Please standby. Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Hudbay Minerals Incorporated First Quarter 2018 Conference Call. At this point, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at the time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference is recorded, May 3, 2018. I will now turn the conference over to Ms. Carla Nawrocki. Please go ahead ma'am.

Thank you, operator. Good morning, and welcome to Hudbay's 2018 first 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 presenters today are Alan Hair, Hudbay's President and Chief Executive Officer; and Cashel Meagher, our Senior Vice President and Chief Operating Officer. Accompanying them for the Q&A portion of the call will be David Bryson, Senior Vice President and Chief Financial Officer. 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 US dollars unless otherwise noted. And now, I'll pass the call over to Alan Hair.

Thanks, Carla. Good morning, everyone. Our business continues to perform well, generating solid free cash flow to fund debt reduction and growth opportunities. We generated operating cash flow before changes in non-cash working capital of $132 million in the first quarter, a 64% increase in the first quarter of 2017. We've adjusted our net debt position by $38 million from end of the year to $585 million at the end of the first quarter. Our total liquidity, including cash and available credit facilities was $810 million, up from $778 million at the end of last year. Our operations continue to perform well. After confirming a positive grade bias at Constancia last year, we filed a new technical report and mine plan in late March. The updated mine plan shows an increase to the total metal contained and the estimated mineral reserves and an anticipated production increase of 25% from years 2022 to 2025. In Manitoba, we are focused on completing the ramp-up of base metal ore production at Lalor mine and beginning production from the gold zone, both of these initiatives progressed during the first quarter. Cashel will be providing a more detailed update on the Lalor Gold Zone later in the call. And at Rosemont, we are continuing to progress through the final stage of the permitting process. Taking a closer look at the first quarter results, consolidated production of all metals decreased from the fourth quarter 2017, reflecting lower mine grades in both Peru and Manitoba in accordance with the various mine plans. Consolidated cash cost, net of byproducts increased from $0.77 per pound of copper in the fourth quarter of 2017 to $0.98 as a result of lower copper reduction and lower zinc byproduct credits. Consolidated all-in same cash cost, net of byproducts was $1.45 per pound…

Thanks, Alan. The Lalor mine is a classic polymetallic BMS deposit, and early exploration activities discovered significant gold and copper gold zones at depth. These zones are believed to be the plumbing system that fed the subaqueous zinc portion of the deposit. As mining took place in the initial years, from the top of the deposit, the focus was on base metal high grade zinc production. As we develop the mine, we established key infrastructure to further enable a production ramp-up of the base metal ore. We're now in a position to focus our attention to delineate and confirm the mineability [ph] of the gold and copper gold zones at depth. The 2017 mining test targeted the gold mineralization in the mineral resource envelope, 6,000 tonne bulk sample of gold ore, was systematically blended with Lalor base metal ore and processed in the Flin Flon mill, achieving 65% recovery of gold to copper concentrate. Test mining is underway in the gold mineralization on two levels; the 975 meters level and the 995 meters level. To test continuity and gain knowledge and understanding of the gold ore grade indicators within the mineral envelope. Results to date show good grade continuity on a round by round basis. The first 4,510 tonnes average 14.5 grams per tonne gold, when geologically directed utilizing selective mining methods. This test mining was designed to target the high grade portion of a lower grade mineral resource. In this process, we are evaluating the geometry of the mineralization and therefore, the appropriate mining method to provide the best return and highest recovery of extraction of the gold for future mine plants. This process will also help to establish the conversion ratio of resource to a higher grade reserve. The continuity of high grade gold is supporting the decision…

Thanks, Cashel. As we look towards the balance of 2018, we will continue to focus on driving efficiencies in our operations, to generate free cash flow and increased net asset value. From a growth perspective, we remain committed to advancing the existing opportunities in our pipeline, such as the completion of the paste plant and continue to ramp-up production of Lalor and moving Rosemont through the permitting process into development. With that, we are pleased to take your questions.

[Operator Instructions] We will take our first question from Matt Murphy.

Cashel, thanks for the color on the Lalor Gold Zone. A couple of questions. One, the language on the New Britannia mill as keeping an option open, sounds like it's not the base case to go forward with the New Brit mill. Or I'm I hearing that wrong?

I think, the way - Matt, the way we'd categorize this is there requires a certain volume of ore to merit the refurbishment and restart of the New Britannia operations. And currently we have milling capacity in Flin Flon. So in the immediate future, it behooves us to put capital towards the refurbishment of the New Brit because the return on the recovery of the gold ores we have available capacity in the Flin Flon mill exceeds that in an economic sort of trade-off. What I would say is if - and we hope to be in the position that our continued exploration success and our continued evaluation of the conversion of the resource for the reserve would put us in a position in the future to merit that capital to open New Britannia. So we're leaving that option open. And it's going to take a couple years regardless, for the permitting process to reopen that facility. So we're undergoing and we're putting capital towards the permitting process to reopen that facility with the aim of increasing the available reserves of gold only material.

Okay. Then the trade-off between a long haul approach and a cut and fill approach have a bearing on where you go with the ore? As in, if you had a high grade, smaller volume, you'd be more likely to go to Flin Flon and if you're having to do a little more [indiscernible] you'd go to New Brit. Or is that totally independent?

No, they're independent. The decision on the mining method will have, principally, to do with the continuity and mineralization and the orientation of mineralization. So it's more favorable, of course, from a cost perspective to go to long haul. But if the ore appears to be of a shallow in depth or nature, then the top or bottom sill may not align to accommodate that. In this principle test area, we'll probably be in a position later this year to know what we'll do with it. But this one high grade area may not be the same orientation as the other ones.

Right. Okay. Thanks a lot.

And we'll take our next question from Greg Barnes.

Cashel, just so I understand, you've got 6,000 tonnes per day capacity in the shaft, you're doing 4,500 tonnes a day out of the base metal zone, I assume that leaves about 1,500 tonnes of gold. How much milling capacity do have in Flin Flon, that excess milling capacity?

We can handle that excess capacity in Flin Flon.

1,500?

But I don't want you to necessarily assume that, that 1,500 tonnes is what we can achieve out of the gold zone yet. We need to - some work yet to do. So I'm just pointing out the fact that we have milling capacity in excess of our hoisting capacity and that we don't require further capital overall to access either the gold zone or the copper gold zone and bring them in to the mine plan. And that leaves the possibility, of course, open to expanding the production out of Lalor.

And just so I understand on the mining, you could use a combination of cut and fill and long haul, I assume, depending on which zone you're in.

Absolutely. And I'll just add, we will commission, in a couple of months, the paste fill plants and that will really help with that flexibility.

Greg. This is Alan. Just so as you understand, I mean, if you look historically, the Flin Flon concentrator in the past treated as much as 2.2 million tonnes per annum, give you a feel for the capacity available.

And what are you doing now?

Well that is going to change the closure of Reed, is going to drop to about 1.6.

Okay, great. Thank you.

We'll take our next question from Stefan Ioannou.

Just curious on the zinc side of things. Did you manage to refine all your own zinc? Or were you sending some of concentrate elsewhere this past quarter?

Stefan, its David. We sold a very small amount of zinc. But at this point, we've drawn down our stocks. We have a little bit of inventory left. But we think we're in pretty good place with respect to zinc concentrate inventories.

Okay. Great. And just, with stockpile issues, I guess, during - with the cold weather, was it just basically frozen? Or was there anything more to it than that?

No. Basically, it was frozen. Because a lot of the higher grade ores has a finer muck, it has a higher moisture content when it comes out of the mine and when it goes to ground at Flin Flon, because we were batching it separately to Reed and 777, it froze and then that created the rehandling problems.

Appreciated. Okay, great. Thanks very much guys.

We'll take our next question from Alex Terentiew.

Just some follow-up questions on Lalor here. So timing of these gold tonnes, I appreciate there's still a lot of work to do. But the current mine plan, I believe, already has cause for higher copper gold grades kind of into 2020, 2021. And these tonnes, are these kind of maybe 2021 and beyond that you could first see some gold tonnes? And also related to that, just the timing of a resource reserve update on the gold zone?

Alex, I think, the way we look at it is we continue to mine in the gold zone. And the more we learn, the more we'll understand what the availability is. We do have in the mine plan starting next year, as you pointed out, the increase in copper gold, and that's principally coming from Zone 27, which is the copper gold zone. And we expect to convert more of that resource to reserve as we carry on with the mining. With respect to any sort of disclosure on our 43-101 or something updating the gold, it's going to be sometime before we're in a position to be able to understand fully that conversion ratio. So in the meantime, I think what you can see is us giving sort of short-term outlooks of what we expect year-over-year until we're in the position where we have the confidence of the conversion ratio from diamond drill to a production scenario. I don't have to point out the fact that several of our peers in the recent past have made the mistake of jumping to production assumptions from diamond drill data without having done the test mining beforehand.

Okay. I understand. And then maybe just jumping over to Pampacancha Constancia. So surface rights access delayed to that pit. What gives you confidence - I know you guys are working on this, it seems like some progress is being made, your confidence that in 2019, you're going to be able to resolve any sort of outstanding issues at that deposit. What gives you confidence you can start mining there next year?

So with the 43-101, we've delayed it a year and it was more of a convenience. It's easier with the mine planning process to move things sort of the one-year out. All our efforts remain at Constancia on Pampacancha. There's continued negotiations with the communities. We feel, although, we sort of met the sort of due date to get production into 2018 and that's gone by and that's why we elected to push it out one year. We believe we're in a position to produce in Pampacancha in 2019. So all efforts are there, we've put in dewatering holes. We have some infrastructure built over towards there. Community negotiations, I would characterize as monetary negotiations, not mining negotiations.

Okay. And some of the other deposits or the claims that you have recently acquired around Constancia, are starting to factor into your longer term plans there a little bit more?

Yes, they would need to go through a round of exploration, of course, in discovery. They've got great potential. We're in active negotiations with those communities presently. So we expect, I'd guess, within the year or early next year or mid-next year, but a year from now, we'd be in a position where we would be doing some sort of active exploration on those tenements.

Great. Thanks.

We'll take our next question from Orest Wowkodaw.

Just wondering if we could focus on Constancia a little bit. I was again surprised to see how strong the copper grade was there at 0.50. Your tech report that just came out a month or two ago was, I believe, calling for a 0.42 average grade for the year. So I guess, my question is, should we be expecting the grade to just fall of a cliff one of these quarters to get to that average? Or is it going to more of a slower grind down that, actually could end up above that technical report grade?

I hope not. The way I'd characterize it is - best practices states that a probable reserve, a good estimation is within plus or minus 15% over a year and plus or minus 15% over quarter. Because this reserve has been reconciled against the recent block model, and there's only, what we would call three months of production. Statistically, I don't think it's representative to say that the long-term mine plan or mine reserve as stated is incorrect. We need much more production to be able to measure against this current mine plan. I think things will tend towards the mean. What specifically happened in the first quarter is they encountered more high grade ore than what was in the model for that. We could expect, maybe if the model is good, for it to go also the other way. But I think, probably we will tend towards the mean grade as guided for the year. And maybe this aberration in the first quarter, it was a unexpected bonus that probably won't persist. But I don't anticipate will drop off the cliff to meet the mean, but will tend back towards it.

Okay. I appreciate the color on that. And how about on recoveries, I mean, still below 81% there in the first quarter. Is that kind of a good run rate for this year? Obviously, you're making some improvements that will help you down the road. But is Q1 representative of what we should anticipate this year?

No, I think, we'll trend up a couple of points to where we have guided before. A part of that recovery is due to some of this higher grade nature, a little more mixed transition zone, which was a little bit higher grade and, therefore, also contained a little more oxide, which depressed by a point or two the recovery. So I still feel the guidance is appropriate.

Okay, thanks Cashel.

We'll take our next question from Oscar Cabrera.

Can we please get back to Lalor? When do you guys think that you'll be in a position to provide us with what that Lalor Gold Zone is going to look like? Your initial comments said that you need a couple of years to permit the New Britannia mill and where I'm going with this is, I think, we had built expectations for Pampacancha and then the project was delayed for the year. So I understand that the current technical report for Lalor does include the gold zone, but how do we think about this?

I think the way we characterize it this year is we've sort of planned to mine within these headings to test mine a certain amount of it, so we can predict the tonnage we might be taking out. What has been a pleasant surprise to us is the grade. So for us, to be able to predict the grade going forward, we require much more information. We could predict what the capability or what the mine is capable in tonnages, but the grade is actually more important in this case. So we won't be in a position to offer long-term guidance on what we can recover from the gold zones for a few years. And I anticipate beyond that, we would never have more than a few years' reserve, but we might be able to then be in a position, in a couple years, to be able to understand better the conversion ratio of the resource we have to the reserve to give some sort of guidance towards what is the tonnage available. So although we discovered this gold zone from surface several years ago, we're only now in a position of learning about it. So there's still a process ahead of us. I'd love to be able to tell you exactly what it is. But each day, we find out more and more. So I still think for you to have proper guidance on what the sustained production of the gold zone is, we're still a couple of years off.

A couple years. Okay. So that's a great start. And then when you looking at your trade-off studies, what sort of hurdle rates are you using?

This is internal project, so it would meet a different hurdle rate than what we would do for an external greenfields project. So what we would look at is the optionality after a breakeven proposition to be able to achieve a greater return. So that is kind of the systematic process that has historically been used in gold mines, where you achieve enough of a reserve to get to a breakeven proposition versus your trade-off and then the upside is your exploration potential. So that sort of the way we would look at this particular one.

Okay, Cashel. Thank you.

And we'll take our next question from Paul Cleary [ph].

So I'm just looking at the timing of upholding the permit that you expect on Rosemont. I mean, if you just maybe give me some color on the timing of that, whatever time it is this year. And then just the impact that might have on the CapEx spend and the production zones at Rosemont, just given where copper prices are now and the mine plan that you've laid out there?

Paul, its David Bryson. We are continuing to see the permit move forward and we're seeing constructive progress on that. But I think, at this point, I don't think we want to sort of set a particular end date for when we expect the permit to be granted. We want to let the permitting agencies do their work and let good signs prevail. Once the permits are granted, then given where we're at with the current metal price environment and capital markets environment, then I think that we will be in very good position to proceed with funding and sanctioning Rosemont. And it's an excellent project in a low political risk environment, other than that last permit, ready to go. And so we think that it's ready to move ahead and we look forward to it.

Okay, thank you.

[Operator Instructions] We'll take Orest Wowkodaw.

It's Orest with a follow-up. Just one more question for me. The costs in Manitoba were horrendously high in the first quarter at $138 a tonne. I mean, that's way above the guidance range for the year. What gives you any confidence that you still can get within the annual guidance range, and whether we should anticipate a significant decrease as early as Q2?

Orest, look, understood that was well above the guidance range. I think with Q1, we had several factors. Sort of not lose sight of the point that we're still doing a lot of work underground with Lalor to ramp up to 4,500 tonnes per day. So that's affecting both the numerator, and eventually we should see some benefits in the denominator as we ramp up the ore throughput rates. We did have unusually cold weather in the first quarter that was impacting - causing some of the ore rehandling. And so we do believe, based on the forecasts that we have, that we can bring full year Manitoba costs into the guidance range. But we still have some work in front of us get that - get to that place over the full year.

Okay. David, just a counter question for you. This change around the stream, can you kind of layout how that's going to work moving forward? So does that mean your revenue is going to be higher moving forward, offset with higher finance costs to some extent?

Yes, let me walk you through that, Orest. So as folks may assume from the disclosure, with the new IFRS 15 revenue standard, one of the significant changes for us and for others who have streams in place is that, there is the inclusion now of the significant financing component. And what ends up happening when you first put a stream in place is that you start accruing non-cash interest on that from day one that builds up the deferred revenue balance over time. Then when you start delivering gold and silver into the stream, you then have higher revenue that partially offsets that higher interest, but it depends on where you're at in the stream on the net impact. When we look at the impact in 2017, and I think that 2018 will be representative, although, I'll talk about Q1 in a moment. But over the four quarters of 2017, in each of those quarters we had about an additional $10 million of revenue. We had about an additional $1 million of depreciation and had an extra $17 million of finance expense in those quarters. Now the revenue number is going to vary a bit depending on how many units of gold and silver we deliver in a given quarter. And in Q1 of 2018, we had unusually high silver production. And so we did draw down faster on the deferred revenue in the first quarter of 2018, but we don't see that necessarily continuing every quarter. So sort of net-net, the other point is that the - there's not much of a tax impact. Even though all of this is noncash, the tax adjustment that we book is fairly minor because most of this relates to Peru, which is an offshore stream. So the net impact on an EPS basis in 2017 was about $0.03 a quarter for each of the four quarters. And Q1 was only about $0.01 impact as we disclosed in the table that we put at the front of the MD&A and press release. But we think on a more normalized basis through 2018, it's probably going to be closer about $0.03 a quarter, just based on the revenue, depreciation and finance expense impacts that I mentioned.

Okay. And is that $0.03 a quarter positive or negative?

Negative.

Negative. Okay. Thanks David.

We'll take the next question from Pierre Vaillancourt.

I may have missed this because I was late to the call. But from Pampacancha, what is your best estimate of when you can start mining operations there?

Cashel here. We anticipate with the way things are going, that we'll be starting operations in 2019.

Yes. I know that, I'm just saying, can you be more specific about that?

We're in negotiations with the community. We feel we're near the end of it. It's how long is the string when we talk about some of these. So we hope to be there in the first half of 2019.

Okay, thanks.

And there are no current questions. I'll turn it back over to Carla.

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.

That concludes today's call. Thank you for your participation. You may now disconnect.