Candace Brule - Investor Relations Alan Hair - President, Chief Executive Officer Cashel Meagher - Senior Vice President, Chief Operating Officer David Bryson - Senior Vice President, Chief Financial Officer

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the HudBay Minerals, Inc. Q3 2016 Conference Call. [Operator Instructions] Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, Thursday, November 3, 2016, at 10 AM Eastern time. I will now turn the conference over to Ms. Candace Brule. Please go ahead.

Thank you, operator. Good morning, and welcome to HudBay's 2016 third quarter results conference call. HudBay's financial results were issued yesterday and are available on our website at www.HudBay.com. A corresponding PowerPoint presentation is also available and we encourage you to refer to it during this call. Our presenter today is Alan Hair, HudBay's President and Chief Executive Officer. Accompanying Alan for the Q&A portion of the call will be David Bryson, our Senior Vice President and Chief Financial Officer; Cashel Meagher, our Senior Vice President and Chief Operating Officer; Eric Caba, our Vice President of the South America business unit; Andre Lauzon, our Vice President of the Manitoba business unit; and Pat Merrin, our Vice President of the Arizona business unit. Please note that comments made on today's call may contain forward-looking information. And this information by its nature is subject to risks and uncertainties, and as such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the Company's relevant filings on SEDAR and EDGAR. These documents are also available on our website. As a reminder, all amounts discussed on today's call are in U.S. dollars unless otherwise noted. And now, I'll pass the call over to Alan Hair. Alan?

Thanks, Candace. Good morning, everyone. And I'd like to begin by taking this opportunity to welcome Andre Lauzon to the HudBay team. We are very pleased to have someone of Andre's caliber to run our Manitoba business. Moving on to the quarter strong operating performance, together with the cost efficiencies achieved at our operations, enabled us to generate increased operating cash flow and earnings during the third quarter. These solid results led to record consolidated copper equivalent production this quarter, in addition to continued low cash costs in both Peru and Manitoba. Production of all metals increased quarter over quarter, with a notable 19% increase in zinc production. Consolidated cash costs net of byproduct credits was $0.91 per pound of copper produced and consolidated all in sustaining cash costs net of byproduct credits was $1.46 per pound of copper produced, supporting solid cash flow generation in a weak metal price environment. Net profits and earnings per share rose to $34 million and $0.14 respectively compared to net loss and loss per share of $6 million and $0.02 respectively last quarter. Similarly, operating cash flow before change in noncash working capital increased to $124 million or $0.53 per share from $75 million or $0.32 per share in the second quarter of 2016. These increases were because of higher sales volumes, slightly higher copper and zinc realized sales prices and ongoing cost optimization initiatives at all sites. As at September the 30th, we had total liquidity of approximately $277 million net of the semiannual bond interest payment at the end of the quarter. Our results this quarter have enabled us to remain on track to meet the production and operating cost targets established earlier this year. In Manitoba, we are tracking to be within our guidance ranges for all the metals produced,…

Thank you. [Operator Instructions] We will go first to Matt Murphy.

I had a question. It looks like a good quarter for sales at Constancia. Just wondering though, given all the news on Las Bambas and the events there, if there's any sort of local color you could provide us, what you're seeing on the ground, or if you're unaffected?

Matt, at this stage, we've been unaffected by what's happened at Las Bambas.

Okay. Okay. And then just one on the 777 zinc reserve grade. So I'm just wondering you've been under the zinc reserve grade for some time and now, we've got the first quarter in a little while with higher grades. Just wondering if this is something we should be thinking about being consistent going forward, or will it still be somewhat variable?

Matt, Cashel here. Yes, in the 777 mine, zone 30 is considerably higher grade and there's the proportion of tonnage in the future plans for the remaining years. More will be mined out of zone 30 so we can expect the zinc grade to go up versus what we have done earlier. So yes is the answer.

And we next to Matthew Fields.

Just wanted you to elaborate on sort of your sources of future growth. Can you just remind us all like what's the CapEx and sort of timing associated with these initiatives, the New Brittania mill refurbishment, the Pampacancha expansion? What's the latest timing and scope of the CapEx on that? And then we can forget about Rosemont for a while, but are those the two main kind of bogies and sort of what's the spend and timing to get there?

I don't know if you'd use the term bogies, but we're looking at within Snow Lake, the CapEx will be mainly on the pace backfill plants in 2017 with the upgrades to the process facilities more likely to be in 2018. But we'll be providing full detail in the technical reports in the first quarter of next year. Pampacancha, our current view is that we'll be looking to incorporate that into the mine plant by the end of 2018, given that metal prices respond the way we expect them to. And again, we'd see the majority of that capital expenditure being in early 2018 as well. But again, we're going to have the technical report out shortly, which will give the detail around that.

And New Brittania is supposed to be about 120 of CapEx and Pampacancha is 100, low 100s as well?

I think Pampacancha, because of that, I know a two-faced approach to the mine plant changes the treatment of deferred stripping and things. so the actual upfront CapEx, which should be significantly lower for Pampacancha, as I say, that will be provided shortly in the technical report. We're still working a number of options on our Snow Lake processing. As we've indicated, we're now seeing the potential for further relatively low CapEx ability to [expand] our zinc production there. And again, we'll provide close-in guidance with the technical report next quarter.

And we go next to Orest Wowkodaw.

It's Orest with Scotia. Similar to Matt's question about grades, but this time at Constancia, I've been surprised that you've been able to maintain the copper grade around that .62 level. Clearly, it has to fall, as you move through the high grade and I'm just wondering if t; trajectory that you now see is actually just a bit more flattish than we previously would've expected. And curious on what you think the average grade might be in 2017, given it looks we're coming into about close to a .6 grade for this year.

Orest, Cashel here. And not to give up all the answers, as Alan said, we're going to put out a tech report shortly that'll give some more clarity as to our learnings, since we've constructed and been mining Constancia. But I'd say in short term sort of described before, the drill spacing at the top of the deposit was somewhat problematic. And also there was some conservatism in the generation of the mineral wire frames. So with that, while we continue to mine through some of the super gene phase, we see this sort of copper total enrichment, both in the sulfide and the soluble copper components. So I think we'll see a little bit of it, but not to the extent or proportion we've seen in the past simply because the mine is getting deeper. So we believe we'll continue to trend toward reserve grade and there will be a drop off in grade next year. And as I said and shortly coming will be the tech report that'll disclose the detail on that.

But is the drop off next year, how significant is it? I'm currently using a .4 grade, which is obviously way below the .6 this year. Is it potentially something closer to .5?

No, I don't think you're far off with the .4 grade. That was the previous tech report. We haven't put more drill holes into the deposit. There are some areas we're treating a little bit differently relative to some of the reconciliation processes we've undertaken now that we've been milling these various ore types. So I don't, we don't think you're way off, but again, I'll sort of express we're still in a phase of super gene, a little bit of super gene next year in phase two. So there might be some benefit there that we haven't necessarily baked in. But more of this will become more clear when we publish our tech report.

Okay. And that tech report again that you're saying that would come out in December?

Yes, before the end of the year.

Okay. Thank you.

We will go next to Greg Barnes.

Cashel, just to belabor the point a little bit then, what percentage of supergene ore next year this is primary roughly?

So off the top of my head, I don't have the proportion of supergene. However, it's nothing like what we've experienced in the past two years, so it's much lower. So the proportion of hypogenes going up as such, we're forecasting a little higher recovery obviously, because with the lower proportion of oxide or soluble copper, then there would be more treatment of primary sulfide. Therefore, a little higher recoveries, but as we know, a little lower grade. So like I said, the tech report will have more clarity on that on what we expect as proportions by ore type.

Great. Thanks, Cashel. Just a second question David Bryson, there's still a lot of focus on the balance sheet, the maturities coming up in 2019 and 2020. How do you see they handling that situation?

Greg, it's David. Clearly, we've got quite a bit of time before those maturities come up. It's just under four years for the main bond maturity. But having said that, we've certainly seen a dramatic recovery in the high yield market with our bonds now trading meaningfully above par. So that's very encouraging and our bonds became callable on October 1, so we're monitoring opportunities and going to see where that goes. But refinancing is certainly something that we're thinking about.

And the line of credit?

I think that the first thing that we'd want to do, if the opportunity presents itself, would be to look at a refinancing of the bonds. Once the bond maturity is pushed out, then discussions around the maturity of the revolver become very easy and we would love to do some work on the revolver, which would be structurally beneficial to both the bond holders and the banks in a way that I think we could have very much of a win win negotiation with the banks on improving some of the terms in our favor, and pushing out the maturity.

[indiscernible] dream sale on Lalor to fund some of the upcoming projects?

The way that Cashel and the team have been sequencing the growth initiatives, we don't think that we're going to have a lot of growth CapEx required in 2017. And as things look right now, at current metal prices, it looks like the business should be in a position to fund any growth spending in 2017 out of cash flow from our existing business without needing to draw on our liquidity or enter into a gold stream transaction. So our focus right now is on completing the work on Lalor, getting the technical report done. And we're going to monitor the environment in 2017 and see how things go in terms of funding potentially into 2018. But right now, we're feeling no pressure to execute a gold stream transaction.

All right. Thanks, David.

[Operator Instructions] Next question comes from Stefan Ioannou.

I hope my question has been anwered, but I'm just wondering, just looking at the credit facility, I noticed the letters of credit underpinning it have gone from sort of $36 million to over $100 million over the quarter. Could you just give us a little color on that?

Yes, what we had was $62 million of letters of credit in Peru that were collateralized by cash, Stefan. During the quarter, in order to reduce our interest costs, we were able to use the new credit facilities we put in place earlier this year. And we reissued those LCs as ones back to buy the credit facility, released the restricted cash and used that cash to repay indebtedness. And so we ended up repaying indebtedness of about $80 million under the facilities but as you pointed out, the LCs went up by $62 million.

Okay. Okay. Got it; got it. And just maybe one other question -- I know at the end of Q2, you had a bit of a concentrate buildup at the port in Peru (inaudible) the ocean salt and stuff. And that got sold obviously early in Q3. Have you guys sort of fully caught up with getting your concentrate sales out the door? And obviously, with the big port expansion that went on there through I guess Q2 and into Q3, is that running smoothly now in terms of their logistics at the port?

Yes, absolutely. Things have been working really well at the port. To be honest, the issue at the end of June were ocean swells across the whole South American coast. You saw a number of producers out of Chile also experiencing sales backups at the end of June. So really, other than that, there's been no port issues at all in 2016.

Okay, great. Thanks very much, guys.

Okay, and we will take a follow up question from Orest Wowkodaw.

Sorry, just a clarification. David, did I hear you say that you expect to be essentially free cash flow neutral or better in 2017 at current metal pricing?

We're working through our budget process right now, Orest. And obviously, that's going to be a function of where we land with respect to the timing of growth CapEx, but I think with the Lalor pace plant, we're definitely: going to want to go ahead with next year. But spending on New Britt, spending on Pampacancha, we probably don't need to put a lot of capital into that in 2017. So I think sort of at metal prices where they are at this point, yes, I do think that the business is capable of being in that position. I don't think it's going to generate a lot of excess cash flow after we fund the growth, but I also, for that reason, don't think that we need to rush out and do a stream transaction either.

Okay, great. Thank you.

And that will conclude our question and answer session. I'd like to turn the conference back over to Ms. Brule for any additional or closing remarks.

Thank you, operator, and thank you, everyone, for participating. Please feel free to reach out to our Investor Relations team if you have any further questions.

And that does conclude today's conference. We thank you for your participation. You may now disconnect.