge of $242.1 million in the third quarter of 2019 following the U.S. District Court for the District of Arizona's decision related to the Rosemont project permits, as well as a write down of $26.0 million related to the UCM receivable in the second quarter of 2019 which was exchanged for higher ownership in the Rosemont project prior to purchasing the remaining interest from UCM. 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 reserves and resources. In addition, in the first quarter of 2019, an additional delivery obligation of $7.5 million was recognized related to the expectation that mining of the Pampacancha deposit will not begin until 2020.

NON-IFRS FINANCIAL PERFORMANCE MEASURES

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. 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.

Net Debt

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

(in $ thousands) Mar. 31, 2020 Dec. 31,<br>2019
Total long-term debt, as per IFRS financial statements 988,074 985,255
Cash and cash equivalents, as per IFRS financial statements (305,997) (396,146)
Net debt 682,077 589,109

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. In the first quarter 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 cash costs.

  • 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 cash flow and 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 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 and amortization 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.

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 ended March 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
Net pounds of copper produced
(in thousands) Mar. 31, 2020 Mar. 31, 2019
Peru 42,527 70,201
Manitoba 11,784 13,512
Net pounds of copper produced 54,311 83,713
Consolidated Three months ended
--- --- --- --- ---
Mar. 31, 2020 Mar. 31, 2019
Cash cost per pound of copper produced $000s $/lb $000s $/lb
Cash cost, before by-product credits 183,151 3.37 197,561 2.36
By-product credits, net of deferred revenue (117,319) (2.16) (104,230) (1.25)
Cash cost, net of by-product credits 65,832 1.21 93,331 1.11
Consolidated
--- --- --- ---
Mar. 31, 2019
Supplementary cash cost information $/lb ^1^ $000s $/lb ^1^
By-product credits:
Zinc 1.11 67,152 0.80
Gold 3 0.85 17,038 0.20
Silver 3 0.20 22,059 0.26
Molybdenum & other 0.17 7,491 0.09
Total by-product credits 2.34 113,740 1.36
Less: deferred revenue 3 (0.18) (9,510) (0.11)
Total by-product credits, net of deferred revenue 2.16 104,230 1.25
Reconciliation to IFRS:
Cash cost, net of by-product credits 93,331
By-product credits 113,740
Change in deferred revenues (9,510)
Treatment and refining charges (20,143)
Share-based payment 426
Inventory adjustments -
Change in product inventory (17,217)
Royalties 2,689
Overhead costs related to suspension of activities (cash) -
Depreciation and amortization2 77,130
Cost of sales4 240,446
1 Per pound of copper produced.
2 Depreciation is based on concentrate sold.
3 Three months ended March 31, 2020 and March 31, 2019 gold and silver by-product credits and deferred revenue both reflect the 2.8 and 16.3 million revenue adjustment, respectively primarily associated with the increase in reserves and resources at the 777 mine.
4 As per IFRS financial statements.

All values are in US Dollars.

Peru Three months ended
(in thousands) Mar. 31, 2020 Mar. 31, 2019
Net pounds of copper produced^1^ 42,527 70,201
^1^Contained copper in concentrate.
Peru Three months ended
--- --- --- --- ---
Mar. 31, 2020 Mar. 31, 2019
Cash cost per pound of copper produced $000s $/lb $000s $/lb
Mining 19,942 0.47 23,886 0.34
Milling 33,338 0.78 35,036 0.50
G&A 8,747 0.21 12,440 0.18
Onsite costs 62,027 1.46 71,362 1.02
Treatment & refining 10,714 0.25 15,018 0.21
Freight & other 9,784 0.23 12,755 0.18
Cash cost, before by-product credits 82,525 1.94 99,135 1.41
By-product credits, net of deferred revenue (13,197) (0.31) (16,225) (0.23)
Cash cost, net of by-product credits 69,328 1.63 82,910 1.18
Peru Three months ended
--- --- --- --- ---
Mar. 31, 2020 Mar. 31, 2019
Supplementary cash cost information $000s $/lb ^1^ $000s $/lb ^1^
By-product credits:
Gold 5,618 0.13 8,404 0.12
Silver 6,991 0.16 22,181 0.32
Molybdenum 8,558 0.20 6,426 0.09
Total by-product credits 21,167 0.50 37,011 0.53
Less: deferred revenue (7,970) (0.19) (20,786) (0.30)
Total by-product credits, net of deferred revenue 13,197 0.31 16,225 0.23
Reconciliation to IFRS:
Cash cost, net of by-product credits 69,328 82,910
By-product credits 21,167 37,011
Change in deferred revenues (7,970) (20,786)
Treatment and refining charges (10,714) (15,018)
Inventory adjustments 10,375 -
Share-based payment (64) 85
Change in product inventory (243) (7,327)
Royalties 1,480 1,320
Overhead costs related to suspension of activities (cash) 3,454 -
Depreciation and amortization^2^ 47,242 49,316
Cost of sales^3^ 134,055 127,511
^1^Per pound of copper produced.
^2^Depreciation is based on concentrate sold.
^3^ As per IFRS financial statements.
Manitoba Three months ended
--- --- ---
(in thousands) Mar. 31, 2020 Mar. 31, 2019
Net pounds of copper produced^1^ 11,784 13,512
^1^Contained copper in concentrate.
Manitoba Three months ended
--- --- --- --- ---
Mar. 31, 2020 Mar. 31, 2019
Cash cost per pound of copper produced $000s $/lb $000s $/lb
Mining 44,666 3.79 45,646 3.38
Milling 11,543 0.98 11,837 0.88
Refining (zinc) 18,942 1.61 17,031 1.26
G&A 14,083 1.20 12,940 0.96
Onsite costs 89,234 7.57 87,454 6.47
Treatment & refining 4,982 0.42 5,125 0.38
Freight & other 6,410 0.54 5,847 0.43
Cash cost, before by-product credits 100,626 8.54 98,426 7.28
By-product credits, net of deferred revenue (104,122) (8.84) (88,005) (6.51)
Cash cost, net of by-product credits (3,496) (0.30) 10,421 0.77
Manitoba Three months ended
--- --- --- --- ---
Mar. 31, 2020 Mar. 31, 2019
Supplementary cash cost information $000s $/lb ^1^ $000s $/lb ^1^
By-product credits:
Zinc 60,500 5.13 67,152 4.97
Gold 40,786 3.46 8,634 0.64
Silver 3,724 0.32 (122) (0.01)
Other 902 0.08 1,065 0.08
Total by-product credits 105,912 8.99 76,729 5.68
Less: deferred revenue (1,790) (0.15) 11,276 0.83
Total by-product credits, net of deferred revenue 104,122 8.84 88,005 6.51
Reconciliation to IFRS:
Cash cost, net of by-product credits (3,496) 10,421
By-product credits 105,912 76,729
Change in deferred revenues (1,790) 11,276
Treatment and refining charges (4,982) (5,125)
Share-based payment (151) 341
Change in product inventory (3,296) (9,890)
Royalties 1,647 1,369
Depreciation and amortization^2^ 39,197 27,814
Cost of sales^3^ 133,041 112,935
^1^ Per pound of copper produced.
^2^Depreciation is based on concentrate sold.
^3^ As per IFRS financial statements.
Consolidated Three months ended
--- --- --- --- ---
Mar. 31, 2020 Mar. 31, 2019
All-in sustaining cash cost per pound of copper produced $000s $/lb $000s $/lb
Cash cost, net of by-product credits 65,832 1.21 93,331 1.11
Cash sustaining capital expenditures 54,729 1.01 44,636 0.53
Capitalized exploration^1^ - 0.00 905 0.01
Royalties 3,127 0.06 2,689 0.03
Sustaining cash cost, net of by-product credits 123,688 2.28 141,561 1.69
Corporate selling and administrative expenses & regional costs 5,988 0.11 16,116 0.19
Accretion and amortization of decommissioning and community agreements^2^ 801 0.01 72 0.00
All-in sustaining cash cost, net of by-product credits 130,477 2.40 157,749 1.88
^1^Only includes exploration costs incurred for locations near existing mines.
^2^ Includes accretion and amortization of decommissioning relating to non-productive sites, and accretion and amortization of current community agreements.
Peru Three months ended
--- --- --- --- ---
Mar. 31, 2020 Mar. 31, 2019
Sustaining cash cost per pound of copper produced $000s $/lb $000s $/lb
Cash cost, net of by-product credits 69,328 1.63 82,910 1.18
Cash sustaining capital expenditures 19,244 0.45 14,662 0.21
Royalties 1,480 0.03 1,320 0.02
Sustaining cash cost per pound of copper produced 90,052 2.12 98,892 1.41
Manitoba Three months ended
--- --- --- --- ---
Mar. 31, 2020 Mar. 31, 2019
Sustaining cash cost per pound of copper produced 000s /lb $000s $/lb
Cash cost, net of by-product credits (3,496 (0.30 10,421 0.77
Cash sustaining capital expenditures 35,485 3.01 29,974 2.22
Capitalized exploration - 0.00 905 0.07
Royalties 1,647 0.14 1,369 0.10
Sustaining cash cost per pound of copper produced 33,636 2.85 42,669 3.16

All values are in US Dollars.

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 cash flow and 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 and net smelter returns royalties. 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.

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 ended March 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
(in thousands) Mar. 31, 2020 Mar. 31, 2019
Net pounds of zinc produced^1^ 67,230 61,811
^1^ Contained zinc in concentrate.
Manitoba Three months ended
--- --- --- --- ---
Mar. 31, 2020 Mar. 31, 2019
Cash cost per pound of zinc produced 000s /lb 000s /lb
Cash cost, before by-product credits^1^ 100,626 1.50 98,426 1.59
By-product credits (66,524 (0.99 (56,380 (0.91
Zinc cash cost, net of by-product credits 34,102 0.51 42,046 0.68
^1^For additional detail on cash cost, before by-product credits please see page 36 of this MD&A.

All values are in US Dollars.

Manitoba Three months ended
Mar. 31, 2020 Mar. 31, 2019
Supplementary cash cost information 000s /lb 1 000s $/lb ^1^
By-product credits:
Copper 22,902 0.34 35,527 0.57
Gold 40,786 0.61 8,634 0.14
Silver 3,724 0.06 (122 0.00
Other 902 0.01 1,065 0.02
Total by-product credits 68,314 1.02 45,104 0.73
Less: deferred revenue (1,790 (0.03 11,276 0.18
Total by-product credits, net of deferred revenue 66,524 0.99 56,380 0.91
Reconciliation to IFRS:
Cash cost, net of by-product credits 34,102 42,046
By-product credits 68,314 45,104
Change in deferred revenues (1,790 11,276
Treatment and refining charges (4,982 (5,125
Share-based payment (151 341
Change in product inventory (3,296 (9,890
Royalties 1,647 1,369
Depreciation and amortization^2^ 39,197 27,814
Cost of sales^3^ 133,041 112,935
^1^ Per pound of zinc produced.
^2^Depreciation is based on concentrate sold.
^3^ As per IFRS financial statements.

All values are in US Dollars.

Manitoba Three months ended
Mar. 31, 2020 Mar. 31, 2019
Sustaining cash cost per pound of zinc produced $000s $/lb $000s $/lb
Zinc cash cost, net of by-product credits 34,102 0.51 42,046 0.68
Cash sustaining capital expenditures 35,485 0.53 29,974 0.48
Capitalized exploration - - 905 0.01
Royalties 1,647 0.02 1,369 0.02
Sustaining cash cost per pound of zinc produced 71,234 1.06 74,294 1.20

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 quarter 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 ended March 31, 2020 and 2019.

Peru Three months ended
(in thousands except unit cost per tonne) Mar. 31, 2020 Mar. 31, 2019
Combined unit cost per tonne processed
Mining 19,942 23,886
Milling 33,338 35,036
G&A ^1^ 8,747 12,440
Other G&A ^2^ 513 (426 )
Unit cost 62,540 70,936
Tonnes ore milled 6,719 7,993
Combined unit cost per tonne 9.31 8.87
Reconciliation to IFRS:
Unit cost 62,540 70,936
Freight & other 9,784 12,755
Other G&A (513) 426
Share-based payment (64 ) 85
Inventory adjustments 10,375 -
Change in product inventory (243 ) (7,327 )
Royalties 1,480 1,320
Overhead costs related to suspension of activities (cash) 3,454 -
Depreciation and amortization 47,242 49,316
Cost of sales^3^ 134,055 127,511
^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
--- --- --- --- ---
(in thousands except tonnes ore milled and unit cost per tonne) Mar. 31, 2020 Mar. 31, 2019
Combined unit cost per tonne processed
Mining 44,666 45,646
Milling 11,543 11,837
G&A ^1^ 14,083 12,940
Less: G&A allocated to zinc metal production (4,159 ) (3,223 )
Unit cost 66,133 67,200
USD/CAD implicit exchange rate 1.34 1.33
Unit cost - C$ 88,875 89,328
Tonnes ore milled 702,376 610,767
Combined unit cost per tonne - C$ 127 146
Reconciliation to IFRS:
Unit cost 66,133 67,200
Freight & other 6,410 5,847
Refined (zinc) 18,942 17,031
G&A allocated to zinc metal production 4,159 3,223
Share-based payment (151 ) 341
Change in product inventory (3,296 ) (9,890 )
Royalties 1,647 1,369
Depreciation and amortization 39,197 27,814
Cost of sales^2^ 133,041 112,935
^1^ G&A as per cash cost reconciliation above.
^2^ As per IFRS financial statements.
Manitoba Three months ended
--- --- --- --- ---
(in thousands except zinc plant unit cost per pound) Mar. 31, 2020 Mar. 31, 2019
Zinc plant unit cost
Zinc plant costs 18,942 17,031
G&A ^1^ 14,083 12,940
Less: G&A allocated to other areas (9,924 ) (9,717 )
Zinc plant unit cost 23,101 20,254
USD/CAD implicit exchange rate 1.34 1.33
Zinc plant unit cost - C$ 30,911 26,915
Refined metal produced (in pounds) 62,757 52,291
Zinc plant unit cost per pound - C$ 0.49 0.51
Reconciliation to IFRS:
Zinc plant unit cost 23,101 20,254
Freight & other 6,410 5,847
Mining 44,666 45,646
Milling 11,543 11,837
G&A allocated to other areas 9,924 9,717
Share-based payment (151 ) 341
Change in product inventory (3,296 ) (9,890 )
Royalties 1,647 1,369
Depreciation and amortization 39,197 27,814
Cost of sales^2^ 133,041 112,935
^1^ G&A as per cash cost reconciliation above.
^2^ As per IFRS financial statements.

ACCOUNTING CHANGES AND CRITICAL ESTIMATES

New standards and interpretations adopted

For information on new standards and interpretations adopted, refer to note 4 of our March 31, 2020 consolidated interim financial statements.

Estimates and judgements

The preparation of the consolidated interim 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 interim 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.

For more information on judgements and estimates, refer to note 2 of our March 31, 2020 consolidated interim financial statements.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting ("ICFR"). ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.

We did not make any changes to ICFR during the three months ended March 31, 2020 that materially affected or are reasonably likely to materially affect our ICFR.

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, expectations regarding the timing of mining activities at the Pampacancha deposit, the anticipated timing, cost and benefits of developing the Rosemont project and the outcome of litigation challenging Rosemont's permits, expectations regarding the appointment of a permanent CFO, expectations regarding the Lalor gold strategy, including the refurbishment of the New Britannia mill, 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 the Mason project, anticipated mine plans, anticipated metals prices and the anticipated sensitivity of our financial performance to metals prices, events that may affect our operations and development projects, anticipated cash flows from operations and related liquidity requirements, the anticipated effect of external factors on revenue, such as commodity prices, estimation of mineral reserves and resources, mine life projections, reclamation costs, economic outlook, government regulation of mining operations, and business and acquisition strategies. Forward-looking information is not, and cannot be, a guarantee of future results or events. Forward-looking information is based on, among other things, opinions, assumptions, estimates and analyses that, while considered reasonable by us at the date the forward-looking information is provided, inherently are subject to significant risks, uncertainties, contingencies and other factors that may cause actual results and events to be materially different from those expressed or implied by the forward-looking information.

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

  • the duration of the state of emergency in Peru and our ability to resume operations at Constancia;

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

  • the availability of spending reductions and liquidity options;

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

  • the timing of the Consulta Previa and permitting process for mining 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 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;

  • 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 (including risks associated with the litigation affecting the Rosemont project), 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, the Consulta Previa process, risks associated with reaching additional agreements with individual community members and risks associated with the rainy season in Peru 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 "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.

Hudbay Minerals Inc.: Exhibit 99.3 - Filed by newsfilecorp.com

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Peter Kukielski, President and Chief Executive Officer of Hudbay Minerals Inc., certify the following:

  1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Hudbay Minerals Inc. (the “issuer”) for the interim period ended March 31, 2020.

  2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

  3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

  4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of

Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

  1. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

5.2 N/A

5.3 N/A

  1. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2020 and ended on March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: May 14, 2020

(signed) “Peter Kukielski”

Name: Peter Kukielski

Title:   President and Chief Executive Officer

Hudbay Minerals Inc.: Exhibit 99.4 - Filed by newsfilecorp.com

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Eugene Lei, Senior Vice President, Corporate Development & Strategy and Interim Chief Financial Officer of Hudbay Minerals Inc., certify the following:

  1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Hudbay Minerals Inc. (the “issuer”) for the interim period ended March 31, 2020.

  2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

  3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

  4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

  5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

(a) designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b) designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

5.2 N/A

5.3 N/A

  1. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on January 1, 2020 and ended on March 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: May 14, 2020

(signed) “Eugene Lei”

Name:    Eugene Lei

Title:      Senior Vice President, Corporate Development & Strategy and

Interim Chief Financial Officer

Hudbay Minerals Inc.: Exhibit 99.5 - Filed by newsfilecorp.com

Hudbay Announces First Quarter 2020 Results

Toronto, Ontario, May 14, 2020 - Hudbay Minerals Inc. ("Hudbay" or the "company") (TSX, NYSE:HBM) today released its first quarter 2020 financial results. All amounts are in U.S. dollars, unless otherwise noted.

First Quarter Operating and Financial Results

  • Delivered a solid operating quarter in Manitoba, which included record mine production at Lalor and record throughput at the Stall concentrator.
  • Lalor ore mined and Stall concentrator throughput increased by 8% and 19%, respectively, in the first quarter of 2020 compared to the fourth quarter of 2019.
  • Constancia achieved target mill throughput and operating unit costs during the quarter prior to its temporary shutdown.
  • Net loss of $76.1 million or $0.29 per share for the first quarter of 2020 reflects lower realized base metal prices, lower Constancia grades in line with the mine plan and higher cost of sales in Peru as a result of the temporary suspension of Constancia and certain inventory valuation adjustments versus the previous quarter.
  • Cash generated from operating activities decreased to $9.1 million in the first quarter of 2020 from $98.7 million in the fourth quarter of 2019, while operating cash flow before change in non-cash working capital decreased to $42.0 million in the first quarter from $69.1 million in the previous quarter due to lower realized base metal prices and lower Constancia grades.
  • Cash and cash equivalents of $306.0 million as at March 31, 2020 continued to provide the company with financial flexibility during the temporary production disruption at Constancia and the current low base metal price environment and have since been bolstered by the gold prepay proceeds described below.

COVID-19 and Annual Guidance

  • The COVID-19 global pandemic has had a significant impact on Hudbay and the prices of the products it produces. The company experienced operational and supply chain disruptions, including a temporary suspension of operations at Constancia for a period of approximately eight weeks as a result of a government declared state of emergency in March. Operations continued in Manitoba without any impact to production or the ability to ship concentrate and zinc metal.
  • Hudbay is affirming 2020 Manitoba production, operating cost and capital expenditure guidance. Peru guidance has been suspended due to the ongoing uncertainty surrounding COVID-19 and the recent temporary Constancia mine shutdown.
  • On May 14, Constancia received recognition and approval from Peru's Ministry of Energy and Mines for its restart protocols and is planning to ramp up operations over the next week. Hudbay expects to provide an update to its Peru guidance with second quarter results.
  • Hudbay has been prudently managing the business and the impact of the pandemic. This has resulted in approximately $150 million in incremental liquidity this year, including $115 million in cash proceeds received from a gold forward sale and prepay transaction, an approximate $25 million deferral in Peru's 2020 sustaining capital and company-wide discretionary and input cost reductions of approximately $10 million. In addition, Hudbay's 2020 forecasted cash flows are expected to benefit from the Canadian dollar cost structure of the Manitoba operations and the anticipated increase in cash flows from Lalor due to higher precious metals production expected this year and the prevailing commodity prices and foreign exchange rates.
TSX, NYSE - HBM<br><br> <br>2020 No. 10

Recent Developments

  • Received $115 million from a gold forward sale and prepay transaction completed in early May 2020, which prefunds the entire capital budget for the low-risk, high-return New Britannia gold mill refurbishment at attractive terms and low cost of capital.
  • In February, prior to the COVID-19 pandemic, Hudbay re-negotiated the covenants of its revolving credit facilities which resulted in an increase of $443 million in liquidity available as at March 31, 2020, providing additional financial flexibility to execute its growth initiatives.
  • Executed amendment with Wheaton Precious Metals extending the target date for mining four million tonnes of ore from Pampacancha by six months to June 30, 2021.
  • March 2020 update to reserves and resources increased Lalor's life-of-mine gold production by 41% from the previous mine plan and expected annual gold production to over 150,000 ounces by 2022, while total Snow Lake gold reserves increased by 35% to 2.2 million ounces, which supports an expanded 18-year mine life for the Snow Lake operations.
  • The New Britannia gold mill refurbishment is on track to be completed before the end of 2021 with orders placed for long-lead items and early works construction underway.

"The COVID-19 pandemic has been an unprecedented challenge for our business, but with the help of extensive scenario planning, we have proactively implemented measures to mitigate the impact to our operations, our employees and our communities. Our focus on prudently managing the business has resulted in a significant improvement in our liquidity, and we remain well-positioned to fund our future growth initiatives while remaining vigilant in this ever-changing environment," said Peter Kukielski, President and Chief Executive Officer. "While we have suspended our Peru guidance due to the temporary shutdown of Constancia during the pandemic, we are affirming our Manitoba guidance after a strong operating quarter. Lalor and the Stall mill achieved record production levels and the New Britannia gold mill refurbishment, which will enable an increase in Lalor's annual gold production to over 150,000 ounces, is on track for completion by the end of 2021."

"We are very pleased with the work we've done this year to protect our balance sheet and improve our liquidity position," said Eugene Lei, Hudbay's Senior Vice President, Corporate Development & Strategy and Interim Chief Financial Officer. "We started the year by proactively amending our covenants under the revolving credit facilities to provide us with more flexibility in this volatile market. The recent gold prepay transaction provides a non-dilutive, low cost of capital financing, enabling us to fund our Snow Lake gold growth initiatives in a prudent manner by utilizing a fraction of New Britannia's first two years of gold production, while protecting our balance sheet, preserving our existing cash and improving our total available liquidity. Incorporating the expected sustaining capital deferrals in Peru and the company-wide cost savings this year, we have secured an incremental $150 million in liquidity."

Summary of First Quarter Results

Consolidated copper production in the first quarter of 2020 was 24,635 tonnes, a 24% decrease from the fourth quarter of 2019 primarily as a result of planned lower copper grades at Constancia, in line with the mine plan, and lower ore production from Constancia due to the temporary suspension of operations in March 2020 following a government declared state of emergency in Peru due to COVID-19. Consolidated zinc production in the first quarter of 2020 was in line with the fourth quarter of 2019 due to record production from the Lalor mine and the Stall mill, offset by lower production from the Flin Flon mill.

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In the first quarter of 2020, consolidated cash cost per pound of copper produced, net of by-product credits^[i]^, was $1.21, a slight improvement over the fourth quarter of 2019 as lower copper production was more than offset by lower Peru costs. 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^i^, in the first quarter of 2020 was $2.40, which decreased from $2.55 in the fourth quarter of 2019, driven mainly by lower sustaining capital expenditures and capitalized exploration, and the same factors noted above affecting consolidated cash costs.

Cash generated from operating activities in the first quarter of 2020 decreased substantially to $9.1 million compared to $98.7 million in the fourth quarter of 2019. Operating cash flow before change in non-cash working capital was $42.0 million during the first quarter of 2020, reflecting a decrease of $27.1 million compared to the fourth quarter of 2019. The decrease in operating cash flow is primarily the result of the significant negative impact of COVID-19 on realized base metal prices as well as lower sales volumes compared to the previous quarter.

Net loss and loss per share in the first quarter of 2020 were $76.1 million and $0.29, respectively, compared to a net loss and loss per share of $1.5 million and $0.01, respectively, in the fourth quarter of 2019. The decrease in earnings was caused by declining base metal prices, lower Constancia grades in line with the mine plan, and lower sales volumes due to the temporary suspension of Constancia in March. In addition, the temporary suspension of mining operations at Constancia required a portion of overhead costs to be directly charged to cost of sales and lower metal prices led to the write-down of certain inventories in Peru, as further described below.

Net loss and loss per share in the first quarter of 2020 were affected by, among other things, the following items:

**** Pre-tax loss Per share loss
**** ($ millions) ( millions) ($/share)
Mark-to-market adjustments (2.7) (0.01)
Peru inventory write-down (10.4) (0.03)
Peru cost of sales direct charges from temporary suspension of operations (6.3) (0.02)
Deferred revenue adjustments from increased reserves and resources (3.8) (0.01)
Non-cash deferred tax adjustments - (0.09)

All values are in US Dollars.

Hudbay's first quarter results were significantly impacted by the COVID-19 global pandemic, which caused the temporary suspension of mining and processing activities at Constancia after the Peruvian government declared a state of emergency on March 15, 2020. The temporary suspension of operations at Constancia starting March 19, 2020 resulted in fixed overhead production costs of $6.3 million that would normally be capitalized to inventories and property, plant and equipment, to be immediately expensed as part of the cost of sales. As Constancia operations remained suspended into the second quarter of 2020, the company expects that there will be a similar charge for fixed overhead costs incurred during the suspension period in the second quarter. In addition, an inventory write-down of $10.4 million was recorded in the first quarter to reflect lower realizable inventory values in Peru resulting from low copper prices.

During the first quarter of 2020, Hudbay also recorded a non-cash true up adjustment on streaming revenues due mainly to an increase in reserves and resources for the 777 and Constancia mines as announced in the annual reserves and resources news release on March 30, 2020. The reduced deferred revenue drawdown rate, which is recalculated back to the inception of the streams, resulted in a pre-tax non-cash earnings impact of approximately $3.8 million.

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As at March 31, 2020, the company's liquidity includes $306.0 million in cash and cash equivalents as well as $445.9 million in undrawn availability under its revolving credit facilities. Although undrawn availability under our revolving credit facilities is expected to be negatively affected by lower metal prices and the suspension of operations at Constancia, Hudbay continues to take prudent steps to manage its balance sheet and maintain a strong liquidity position. This includes amendments made to its revolving credit facility covenants during the first quarter of 2020 that included replacing total debt to EBITDA with net debt to EBITDA, which increased March 31, 2020 available liquidity by $443.0 million. Subsequently, in the second quarter of 2020, the company announced a gold forward sale and prepay transaction that generated $115 million of cash proceeds to further improve its liquidity position and prefund the growth expenditures in Manitoba. The company expects that its current liquidity together with cash flows from operations will be sufficient to meet its liquidity needs for 2020.

Consolidated Financial Performance Three Months Ended
($000s except per share amounts) Mar. 31, 2019 Dec. 31, 2019 Mar. 31, 2019
Revenue 245,105 324,485 292,258
Cost of sales 267,096 298,852 240,446
Earnings (loss) before tax (81,452) (42,352) (18,108)
Earnings (loss) (76,134) (1,455) (13,412)
Basic and diluted earnings (loss) per share (0.29) (0.01) (0.05)
Operating cash flow before change in non-cash working capital 41,951 69,141 85,684
Consolidated Operational Performance ****** Three Months Ended
--- --- --- --- ---
****** Mar. 31, 2020 Dec. 31, 2019 Mar. 31, 2019
Contained metal in concentrate produced^1^ ****
Copper tonnes 24,635 32,422 37,972
Gold ounces 30,495 32,712 25,562
Silver ounces 767,692 930,137 919,195
Zinc tonnes 30,355 30,592 28,037
Molybdenum tonnes 354 372 304
Precious metals^2^ ounces 39,121 46,000 38,693
Payable metal in concentrate sold ****
Copper tonnes 24,072 33,715 31,717
Gold ounces 26,792 30,344 22,629
Silver ounces 575,922 909,423 982,906
Zinc^3^ tonnes 26,574 28,001 22,954
Molybdenum tonnes 431 199 234
Precious metals^2^ ounces 33,263 43,336 36,671
Cash cost^4^ $/lb 1.21 1.23 1.11
All-in sustaining cash cost^4^ $/lb 2.40 2.55 1.88

^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 and payable zinc in concentrate sold.

^4^ 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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Peru Operations Review

Peru Operations Three Months Ended
****** Mar. 31, 2020 Dec. 31, 2019 Mar. 31, 2019
Ore mined^1^ tonnes 6,985,212 8,049,063 8,634,773
Copper % 0.34 0.41 0.47
Gold g/tonne 0.03 0.04 0.04
Silver g/tonne 3.10 3.87 3.55
Molybdenum % 0.02 0.02 0.01
Ore milled tonnes 6,719,466 7,474,136 7,993,062
Copper % 0.34 0.42 0.46
Gold g/tonne 0.03 0.04 0.04
Silver g/tonne 3.13 3.86 3.53
Molybdenum % 0.02 0.02 0.01
Copper recovery % 84.3 85.6 86.2
Gold recovery % 50.2 50.0 52.2
Silver recovery % 68.2 68.2 69.9
Molybdenum recovery % 35.0 30.8 26.8
Contained metal in concentrate ****
Copper tonnes 19,290 26,659 31,843
Gold ounces 3,062 5,007 5,357
Silver ounces 461,302 631,774 634,930
Molybdenum tonnes 354 372 304
Precious metals^2^ ounces 8,254 14,033 14,427
Payable metal sold ****
Copper tonnes 19,247 28,430 26,662
Gold ounces 2,618 4,824 6,218
Silver ounces 361,591 666,839 752,259
Molybdenum tonnes 431 199 234
Combined unit operating cost^3^^,4^ $/tonne 9.31 10.20 8.87
Cash cost^4^ $/lb 1.63 1.66 1.18
Sustaining cash cost^4^ $/lb 2.12 2.47 1.41

^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.

During the quarter, the Constancia mine produced 19,290 tonnes of copper, 8,254 ounces of precious metals and 354 tonnes of molybdenum. Production results were lower than the fourth quarter of 2019 as a result of planned lower copper grades, in line with the mine plan, and lower ore production due to the temporary suspension of operations in March following a government declared state of emergency in Peru.

Ore milled at the Constancia mine during the first quarter of 2020 was 10% lower compared to the fourth quarter of 2019 primarily due to the temporary suspension of operations on March 19 as a result of the COVID-19 pandemic and the state of emergency initiated by the Peruvian government. However, the mill achieved targeted throughput levels during the quarter prior to the temporary shutdown. Milled copper grades in the first quarter were approximately 19% lower than the fourth quarter of 2019 as lower grade phases continue to be mined, in line with the mine plan.

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Copper recoveries in the first quarter of 2020 decreased by 2% compared to the fourth quarter of 2019, mainly due to lower grade ore feed as more ore from Phase 4 is being mined. Gold and silver recoveries this quarter were consistent with the fourth quarter of 2019. While recoveries of individual metals vary from quarter to quarter depending on the complexity and grade of the ore feed, the company has been seeing consistent results from ongoing recovery optimization initiatives since the beginning of 2019. Molybdenum recovery in the first quarter of 2020 increased by 14% compared to the fourth quarter of 2019 mainly due to higher head grades.

Combined mine, mill and G&A unit operating costs^i^ in the first quarter of 2020 were 9% lower than the previous quarter, primarily due to lower milling and G&A costs, and were in line with targeted levels prior to the temporary shutdown.

Peru's cash cost per pound of copper produced, net of by-product credits, for the three months ended March 31, 2020 was $1.63. This represents a slight decrease from the fourth quarter of 2019 as lower costs and higher by-product credits were partially offset by lower production. Peru's sustaining cash costs per pound of copper produced, net of by-product credits^i^, for the three months ended March 31, 2020 was $2.12. This represents a decrease of 14% from the fourth quarter of 2019 primarily due to lower sustaining capital expenditures and capitalized exploration.

Peru's 2020 production and cost guidance has been suspended due to the ongoing uncertainty surrounding COVID-19 and the recent temporary Constancia mine suspension. Constancia has received recognition and approval from Peru's Ministry of Energy and Mines for its restart protocols and is planning to ramp up operations over the next week. Hudbay expects to provide an update to its Peru guidance with second quarter results.

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Manitoba Operations Review

Manitoba Operations Three Months Ended
****** Mar. 31, 2020 Dec. 31, 2019 Mar. 31, 2019
777 ore mined tonnes 279,925 269,342 278,522
Copper % 1.18 1.17 1.65
Zinc % 4.11 3.33 3.18
Gold g/tonne 1.82 1.52 1.70
Silver g/tonne 23.86 18.52 21.75
Lalor ore mined tonnes 421,518 390,140 388,483
Copper % 0.70 0.80 0.76
Zinc % 5.43 6.20 6.70
Gold g/tonne 2.27 2.63 1.68
Silver g/tonne 26.18 28.38 25.96
Flin Flon Concentrator:
Ore milled tonnes 332,589 374,529 289,244
Copper % 1.11 1.11 1.55
Zinc % 4.36 4.05 3.49
Gold g/tonne 1.88 1.75 1.66
Silver g/tonne 24.33 20.56 21.78
Copper recovery % 84.1 86.9 88.1
Zinc recovery % 85.0 85.8 82.9
Gold recovery % 53.5 56.1 61.8
Silver recovery % 44.3 49.2 52.3
Stall Concentrator:
Ore milled tonnes 369,787 310,622 321,523
Copper % 0.70 0.80 0.78
Zinc % 5.38 6.24 6.75
Gold g/tonne 2.28 2.60 1.75
Silver g/tonne 26.28 28.12 26.89
Copper recovery % 86.5 85.9 87.2
Zinc recovery % 91.4 90.7 90.7
Gold recovery % 60.9 61.1 59.1
Silver recovery % 61.1 62.9 64.2
Total contained metal in concentrate
Copper tonnes 5,345 5,763 6,129
Zinc tonnes 30,495 30,592 28,037
Gold ounces 27,293 27,705 20,205
Silver ounces 306,390 298,363 284,265
Precious metals^1^ ounces 30,736 31,967 24,266
Total payable metal sold
Copper tonnes 4,852 5,285 5,055
Zinc^2^ tonnes 26,792 28,001 22,954
Gold ounces 23,956 25,520 16,411
Silver ounces 214,331 242,584 230,647
Combined unit operating cost^3,4^ C$/tonne 127 128 146
Cash cost^4^ $/lb (0.30) (0.76) 0.77
Sustaining cash cost^4^ $/lb 2.85 2.33 3.16
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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.

Production from the Lalor mine and the Stall mill achieved record quarterly levels in the first quarter of 2020. The Manitoba operations produced 30,495 tonnes of zinc, 5,345 tonnes of copper and 30,736 ounces of precious metals during the quarter. Production results were slightly lower than the fourth quarter of 2019 primarily due to lower grades, offset by higher tonnes milled.

Ore mined at the Manitoba operations during the first quarter of 2020 increased by 6% compared to the previous quarter with production volumes at 777 and Lalor increasing by 4% and 8%, respectively. The higher production results are mainly due to record production at Lalor from the successful implementation of several 2019 initiatives as part of the production ramp up to 4,500 tonnes per day. Ore grades mined during the quarter are in line with the planned stope sequencing based on life of mine production schedules at 777 and Lalor.

Ore processed in Manitoba in the first quarter of 2020 was higher than the fourth quarter of 2019 due to a 19% increase in ore processed at the Stall mill, offset by lower ore processed at the Flin Flon mill. Recoveries at the Flin Flon mill were lower than in the fourth quarter of 2019, while recoveries at the Stall mill were relatively in line with the previous quarter.

Manitoba combined mine, mill and G&A unit operating costs continue to decline quarter-over-quarter as a result of the company's focus on operating efficiencies and costs normalizing after the successful production ramp up at the Lalor mine.

Manitoba's cash cost per pound of copper produced, net of by-product credits, for the first quarter of 2020 was negative $0.30. These costs were higher compared to the fourth quarter of 2019 primarily as a result of lower copper production despite the decrease in mining and milling costs. Manitoba's sustaining cash cost per pound of copper produced, net of by-product credits, in the first quarter of 2020 was $2.85, higher compared to the previous quarter due to the same factors that affected cash costs.

Full year production of all metals and combined unit operating costs are expected to be within the annual guidance ranges for Manitoba.

COVID-19 Business Update

Following the onset of the COVID-19 pandemic, the company's business response planning commenced in January and company-wide crisis plans were activated in early-March as part of its crisis management protocols. Throughout the rapidly changing environment, Hudbay has remained focused on the health and safety of its workforce and local communities and is actively engaging with local stakeholders and public health authorities to ensure effective implementation of the company's business response plans. The company continues to closely monitor the evolving situation and is taking steps to protect the safety of its workforce and their families and the communities it operates in, while implementing measures to minimize the overall impact on operations. Hudbay's business response plans include planning for the possible need to reduce or suspend operations and for the restart of suspended operations, as well as appropriately managing the company's liquidity. The overall impact on each of the sites will depend on the progression of the pandemic, measures in place for preventing transmission and on market conditions.

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In Peru, the government declared a state of emergency on March 15, 2020, requiring non-essential businesses to be shut down, initially for 15 days. On March 19, Hudbay commenced the temporary and orderly suspension of operations at Constancia. During the suspension period, a smaller workforce was maintained at the site to oversee critical aspects of the operation in order to facilitate a quick and efficient restart and ramp up of the mine. As part of its restart preparation activities, the company has performed mine plan optimization activities, continuous supply chain management to ensure sufficient levels of critical supplies, and logistics and workforce planning initiatives including successfully completing workforce shift changes during the suspension. The Peruvian government has since extended the state of emergency to May 24 but issued a decree on May 3 indicating larger mines would be allowed to reopen, including Constancia, subject to approval of certain protocols. On May 14, Hudbay received Peru's Ministry of Energy and Mines recognition and approval for its Constancia restart protocols and is planning to ramp up operations over the next week.

In Manitoba, Hudbay's mines continue to operate and ship concentrate and zinc metal. The company's focus is on maintaining business continuity and a safe environment for its workers and the communities in which it operates.

Each of the business units has worked to develop site-specific measures to limit and identify COVID-19 exposure and transmission and maintain a safe environment for its workers and its communities. Site-specific measures include, pre-screening protocols, quarantine periods for incoming workers, workplace physical distancing protocols, adjustment of work rotation schedules, deferral of certain project activity and working from home for office staff where possible. These measures will continue to evolve as the status of the state of emergency changes in each of the company's operating regions and the company's measures are adapted to the latest regional health authorities' restrictions and guidelines

In addition to the onsite response measures, the company has been providing COVID-19 relief funding and services to its neighbouring communities. Each region has different emergency needs at this critical time. In Peru, Hudbay has donated medical equipment and supplies to the regional hospitals and has delivered food to nearby communities in need. In Manitoba, the company has donated to charities that provide various forms of support to families in need. Hudbay is also pleased to have its valued partners join the company in these coordinated relief efforts, including the generous donations from Wheaton Precious Metals Corp. ("Wheaton") to various community initiatives in Peru and Manitoba and from Altius Minerals Corporation to a community service provider in Flin Flon, Manitoba.

Annual Guidance Update

The company is affirming its 2020 Manitoba production, operating cost and capital expenditure guidance. However, due to the temporary suspension of operations at Constancia and the ongoing uncertainty surrounding COVID-19, the company has suspended its previously issued 2020 annual guidance for the Peru business unit. Hudbay has continued to sell zinc metal and copper concentrate from the Manitoba operations, and concentrate sales in Peru continued as planned prior to the temporary suspension of operations on March 19, 2020.

In Peru, sustaining capital expenditures are currently tracking approximately $25 million lower than previously issued guidance due to the mine suspension and resequencing of capital activities such as tailings and capitalized stripping. The site team has taken the opportunity to complete additional mill maintenance work during the temporary shutdown that was previously planned for later in the year. Growth capital expenditures in Peru related to the Pampacancha community surface rights payment and project development capital have been impacted by the state of emergency. Constancia recently received approval for its restart protocols and mine restart activities are underway due to proactive ramp up planning. The mill is expected to reach normal levels over the next week. The company expects to provide an update to its Peru guidance with second quarter results.

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In Manitoba, 2020 precious metals production is expected to benefit from the planned mining of approximately 90,000 tonnes from the gold zones as part of stope sequencing in preparation for the restart of the New Britannia gold mill. Production and costs can vary in any particular quarter based on a variety of factors, including the scheduling of maintenance events. Hudbay expects to perform maintenance on the Stall concentrator during the second quarter of 2020 and on the Lalor mine hoist facilities in the third quarter of 2020.

Liquidity Update

Hudbay is prudently managing its business and the impact of the pandemic. This has resulted in approximately $150 million in incremental liquidity this year, including $115 million in cash proceeds received from a gold forward sale and prepay transaction, an approximate $25 million deferral in Peru's 2020 sustaining capital and company-wide discretionary and input cost reductions of approximately $10 million. In addition, the company's forecasted cash flows are also expected to benefit from the Canadian dollar cost structure of its Manitoba operations and the anticipated increase in cash flows from Lalor due to higher precious metals production expected this year based on the prevailing commodity prices and foreign exchange rates.

On February 12, 2020, Hudbay amended its credit facilities to provide the company with additional flexibility during the development of the New Britannia and Pampacancha projects. As a result of the re-negotiated terms, the company's availability under the credit facilities was $443 million higher as of March 31, 2020.

On April 20, 2020, Hudbay executed an amendment to its Constancia precious metals streaming agreement with Wheaton whereby both parties have agreed to extend the target date for mining four million tonnes of ore from the Pampacancha deposit, and the associated trigger for the delivery of additional gold ounces, by six months to June 30, 2021. This Pampacancha target date extension was agreed to by Wheaton in light of the current state of emergency in Peru and the potential for development timelines to be delayed.

On May 7, 2020, Hudbay announced a gold forward sale and prepay transaction which generated $115 million in cash proceeds to further improve its liquidity position and prefund the entire capital budget for the low-risk, high-return New Britannia gold mill refurbishment at attractive terms and low cost of capital. Under the prepay, Hudbay has agreed to deliver a total of 79,954 gold ounces in 2022 and 2023, which was valued at gold forward curve prices averaging approximately $1,682 per ounce at the time of the transaction. The transaction offered an attractive cost of capital of approximately 5.95% per annum using the average forward price per ounce, or an implied cost of capital of approximately 2.7% using current consensus gold prices for 2022 and 2023. The delivery ounces represent approximately 25% of Lalor's forecasted annual gold production in each of 2022 and 2023 and approximately 3.6% of total Snow Lake gold reserves. Under the revolving credit facilities and note indenture, the gold prepay arrangement will be treated as deferred revenue and will not be considered as debt. As a result, the gold prepay adds to Hudbay's cash balance and will be accretive to the company's credit facility availability under the recently renegotiated net debt to EBITDA covenants.

As of May 13, 2020, Hudbay's liquidity includes approximately $370 million in cash and cash equivalents and approximately $446 million in undrawn availability under its revolving credit facilities.

New Britannia Refurbishment Activities Underway

The New Britannia gold mill refurbishment activities are underway with detailed engineering approximately 60% complete and timelines on track with the original project schedule. Orders have been placed for long-lead items and early works construction has commenced, including the construction of the pipeline between the New Britannia and Stall mills. The civil contractor for the flotation building has been mobilized and construction is expected to commence next week. Construction and refurbishment activities are expected to continue until August 2021, with plant commissioning and ramp up occurring during the second half of 2021. Hudbay intends to use local construction contractors from the Manitoba and Saskatchewan regions as much as possible in order to mitigate any potential risks due to COVID-19 considerations.

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Increased Snow Lake Gold Reserves and Revised Mine Plan

On March 30, 2020, Hudbay announced its annual reserve and resource update, which included a 35% increase in Snow Lake gold reserves to 2.2 million ounces and extended the mine life to 18 years. The company also released an updated mine plan for its Lalor mine that increased life-of-mine gold production by 41% compared to the previous mine plan, and more than doubled the expected average annual gold production to more than 150,000 ounces over the first eight years after the New Britannia mill is refurbished. Lalor's gold and copper-gold zones are expected to be processed at the nearby New Britannia gold mill in Snow Lake, which capitalizes on existing infrastructure, and the $115 million refurbishment cost is a short-payback, high-return investment opportunity. The New Britannia gold mill is expected to achieve gold recoveries of approximately 93% compared to current gold recoveries of approximately 53% at the Stall mill, which enables increased reserves and increases the potential for future conversion of resources to reserves due to the significantly higher gold recoveries and increased value per tonne of ore. Based on the updated reserve, Lalor will remain a low-cost gold mine with expected cash costs and sustaining cash costs, net of by-product credits, of approximately $480 and $655 per ounce, respectively, over the first eight years once New Britannia is in production, positioning Lalor in the lowest quartile on the global cost curves^[ii]^.

The updated resource model at Lalor includes 4.4 million tonnes of inferred mineral resources, which have the potential to extend the Lalor mine life. A new copper-gold rich lens, Lens 17, was included in the updated inferred mineral resource estimate for Lalor. Lens 17 and other lenses at Lalor, including the copper-gold rich Lens 27, remain open down plunge and offer opportunities to further expand Lalor's resource base once suitable underground drilling platforms have been established over the next two years.

The 1901 deposit is located approximately half-way between the former Chisel North mine and the Lalor mine at a depth between 500 metres and 700 metres, within 1,000 metres of the existing haulage ramp to Lalor. The 1901 deposit could provide additional feed for the processing facilities in Snow Lake. Since publishing the initial inferred resource estimate in August 2019, the company has considered various options to develop the 1901 deposit and has completed a drill program aimed at converting a significant portion of the inferred mineral resources to an indicated category and to define an initial inferred mineral resource for the gold mineralization previously intersected between two lenses of zinc-rich mineralization. Hudbay intends to provide an update on the mineral resource estimates and development options for the 1901 deposit with its annual reserve and resource update in March 2021.

In 2020 and 2021, additional technical studies and exploration activities will be conducted to consider if and how the Lalor in-mine exploration targets and the regional gold and base metal satellite deposits could be incorporated in the consolidated business plan of the Snow Lake operations.

Non-IFRS Financial Performance Measures

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 operating costs are shown because the measures are used by the company as a key performance indicator to assess the performance of its mining and milling operations. These measures do not have a meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures should not be considered in isolation or as a substitute for measures prepared in accordance with IFRS and are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently. For further details on these measures, including reconciliations to the most comparable IFRS measures, please refer to page 32 of Hudbay's management's discussion and analysis for the three months ended March 31, 2020 available on SEDAR at www.sedar.com.

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Website Links

Hudbay:

www.hudbay.com

Management's Discussion and Analysis:

http://www.hudbayminerals.com/files/doc_financials/2020/Q1/MDA201.pdf

Financial Statements:

http://www.hudbayminerals.com/files/doc_financials/2020/Q1/FS201.pdf

Conference Call and Webcast

Date: Friday, May 15, 2020
Time: 9:00 a.m. ET
Webcast: http://services.choruscall.ca/links/hudbay20200515.html
Dial in: 1-416-915-3239 or 1-800-319-4610

Qualified Person

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.

TSX, NYSE - HBM<br><br> <br>2020 No. 10

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 the company's operations, financial condition and prospects, expectations regarding the company's credit facility availability and liquidity, expectations regarding the restart of operations at Constancia, expectations regarding the timing of mining activities at the Pampacancha deposit, the anticipated timing, cost and benefits of developing the Rosemont project and the outcome of litigation challenging Rosemont's permits, expectations regarding the Lalor gold strategy, including the refurbishment of the New Britannia mill, the possibility of converting inferred mineral resource estimates to higher confidence categories, the potential and anticipated plans for advancing the mining properties surrounding Constancia and the Mason project, anticipated mine plans, anticipated metals prices and the anticipated sensitivity of the company's financial performance to metals prices, events that may affect its 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 identified and were applied by the company in drawing conclusions or making forecasts or projections set out in the forward-looking information include, but are not limited to:

• the duration of the state of emergency in Peru and the ability to resume operations at Constancia;

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

• the availability of spending reductions and liquidity options;

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

• the timing of the Consulta Previa and permitting process for mining 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 success of mining, processing, exploration and development activities;

• the scheduled maintenance and availability of the processing facilities;

• the accuracy of geological, mining and metallurgical estimates;

• anticipated metals prices and the costs of production;

• the supply and demand for metals the company 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 the company's business and growth strategies, including the success of its strategic investments and initiatives;

• the availability of the revolving credit facilities and 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 its projects;

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

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

• maintaining good relations with the labour unions that represent certain of the company's employees in Manitoba and Peru;

TSX, NYSE - HBM<br><br> <br>2020 No. 10

• maintaining good relations with the communities in which the company operates, including the neighbouring Indigenous communities;

• no significant unanticipated challenges with stakeholders at Hudbay's various projects;

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

• no contests over title to the company'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 state of emergency and political situation in Peru and risks associated with the resumption of operations at Constancia, risks associated with the company's access to capital, including the negative impact of low metal prices on credit facility availability, 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 the company's projects (including risks associated with the litigation affecting the Rosemont project), 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, the Consulta Previa process, risks associated with reaching additional agreements with individual community members and risks associated with the rainy season in Peru 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 reserves, volatile financial markets that may affect the 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, the company's ability to comply with its pension and other post-retirement obligations, the company's ability to abide by the covenants in its debt instruments and other material contracts, tax refunds, hedging transactions, as well as the risks discussed under the heading "Risk Factors" in the company's 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. 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.

TSX, NYSE - HBM<br><br> <br>2020 No. 10

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.

For further information, please contact:

Candace Brûlé

Director, Investor Relations

(416) 814-4387

[email protected]

^___________________________________________i^ Unit operating costs, cash cost, sustaining 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. ^ii^ Based on S&P Global's 2020 all-in sustaining cost curve.

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