Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Hudbay Minerals Inc. Second Quarter 2022 Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, August 09, 2022, at 8:30 A.M. Eastern Time. I would now turn the conference over to Candace Brule, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Hudbay's 2022 second 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 available, and we encourage you to refer to it during this call. Our presenter today is Peter Kukielski, Hudbay's President and Chief Executive Officer; Accompanying Peter for the Q&A portion of the call will be Steve Douglas, our Senior Vice President and Chief Financial Officer; André Lauzon, our Senior Vice President and Chief Operating Officer; and Eugene Lee, our Senior Vice President, Corporate Development and Strategy. 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 Peter Kukielski. Peter?

Thank you, Candace. Good morning, everyone, and thanks for joining us. Over the quarter, we’ve seen a volatile commodity markets and continued inflationary pressures that have affected industries across the globe. At Hudbay, we continue to focus on operating efficiencies and effective risk management systems in order to mitigate these forces. As you’ve seen in today’s presentation, we had a strong operating quarter with unit operating costs within guidance expectations and our consolidated cash costs benefit from our commodity diversification with higher gold byproduct credits. As a result, we have reaffirmed our 2022 production and cost guidance. Beginning on Slide 3, we achieved a solid operational quarter setting us up for a strong second half of the year. Our consolidated copper production in the quarter was 25.7k tonnes in line with our expected quarterly cadence and 4% higher than in the first quarter. Consolidated gold production increased 9%, another record for Hudbay due to higher gold grades improve and higher outputs at New Britannia. Consolidated zinc production in the second quarter was 23% lower than the first quarter, primarily due to lower tonnes and grades at 777 as the mine approach the end of its life and the continued transition toward mining the gold lenses at Lalor with a corresponding decrease of production from the base metal zones. Consolidated cash costs decreased to $0.65 per pound of copper from $1.11 in the first quarter. This improvement was a result of higher zinc and gold byproduct credits and higher copper production. Consolidated sustaining cash costs decreased to $1.87 per pound in the second quarter, compared to $2.29 in the prior quarter, due to the same reasons affecting cash costs. Both measures were within the 2022 guidance ranges. Consolidated all-in sustaining cash costs decreased to $1.93 in the second quarter from $2.54…

[Operator Instructions] Our first question comes from Jackie Przybylowski of BMO Capital Markets. Please go ahead.

Thanks. [Indiscernible] first. This is exciting. I guess, congrats on the quarter. Maybe I'll ask Peter, if you can give us some additional color on why your costs on a unit basis were so good in the Manitoba division. Is that related to the closure of 777? Or can we expect to see strong cost performance going forward in the rest of the year as well? Thanks.

Hi, Jackie. Thanks very much for that. When we issued our Manitoba unit cost guidance for 2022, we assumed an approximately 5% increase in consumables which is why we're tracking in line with our projections albeit at the low end. So 777 was a lower cost mine. So the combined unit operating costs will increase in the second half as a result of removing 777 from the calculation. Also, we're seeing continued increases in the prices of materials and consumables such as fuel reagents, grinding media and contractor costs. So that's why we say that we will sort of -- we expect to be at the higher end of the -- of guidance at the -- in the second half.

And should we expect -- I know you're expecting to see the full closure or at least the full putting on hold of 777 in September, should we expect any costs associated with that on a one-time basis?

Yes. So Jackie, we disclosed an additional $25 million of costs expected this year starting in the second quarter relating to one-time costs for closure of the 777 mine and the zinc plant as well as to transition the Flin Flon mill and tailings facility to care and maintenance. We expect the majority of these costs will be incurred in the second half of the year.

Okay. And most of that, I guess, will be in the third quarter, or is it sort of evenly split?

Most of it will be in the third quarter.

Okay. And in terms of Arizona, if I could just maybe ask on permitting. I know, earlier this year, the appeals court made a decision, which didn't necessarily go in your favor on Rosemont. Is there a strategy to attempt to re-permit Rosemont at this point? Or how does that fit in with the plans for Copper World and the permitting there? Is Rosemont like sort of on hold until Copper World, is that?

I guess, I could give you a very long answer or a fairly short answer. I'm going to give you the fairly short answer, and then I'm going to ask André to provide a little bit of color. But in essence, what we've done is Rosemont, as it was previously configured has now been included into Copper World and we've renamed it East, the East pit. What we've done is the private land portion of Rosemont is included in Phase 1 of Copper World, and the federal land portion of Rosemont is included in Phase 2. So we will not be looking to read permit Rosemont as such, but we will be looking to sort of re-permit Phase 2 of the Copper World Complex. André' any further light that you might have to offer? André Lauzon: I think you covered it.

Okay.

Okay. Okay. So the original applications are not going to be resubmitted, you're just going ahead with Copper World plan as you've laid out. Okay. No, that's helpful. That's it for me. Thank you.

Thanks, Jackie.

Our next question comes from Ralph Profiti of Eight Capital. Please go ahead.

Good morning. Thanks for taking my questions. Peter, I want to get a little bit more color on the path forward at Maria Reyna and on Caballito. Once the community engagement agreements are in place, the drill permits happened commensurately. And just in the context of the $25 million that's being spent in 2022, do you have sort of early indications on how much you'll be spending on exploration in Peru in terms of, perhaps meters drilled or what the drill program may look like, once those permitting and engagement agreements are in place?

Yes, thanks. Thanks, Ralph. It's really hard to say exactly how things will turn out. So we expect to conclude an agreement with the community of Uchucarcco very, very shortly. And once we have concluded that agreement with Uchucarcco, of course, we will start surface investigations immediately. The question specifically with respect to drilling is one that needs we need to concentrate a little bit further and we'll have much more detail available from that once we've concluded the agreements. But at this point, it's very difficult for me to provide you with any specific guidance.

Okay, that's fair. Let me switch to 1901 and we're still quite a ways from the March 2023 reserve and resource update. But just wondering if the copper gold feeder zones are you going to be able to get that into say an inferred or measured in indicated category by the time the next reserve update comes?

André -- I would ask André to respond to that. But I don't think so, Ralph. I don't think that. It's -- 1901 still is in the mine plan for 2026. But more than that, I don't have much more information at this point.

Understood. Thank you.

Our next question comes from Orest Wowkodaw with Scotiabank. Please go ahead.

Hi, good morning. Nice to see the positive free cash flow generation here in Q2. I'm wondering given the lower commodity price environment if you're at all tempted to bring down your expected CapEx investments this year, next year, and whether there's some flexibility there to try to improve free cash flow generation.

Good morning, Orest and thanks for that. Look, we are extremely conscious of the current macro environment and the evolution of copper price. So we've looked really, really hard at all of our spending. And basically, we're truncating discretionary spending. So yes, we will, we will decrease fairly significantly our cash spent over the course of the remaining course of the year. We think it's a good thing to do in any case, in this uncertain environment. But we're not going to do so in a manner that compromises the future ahead of us, but we will be reducing discretionary costs for sure.

Okay. And I realize it's early in the year, but any idea kind of ballpark, what you're targeting for CapEx spend in 2023?

Early in the year we're going -- actually spent yesterday with contemplating [indiscernible], so it's early in the year for that already.

Okay. Shifting gears to Manitoba -- Steve, I don't know if you had a comment.

I was going to say we're not going to frighten you don't worry.

Okay. Just what -- also curious about Manitoba. So with 777 closing now and kind of off the books like when I look at Manitoba operating costs, they've been running in the order of about $115 million to $120 million a quarter. Where do you see that going with 777 and Flin Flon and smelter all closed? Like, I'm just wondering what kind of a rough ballpark run rate might be for operating costs now on a, call it millions of dollar basis in Manitoba. André Lauzon: So, Orest, this is André. So we'll update that with the -- in the coming year with the annual reserves. We're really fine tuning the costs right now. We're just finalizing the transition of our CFO and getting a firm handle on all of our operating and holding costs. But like Peter mentioned on the previous call, or question it was smaller is a little bit higher cost than 777. And we expect to see that higher. But we'll update that later on when we update our reserve statements.

Okay.

[Indiscernible] a little bit of an increase -- a little bit of a sort of a bump initially as we go to transfer activities in which it's stabilized next year as well.

Okay. Thanks for the color.

Our next question comes from Lawson Winder of Bank of America Securities. Please go ahead.

Hi, Peter. Good morning and thank you for the update. I wanted to ask about the Copper World CapEx and within the context of the sulfide leaching approach that you've selected, which is basically the lowest CapEx option, which would be no heat, no pressure. And then when I look around the industry, I mean, that seems to be more the exception than the rule. And I'd like to maybe get kind of your thoughts on the sensitivity around CapEx, if you do end up doing one of the more expensive options like -- perhaps like high pressure, low temperature, high temperature, low pressure, or, both high pressure and high temperature, and then with the trade-offs are there around recoveries. Thanks very much.

Sure. Morning, Lawson, and thanks for that. Look, I guess the first comment that I'd make is, you shouldn't get stuck on sulfide leaching, because it's simply a plug and play option module that's available to us. That was included in the PEA, because it's very, very significant ESG potential. It is something that we contemplated it, it certainly does help the IRR of the project. But it also -- it certainly it does not support CapEx. In fact, if you were to unplug it, you would reduce the CapEx by let's say $400 million to $500 million. So it's something that can be added initially concurrently with everything else or it could be deferred later on. Now to your point about whether it's atmospheric leaching or it's medium pressure leaching or something like that, we have we included atmospheric leaching in the PEA, which remember is a very early stage scoping study. But during the PFS, we will more closely examine the alternatives that are available to us. I would also offer that sulfa leaching is not new to us. We’ve been doing it in Flin Flon for a very, very long time. And many other mines have used sulfide leaching processes. Some, I would agree are medium pressure, others are atmospheric, but we have plenty time ahead of us in which to study the options and to alter and to optimize the flow sheet. So, I just -- I wouldn't get too stuck on the concept of sulfide leaching at this point, as I said, it is a plug and play module that we can include or not.

Okay. Thanks for that color. And just one sort of concept you introduced there that I hadn't really thought of was the potential sale of concentrate for the time being. Now how do you think about the timing of that like selling a concentrate versus doing the concentrate leaching approach, and especially vis-à-vis your ESG goals?

We could very easily do that. It's a question of just balancing trading off the various options. I think on the one hand, we can produce concentrate, no problem, because we will have a traditional sulfide concentrator. If we sell concentrate, we incur the costs associated with shipping that concentrate to smelters. We also incur or cause some of the emissions associated with the transportation. But it's certainly an option that's available to us. So as I said, we could initially start producing concentrate and defer sulfide leaching to a number of years later, if that's what we chose to do.

Okay. Thank you very much for your color on that, Peter. Have a great day.

You too.

Our next question comes from Greg Barnes of TD Securities. Please go ahead.

Thank you, Peter. I just want to touch on the political situation in Peru. It sounds pretty volatile. In your -- from what you're seeing, is it having any impact on the mining industry? Is there any suggestions from the current government about changing royalties or mining taxes? I've heard nothing, but I'm just obviously not that close to what's going on the ground and Peru, maybe you have some color?

Yes, we have. It's been all quiet on the political front for us and I -- I was actually in Peru, up at Constantia last -- just over a month ago. I would say as I spent time with the workforce up at Constancia, and the team in Lima, politics in Peru actually didn't come up once. So what I -- we read a lot about it from the outside. On the inside, I'm sure people worry about it, because there's a lot of uncertainty. But there has been no mention of changes to the fiscal regime. I think President Castillo did not accept the resignation of his first minister last week, this week -- last week. So he's busy dealing with his own constituents, his own cabinet and congress. I think that, we will continue to see this type of volatility and [indiscernible] behavior in the political spectrum for a while, but it's not effective. It's not impacting our operations at all.

And I assume that still has other issues to worry about the race and taxes and royalties and impact in the mining industry. He's got his own survival to concern themselves, I suppose.

I think you're probably right about that, Greg.

Okay, thank you.

You’re welcome.

[Operator Instructions] Our next question comes from Karl Blunden of Goldman Sachs. Please go ahead.

Hi, good morning. Congrats on your reaffirm cost guidance, given the inflation that we're seeing in the industry. I wanted to ask a little bit more about that when you look at current prices for consumables and energy, those have come down a little bit. Are they still running toward the high-end of your range of assumptions or now close to the midpoint and you're just more playing catch up with what's transpired through August this year.

Good morning, Karl, and thanks for that. Look, I think that we anticipated some increases earlier on in the year and we incorporated some of those increases into our guidance. But we have seen movement of fuel for example, the head of what we included in guidance and energy in Peru, [indiscernible] grinding media, which is very closely allied with the cost of both steel and molybdenum. So in Peru, of course, there is a stabilization mechanism for fuel prices. So what that tends to do is it tends to delay the effects of fuel price. So as fuel prices go up, they are not felt so markedly by the population. But as they come down, you still start seeing the sort of the delayed effect of those increases. So, I think that we still expect to see some increases of fuel costs in Peru. While those, obviously, less fuel dependence in Manitoba, but we have seen energy prices increase. So yes, in general, we have seen some of those costs increase above what we allowed for in our guidance.

Very helpful. Just looking further out, and the growth options you have, as you see the volatility that we've experienced recently in pricing, both on the copper side and then energy costs. Is this influencing how you think about potentially hedging costs or copper prices going forward as you get into a growth phase here?

Yes, We - as I mentioned in my -- in the discussion earlier on, we do quotation or period hedging, and that's all the hedging we do. We believe that our investors would like full exposure to commodity prices, and we offer that to them. We don't hedge. Thank you very much.

You’re welcome.

This concludes the question-and-answer session. I would like to turn the conference back over to Candace Brule for any closing remarks.

Thank you, operator and thank you, everyone for participating. If you have any further questions, please feel free to reach out to our Investor Relations team. Thank you. You may disconnect your lines.