Unaudited Condensed Consolidated Interim Financial Statements
(In US dollars)
HUDBAY MINERALS INC.
For the three and nine months ended, September 30, 2020 and 2019
HUDBAY MINERALS INC. Condensed Consolidated Interim Balance Sheets (Unaudited and in thousands of US dollars) |
Sep. 30, | Dec. 31, | ||||||
Note | 2020 | 2019 | |||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 449,014 | $ | 396,146 | |||
Trade and other receivables | 6 | 129,019 | 105,994 | ||||
Inventories | 7 | 135,228 | 138,820 | ||||
Prepaid expenses and other current assets | 10,240 | 12,737 | |||||
Other financial assets | 8 | 1,729 | 2,049 | ||||
Taxes receivable | 10,269 | 7,289 | |||||
735,499 | 663,035 | ||||||
Receivables | 6 | 18,225 | 19,264 | ||||
Inventories | 7 | 21,429 | 19,455 | ||||
Other financial assets | 8 | 14,378 | 11,287 | ||||
Intangibles and other assets | 9 | 21,475 | 10,411 | ||||
Property, plant and equipment | 10 | 3,693,940 | 3,662,559 | ||||
Deferred tax assets | 18b | 85,742 | 75,046 | ||||
$ | 4,590,688 | $ | 4,461,057 | ||||
Liabilities | |||||||
Current liabilities | |||||||
Trade and other payables | $ | 157,221 | $ | 192,404 | |||
Taxes payable | 2,823 | 2,146 | |||||
Other liabilities | 11 | 45,183 | 49,411 | ||||
Other financial liabilities | 12 | 18,625 | 28,076 | ||||
Lease liabilities | 13 | 34,910 | 32,781 | ||||
Deferred revenue | 15 | 73,296 | 86,933 | ||||
332,058 | 391,751 | ||||||
Other financial liabilities | 12 | 193,455 | 39,784 | ||||
Lease liabilities | 13 | 38,460 | 49,166 | ||||
Long-term debt | 14 | 1,175,104 | 985,255 | ||||
Deferred revenue | 15 | 477,285 | 476,823 | ||||
Provisions | 16 | 323,880 | 280,850 | ||||
Pension obligations | 17 | 20,051 | 29,599 | ||||
Other employee benefits | 17 | 124,738 | 116,778 | ||||
Deferred tax liabilities | 18b | 221,193 | 242,928 | ||||
2,906,224 | 2,612,934 | ||||||
Equity | |||||||
Share capital | 19b | 1,777,340 | 1,777,340 | ||||
Reserves | (32,136 | ) | (24,250 | ) | |||
Retained earnings | (60,740 | ) | 95,033 | ||||
1,684,464 | 1,848,123 | ||||||
$ | 4,590,688 | $ | 4,461,057 | ||||
Commitments (note 22) |
HUDBAY MINERALS INC. Condensed Consolidated Interim Income Statements (Unaudited and in thousands of US dollars) |
Note | Three months ended September 30, | Nine Months Ended September 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||
Revenue | 5a | $ | 316,108 | $ | 291,282 | $ | 770,128 | $ | 912,953 | ||||
Cost of sales | |||||||||||||
Mine operating costs | 180,832 | 178,041 | 502,251 | 536,435 | |||||||||
Depreciation and amortization | 5b | 95,998 | 82,286 | 263,244 | 250,610 | ||||||||
276,830 | 260,327 | 765,495 | 787,045 | ||||||||||
Gross profit | 39,278 | 30,955 | 4,633 | 125,908 | |||||||||
Selling and administrative expenses | 10,902 | 5,177 | 26,718 | 30,499 | |||||||||
Exploration and evaluation expenses | 2,750 | 7,668 | 10,715 | 21,010 | |||||||||
Other expenses | 5d | 4,798 | 6,570 | 11,566 | 47,176 | ||||||||
Impairment loss | 5e | - | 322,249 | - | 322,249 | ||||||||
Results from operating activities | 20,828 | (310,709 | ) | (44,366 | ) | (295,026 | ) | ||||||
Net interest expense on long term debt | 5f | 21,738 | 16,286 | 61,102 | 48,784 | ||||||||
Accretion on streaming arrangements | 5f | 10,785 | 15,944 | 42,816 | 53,827 | ||||||||
Change in fair value of financial instruments | 5f | (2,750 | ) | 2,072 | 8,150 | 212 | |||||||
Other net finance costs | 5f | 14,999 | 3,356 | 23,566 | 12,560 | ||||||||
Net finance expense | 44,772 | 37,658 | 135,634 | 115,383 | |||||||||
Loss before tax | (23,944 | ) | (348,367 | ) | (180,000 | ) | (410,409 | ) | |||||
Tax expense (recovery) | 18a | 11 | (73,571 | ) | (28,010 | ) | (68,054 | ) | |||||
Loss for the period | $ | (23,955 | ) | $ | (274,796 | ) | $ | (151,990 | ) | $ | (342,355 | ) | |
Loss per share | |||||||||||||
Basic and diluted | $ | (0.09 | ) | $ | (1.05 | ) | $ | (0.58 | ) | $ | (1.31 | ) | |
Weighted average number of common shares outstanding: | |||||||||||||
Basic and diluted | 20 | 261,272,151 | 261,272,151 | 261,272,151 | 261,272,151 |
HUDBAY MINERALS INC. Condensed Consolidated Interim Statements of Cash Flows (Unaudited and in thousands of US dollars) |
Note | Three months ended September 30, | Nine months ended September 30, | |||||||||||
2020 | 2019 (Note 23a) | 2020 | 2019 (Note 23a) | ||||||||||
Cash generated from operating activities: | |||||||||||||
Loss for the period | $ | (23,955 | ) | $ | (274,796 | ) | $ | (151,990 | ) | $ | (342,355 | ) | |
Tax expense (recovery) | 18a | 11 | (73,571 | ) | (28,010 | ) | (68,054 | ) | |||||
Items not affecting cash: | |||||||||||||
Depreciation and amortization | 5b | 96,465 | 82,838 | 264,552 | 252,259 | ||||||||
Share-based compensation expenses (recoveries) | 5c | 4,636 | (2,904 | ) | 5,521 | 562 | |||||||
Net interest expense on long term debt | 5f | 21,738 | 16,286 | 61,102 | 48,784 | ||||||||
Accretion on streaming arrangements | 5f | 10,785 | 15,944 | 42,816 | 53,827 | ||||||||
Change in fair value of financial instruments | 5f | (2,750 | ) | 2,072 | 8,150 | 212 | |||||||
Other net finance costs | 5f | 14,999 | 3,356 | 23,566 | 12,560 | ||||||||
Inventory write-down | 7 | - | 385 | 2,221 | 604 | ||||||||
Amortization of deferred revenue and variable consideration | 5a | (30,156 | ) | (21,415 | ) | (53,820 | ) | (52,225 | ) | ||||
Pension and other employee benefit payments, net of accruals | 560 | 788 | 4,494 | 2,534 | |||||||||
Write-down of UCM Receivable | 5d | - | - | - | 25,978 | ||||||||
Decommissioning and restoration payments | (7,637 | ) | - | (13,766 | ) | - | |||||||
Asset impairment | 5e | - | 322,249 | - | 322,249 | ||||||||
Other 1 | 1,136 | 3,648 | (1,543 | ) | (448 | ) | |||||||
Taxes paid | (1,449 | ) | (3,676 | ) | (7,501 | ) | (18,344 | ) | |||||
Operating cash flow before change in non-cash working capital | 84,383 | 71,204 | 155,792 | 238,143 | |||||||||
Change in non-cash working capital | 23a | (6,448 | ) | (27,721 | ) | (37,402 | ) | (25,953 | ) | ||||
77,935 | 43,483 | 118,390 | 212,190 | ||||||||||
Cash used in investing activities: | |||||||||||||
Acquisition of property, plant and equipment | (144,461 | ) | (78,147 | ) | (243,297 | ) | (170,458 | ) | |||||
Acquisition of subsidiary, net of cash acquired | - | - | - | (44,688 | ) | ||||||||
Change in restricted cash | - | 692 | - | 3,066 | |||||||||
Net interest received | 297 | 1,920 | 1,777 | 6,401 | |||||||||
(144,164 | ) | (75,535 | ) | (241,520 | ) | (205,679 | ) | ||||||
Cash generated from/(used) in financing activities: | |||||||||||||
Issuance of senior unsecured notes, net of transaction costs | 14a | 191,824 | - | 191,824 | - | ||||||||
Premium paid on redemption of notes | 14a | (7,252 | ) | - | (7,252 | ) | - | ||||||
Interest paid on long-term debt | (44,142 | ) | (37,375 | ) | (81,517 | ) | (74,750 | ) | |||||
Financing costs | (4,217 | ) | (10,693 | ) | (12,394 | ) | (20,876 | ) | |||||
Lease payments | (9,389 | ) | (9,010 | ) | (26,598 | ) | (23,839 | ) | |||||
Gold prepayment proceeds | 12 | - | - | 115,005 | - | ||||||||
Dividends paid | 19b | (1,979 | ) | (1,972 | ) | (3,783 | ) | (3,927 | ) | ||||
124,845 | (59,050 | ) | 175,285 | (123,392 | ) | ||||||||
Effect of movement in exchange rates on cash and cash equivalents | (738 | ) | 13 | 713 | (178 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | 57,878 | (91,089 | ) | 52,868 | (117,059 | ) | |||||||
Cash and cash equivalents, beginning of the period | 391,136 | 489,527 | 396,146 | 515,497 | |||||||||
Cash and cash equivalents, end of the period | $ | 449,014 | $ | 398,438 | $ | 449,014 | $ | 398,438 | |||||
1 Includes disbursements for share based compensation, restructuring, realized foreign exchange gains and losses and Pampacancha delivery obligation payments. | |||||||||||||
For supplemental information, see note 23. |
HUDBAY MINERALS INC. Condensed Consolidated Interim Statements of Comprehensive Loss (Unaudited and in thousands of US dollars) |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Loss for the period | $ | (23,955 | ) | $ | (274,796 | ) | $ | (151,990 | ) | $ | (342,355 | ) |
Other comprehensive income (loss): | ||||||||||||
Item that will be reclassified subsequently to profit or loss: | ||||||||||||
Recognized directly in equity: | ||||||||||||
Net exchange gain (loss) on translation of foreign currency balances | 4,646 | (1,891 | ) | (5,940 | ) | 5,567 | ||||||
4,646 | (1,891 | ) | (5,940 | ) | 5,567 | |||||||
Items that will not be reclassified subsequently to profit or loss: | ||||||||||||
Recognized directly in equity: | ||||||||||||
Gold prepayment revaluation (note 12) | 203 | - | (277 | ) | - | |||||||
Tax effect | (55 | ) | - | 74 | - | |||||||
Remeasurement - actuarial (loss) gain | (1,158 | ) | 5,522 | (1,256 | ) | (5,822 | ) | |||||
Tax effect | 110 | (101 | ) | (1,234 | ) | (816 | ) | |||||
(900 | ) | 5,421 | (2,693 | ) | (6,638 | ) | ||||||
Other comprehensive gain (loss) net of tax, for the period | 3,746 | 3,530 | (8,633 | ) | (1,071 | ) | ||||||
Total comprehensive loss for the period | $ | (20,209 | ) | $ | (271,266 | ) | $ | (160,623 | ) | $ | (343,426 | ) |
HUDBAY MINERALS INC. Condensed Consolidated Interim Statements of Comprehensive Loss (Unaudited and in thousands of US dollars) |
Share capital (note 19) | Other capital reserves | Foreign currency translation reserve | Remeasurement reserve | Retained earnings | Total equity | |||||||||||||
Balance, January 1, 2019 | $ | 1,777,340 | $ | 28,837 | $ | (11,819 | ) | $ | (58,272 | ) | $ | 442,770 | $ | 2,178,856 | ||||
Loss | - | - | - | - | (342,355 | ) | (342,355 | ) | ||||||||||
Other comprehensive income (loss) | - | - | 5,567 | (6,638 | ) | - | (1,071 | ) | ||||||||||
Total comprehensive income (loss) | - | - | 5,567 | (6,638 | ) | (342,355 | ) | (343,426 | ) | |||||||||
Dilution of Partner's investor in Rosemont | 25,978 | 25,978 | ||||||||||||||||
Contributions by and distributions to owners: | ||||||||||||||||||
Dividends (note 19b) | - | - | - | - | (3,927 | ) | (3,927 | ) | ||||||||||
Total contributions by and distributions to owners | - | - | - | - | (3,927 | ) | (3,927 | ) | ||||||||||
Balance, September 30, 2019 | $ | 1,777,340 | $ | 54,815 | $ | (6,252 | ) | $ | (64,910 | ) | $ | 96,488 | $ | 1,857,481 | ||||
Loss | - | - | - | - | (1,455 | ) | (1,455 | ) | ||||||||||
Other comprehensive income (loss) | - | - | 3,653 | (11,556 | ) | - | (7,903 | ) | ||||||||||
Total comprehensive income (loss) | - | - | 3,653 | (11,556 | ) | (1,455 | ) | (9,358 | ) | |||||||||
Contributions by and distributions to owners: | ||||||||||||||||||
Dividends | - | - | - | - | - | - | ||||||||||||
Total contributions by and distributions to owners | - | - | - | - | - | - | ||||||||||||
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 (Unaudited and in thousands of US dollars) |
Share capital (note 19) | Other capital reserves | Foreign currency translation reserve | Remeasurement reserve | Retained earnings | Total equity | |||||||||||||
Balance, January 1, 2020 | $ | 1,777,340 | $ | 54,815 | $ | (2,599 | ) | $ | (76,466 | ) | $ | 95,033 | $ | 1,848,123 | ||||
Loss | - | - | - | - | (151,990 | ) | (151,990 | ) | ||||||||||
Other comprehensive loss | - | - | (5,940 | ) | (2,693 | ) | - | (8,633 | ) | |||||||||
Total comprehensive loss | - | - | (5,940 | ) | (2,693 | ) | (151,990 | ) | (160,623 | ) | ||||||||
Contributions by and distributions to owners: | ||||||||||||||||||
Dividends (note 19b) | - | - | - | - | (3,783 | ) | (3,783 | ) | ||||||||||
Stock options (note 5c) | - | 747 | - | - | - | 747 | ||||||||||||
Total contributions by and distributions to owners | - | 747 | - | - | (3,783 | ) | (3,036 | ) | ||||||||||
Balance, September 30, 2020 | $ | 1,777,340 | $ | 55,562 | $ | (8,539 | ) | $ | (79,159 | ) | $ | (60,740 | ) | $ | 1,684,464 |
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 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 and nine months ended September 30, 2020 and 2019 represent the financial position and the financial performance of the Company and its subsidiaries (together referred to as "Hudbay").
Wholly owned subsidiaries as at September 30, 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, Hudbay is focused on the discovery, production and marketing of base and precious metals. Directly and through its subsidiaries, Hudbay owns three polymetallic mines, four ore concentrators and a zinc production facility in northern Manitoba and Saskatchewan (Canada) and Cusco (Peru) and copper projects in Arizona and Nevada (United States). Hudbay also has equity investments in a number of junior exploration companies. The Company is governed by the Canada Business Corporations Act and its shares are listed under the symbol "HBM" on the Toronto Stock Exchange, New York Stock Exchange and Bolsa de Valores de Lima.
2. Basis of preparation
(a) Statement of compliance:
These 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 November 3, 2020.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 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 Hudbay operates in. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. Since then, containment measures have resulted in decreased economic activity, which has adversely affected the broader global economy.
The resulting impacts on global commerce have been and continue to be far-reaching. To date there has been volatility in stock markets, commodities and foreign exchange markets, restrictions on the conduct of business in many jurisdictions and the global movement of people and some goods have become restricted.
The Company has evaluated the potential impacts arising from COVID-19 on all aspects of its business.
(c) Use of judgements and estimates:
The preparation of the interim financial statements in conformity with IFRS requires Hudbay 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 Hudbay in its audited consolidated financial statements for the year ended December 31, 2019.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
3. Significant accounting policies
These interim financial statements reflect the accounting policies applied by Hudbay in its audited consolidated financial statements for the year ended December 31, 2019 and comparative periods.
4. New standards
New standards and interpretations adopted
(a) Amendment to IFRS 3 - Business Combinations
The amendment to IFRS 3 clarifies the definition of a business and includes an optional concentration test to determine whether an acquired set of activities and assets is a business. This amendment is in effect January 1, 2020 and will be treated prospectively. Hudbay will apply these amendments to future acquisition transactions.
New standards and interpretations not yet adopted
(b) Amendment to IAS 16 - Property, Plant and Equipment
The amendments to IAS 16 prohibit deducting from the cost of property, plant and equipment the proceeds from selling items produced while bringing that assets to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, a company will recognize such sales proceeds and related cost in profit or loss.
This amendment is in effect January 1, 2022 with early adoption permitted. Hudbay is currently working on determining the effect of the adoption of this amendment on its consolidated financial statements, specifically to projects expected to achieve commercial production in the coming years. On adoption, an entity applies the amendments retrospectively only to items of property, plant and equipment that were brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
5. Revenue and expenses
(a) Revenue
Hudbay's revenue by significant product types:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Copper | $ | 169,525 | $ | 177,044 | $ | 396,896 | $ | 584,679 | ||||
Zinc | 64,972 | 74,971 | 187,546 | 212,810 | ||||||||
Gold | 44,934 | 28,429 | 131,703 | 83,139 | ||||||||
Silver | 6,945 | 5,495 | 17,979 | 20,808 | ||||||||
Molybdenum | 5,301 | 8,984 | 16,797 | 26,568 | ||||||||
Other | 2,168 | 984 | 4,023 | 3,494 | ||||||||
293,845 | 295,907 | 754,944 | 931,498 | |||||||||
Non-cash streaming arrangement items 1 | ||||||||||||
Amortization of deferred revenue - gold | 8,980 | 8,122 | 19,437 | 24,165 | ||||||||
Amortization of deferred revenue - silver | 11,694 | 13,293 | 27,715 | 44,355 | ||||||||
Amortization of deferred revenue - variable consideration adjustments - prior periods | 9,482 | - | 6,668 | (16,295 | ) | |||||||
30,156 | 21,415 | 53,820 | 52,225 | |||||||||
Pricing and volume adjustments 2 | 7,113 | (5,819 | ) | 3,529 | (8,467 | ) | ||||||
331,114 | 311,503 | 812,293 | 975,256 | |||||||||
Treatment and refining charges | (15,006 | ) | (20,221 | ) | (42,165 | ) | (62,303 | ) | ||||
$ | 316,108 | $ | 291,282 | $ | 770,128 | $ | 912,953 | |||||
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. |
Consideration from the Company's stream agreement is considered variable (note 15). Gold and silver stream revenue can be subject to cumulative adjustments when the amount of precious metals to be delivered under the contract changes. As a result of changes in the Company's mineral reserve and resource estimate in the first quarter of 2020 and amendments made to the 777 mine plan in the third quarter of 2020, the amortization rate by which deferred revenue is drawn down into income was adjusted and, as required, a current period catch up adjustment is made for all prior period stream revenues since the stream agreement inception date. This variable consideration adjustment for the three and nine months ended September 30, 2020 resulted in increased revenue of $9,482 and $6,668, respectively. This increase in revenue was primarily the result of internal business planning and amendments in the 777 mine plan resulting in mining less of the inferred resource than what was previously planned. The variable consideration adjustment for the nine months ended September 30, 2019 resulted in a reversal of revenue of $16,295.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 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 September 30, | Nine months ended September 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Cost of sales | $ | 95,998 | $ | 82,286 | $ | 263,244 | $ | 250,610 | ||||
Selling and administrative expenses | 467 | 552 | 1,308 | 1,649 | ||||||||
$ | 96,465 | $ | 82,838 | $ | 264,552 | $ | 252,259 |
(c) Share-based compensation expenses (recoveries)
Share-based compensation expenses (recoveries) are reflected in the condensed consolidated interim income statements as follows:
Cash-settled | Total share-based compensation expense | ||||||||||||||
RSUs | DSUs | PSUs | Stock options | ||||||||||||
Three months ended September 30, 2020 | |||||||||||||||
Cost of sales | $ | 411 | $ | - | $ | - | $ | - | $ | 411 | |||||
Selling and administrative | 1,537 | 1,649 | 545 | 349 | 4,080 | ||||||||||
Other expenses | 145 | - | - | - | 145 | ||||||||||
$ | 2,093 | $ | 1,649 | $ | 545 | $ | 349 | $ | 4,636 | ||||||
Nine months ended September 30, 2020 | |||||||||||||||
Cost of sales | $ | 480 | $ | - | $ | - | $ | - | $ | 480 | |||||
Selling and administrative | 1,606 | 1,714 | 829 | 747 | 4,896 | ||||||||||
Other expenses | 145 | - | - | - | 145 | ||||||||||
$ | 2,231 | $ | 1,714 | $ | 829 | $ | 747 | $ | 5,521 | ||||||
Three months ended September 30, 2019 | |||||||||||||||
Cost of sales | $ | (173 | ) | $ | - | $ | - | $ | - | $ | (173 | ) | |||
Selling and administrative | (1,852 | ) | (796 | ) | - | - | (2,648 | ) | |||||||
Other expenses | (83 | ) | - | - | - | (83 | ) | ||||||||
$ | (2,108 | ) | $ | (796 | ) | $ | - | $ | - | $ | (2,904 | ) | |||
Nine months ended September 30, 2019 | |||||||||||||||
Cost of sales | $ | 192 | $ | - | $ | - | $ | - | $ | 192 | |||||
Selling and administrative | 33 | 200 | - | - | 233 | ||||||||||
Other expenses | 137 | - | - | - | 137 | ||||||||||
$ | 362 | $ | 200 | $ | - | $ | - | $ | 562 |
During the nine months ended September 30, 2020, the Company granted 1,581,385 stock options (nine months ended September 30, 2019 - nil). For further details on stock options, see note 19c.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
(d) Other expenses
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Regional costs | $ | 803 | $ | 807 | $ | 2,583 | $ | 2,748 | ||||
Write down of UCM receivable | - | - | - | 25,978 | ||||||||
Pampacancha delivery obligation | - | - | - | 7,499 | ||||||||
(Gain) loss on disposals | (65 | ) | - | 2,792 | - | |||||||
Closure cost adjustment - non-producing properties | 1,936 | 2,596 | 2,980 | 3,032 | ||||||||
Allocation of community costs | 704 | 1,657 | 2,184 | 1,657 | ||||||||
Other | 1,420 | 1,510 | 1,027 | 6,262 | ||||||||
$ | 4,798 | $ | 6,570 | $ | 11,566 | $ | 47,176 |
During the first quarter of 2019, Hudbay recognized an obligation to deliver additional precious metal credits to Wheaton Precious Metals ("Wheaton") as a result of Hudbay's expectation that mining at the Pampacancha deposit will not begin until after 2020. The obligation is to be paid in four quarterly installments, with the first three payments having been paid in March, June and September 2020.
(e) Impairment
For the third quarter ended September 30, 2020, Hudbay recorded no impairment losses.
During the third quarter ended September 30, 2019, Hudbay recorded impairment losses of $322,249 for non-current assets relating to the Arizona cash generating units ("CGU").
Arizona | |||
Pre-tax impairment to: | |||
Property, plant & equipment | $ | 322,249 | |
Tax impact - (recovery) | (80,143 | ) | |
After-tax impairment charge | $ | 242,106 |
On July 31, 2019 the U.S. District Court of the District of Arizona ("Court") issued a ruling in the lawsuits challenging the U.S. Forest Service's issuance of the Final Record of Decision ("FROD") for the Rosemont project in Arizona. The Court ruled to vacate and remand the FROD thereby delaying the expected start of construction of Rosemont. Hudbay and the U.S. federal government have appealed the Court's decision to the U.S. Ninth Circuit Court of Appeals. However, the Court's ruling and the subsequent impact to the Company's market capitalization gave rise to an indicator of impairment. Following an impairment test conducted as of September 30, 2019, it was determined that the recoverable amount of the Arizona CGU was lower than its carrying value, causing Hudbay to recognize an impairment loss related to these assets.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
(f) Net finance expenses
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Net interest expense on long-term debt | ||||||||||||
Interest expense on long-term debt | $ | 21,738 | $ | 19,584 | $ | 61,102 | $ | 58,674 | ||||
Interest capitalized | - | (3,298 | ) | - | (9,890 | ) | ||||||
21,738 | 16,286 | 61,102 | 48,784 | |||||||||
Accretion on streaming arrangements (note 15) | ||||||||||||
Current year additions | 15,437 | 15,944 | 46,508 | 47,780 | ||||||||
Variable consideration adjustments - prior periods | (4,652 | ) | - | (3,692 | ) | 6,047 | ||||||
10,785 | 15,944 | 42,816 | 53,827 | |||||||||
Change in fair value of financial assets and liabilities at fair value through profit or loss | ||||||||||||
Embedded derivatives | (9,147 | ) | (1,507 | ) | (5,076 | ) | (5,214 | ) | ||||
Gold prepayment liability (note 12) | 9,163 | - | 16,735 | - | ||||||||
Investments | (2,766 | ) | 3,579 | (3,509 | ) | 5,426 | ||||||
(2,750 | ) | 2,072 | 8,150 | 212 | ||||||||
Other net finance costs | ||||||||||||
Net foreign exchange losses (gains) | (1,150 | ) | (83 | ) | (4,228 | ) | 1,697 | |||||
Accretion on community agreements measured at amortized cost | 731 | 289 | 2,973 | 883 | ||||||||
Unwinding of discounts on provisions | 666 | 1,065 | 2,791 | 3,363 | ||||||||
Withholding taxes | 2,142 | 1,980 | 6,172 | 6,248 | ||||||||
Premium paid on redemption of notes (note 14) | 7,252 | - | 7,252 | - | ||||||||
Write-down of unamortized transaction costs (note 14) | 3,817 | - | 3,817 | - | ||||||||
Other finance expense | 1,832 | 2,067 | 6,518 | 7,230 | ||||||||
Interest income | (291 | ) | (1,962 | ) | (1,729 | ) | (6,861 | ) | ||||
14,999 | 3,356 | 23,566 | 12,560 | |||||||||
Net finance expense | $ | 44,772 | $ | 37,658 | $ | 135,634 | $ | 115,383 |
Until October 1, 2019, interest expense related to certain long-term debt had been capitalized to the Rosemont project. Following the Court ruling to vacate and remand the U.S. Forest Service's issuance of the Final Record of Decision for the Rosemont project during the third quarter of 2019, Hudbay ceased capitalization effective October 1, 2019. The capitalization of this interest expense will resume upon the reinstatement of permits and will continue from that point until commercial production is reached.
Other finance expense relates primarily to fees on Hudbay's revolving credit facilities and capitalized leases.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
6. Trade and other receivables
Sep. 30, 2020 | Dec. 31, 2019 | |||||
Current | ||||||
Trade receivables | $ | 108,827 | $ | 87,332 | ||
Statutory receivables | 17,261 | 16,543 | ||||
Other receivables | 2,931 | 2,119 | ||||
129,019 | 105,994 | |||||
Non-current | ||||||
Taxes receivable | 16,672 | 17,669 | ||||
Other receivables | 1,553 | 1,595 | ||||
18,225 | 19,264 | |||||
$ | 147,244 | $ | 125,258 |
7. Inventories
Sep. 30, 2020 | Dec. 31, 2019 | |||||
Current | ||||||
Stockpile | $ | 6,929 | $ | 10,396 | ||
Work in progress | 10,665 | 14,420 | ||||
Finished goods | 65,218 | 62,230 | ||||
Materials and supplies | 52,416 | 51,774 | ||||
135,228 | 138,820 | |||||
Non-current | ||||||
Stockpile | 16,144 | 14,626 | ||||
Materials and supplies | 5,285 | 4,829 | ||||
21,429 | 19,455 | |||||
$ | 156,657 | $ | 158,275 |
The cost of inventories recognized as an expense, including depreciation, and included in cost of sales amounted to $251,821 and $668,665 for the three and nine months ended September 30, 2020 (three and nine months ended September 30, 2019 - $235,009 and $710,163).
During the nine months ended September 30, 2020, Hudbay recognized an expense of $2,221 in cost of sales related to adjustments of the carrying value of inventories to net realizable value.
During the three and nine months ended September 30, 2019, Hudbay recognized an expense of $385 and $604, respectively in cost of sales related to adjustments of the carrying value of inventories to net realizable value.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
8. Other financial assets
Sep. 30, 2020 | Dec. 31, 2019 | |||||
Current | ||||||
Derivative assets | $ | 1,392 | $ | 1,712 | ||
Restricted cash | 337 | 337 | ||||
1,729 | 2,049 | |||||
Non-current | ||||||
Investments at fair value through profit or loss | 14,378 | 11,287 | ||||
$ | 16,107 | $ | 13,336 |
Investments at fair value through profit or loss consist of securities in Canadian metals and mining companies, all of which are publicly traded. The change in investments at fair value through profit or loss is mostly attributed to fluctuations in market price and foreign exchange impact.
9. Intangibles and other assets
Intangibles and other assets of $21,475 (December 31, 2019 - $10,411) includes $16,528 of other assets (December 31, 2019 - $5,384) and $4,947 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 condensed consolidated interim income statements within other expenses (note 5d). The increase in other assets during the nine months ended September 30, 2020 primarily relates to amendments to the original agreements with communities for the Constancia operation which allow Hudbay to extract minerals over the useful life of the Constancia operation.
Intangibles mainly represent computer software costs.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
10. Property, plant and equipment
Sep. 30, 2020 | Cost | Accumulated depreciation and amortization | Carrying amount | ||||||
Exploration and evaluation assets | $ | 70,073 | $ | - | $ | 70,073 | |||
Capital works in progress | 905,093 | - | 905,093 | ||||||
Mining properties | 2,152,846 | (1,051,236 | ) | 1,101,610 | |||||
Plant and equipment | 2,725,312 | (1,201,824 | ) | 1,523,488 | |||||
Plant and equipment-ROU Assets1 | 220,673 | (126,997 | ) | 93,676 | |||||
$ | 6,073,997 | (2,380,057 | ) | $ | 3,693,940 | ||||
Dec. 31, 2019 | Cost | Accumulated depreciation and 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 $4,926 of capital works in progress - ROU assets (cost) that relate to the Arizona and Manitoba Business units (December 31, 2019 - $4,481) |
For the nine months ended September 30, 2020, the increase in property, plant and equipment (cost) of $267,913 was mainly caused by fixed asset and construction in progress asset additions of $270,297 and increases in decommissioning and restoration assets of $50,807 (producing assets) mostly as a result of lower discount rates, partially offset by the effects of movements in exchange rates of $46,521.
11. Other liabilities
Sep. 30, 2020 | Dec. 31, 2019 | |||||
Current | ||||||
Provisions (note 16) | $ | 28,784 | $ | 33,575 | ||
Pension liability | 13,059 | 12,015 | ||||
Other employee benefits | 3,208 | 2,806 | ||||
Unearned revenue | 132 | 1,015 | ||||
$ | 45,183 | $ | 49,411 |
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
12. Other financial liabilities
Sep. 30, 2020 | Dec. 31, 2019 | |||||
Current | ||||||
Derivative liabilities | $ | 6,282 | $ | 10,295 | ||
Embedded derivatives (note 21c) | 2,982 | 9,074 | ||||
Other financial liabilities at amortized cost | 9,361 | 8,707 | ||||
18,625 | 28,076 | |||||
Non-current | ||||||
Deferred Rosemont acquisition consideration | 25,585 | 24,491 | ||||
Gold prepayment liability | 132,017 | - | ||||
Other financial liabilities at amortized cost | 35,853 | 15,293 | ||||
193,455 | 39,784 | |||||
$ | 212,080 | $ | 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 condensed consolidated interim income statements. The fair value adjustments for hedging type derivatives are recorded in revenue. Fair value adjustments for embedded derivatives are recorded within net finance expense.
On May 7, 2020, the Company entered into an agreement and received $115,005 in exchange for the delivery of 79,954 gold ounces starting January 2022 and ending in December 2023, which were valued at gold forward curve prices averaging $1,682 per ounce at the time of the transaction. The agreement has been assessed as a financial liability that has been designated as fair value through profit or loss within change in fair value of financial instruments, with a component of the fair value related to the fluctuation in the Company's own credit risk being recorded to other comprehensive income. The fair value adjustment recorded in profit or loss and other comprehensive income for the nine months ended September 30, 2020 were losses of $16,735 and $277, respectively.
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 nine months ended September 30, 2020 primarily relates to changes in estimated community payments arising from the execution of the Pampacancha surface rights agreement.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
The following table summarizes changes in other financial liabilities at amortized cost:
Balance, January 1, 2019 | $ | 21,361 | |
Net additions | 7,369 | ||
Disbursements | (6,351 | ) | |
Accretion | 1,222 | ||
Effects of changes in foreign exchange | 399 | ||
Balance, December 31, 2019 | $ | 24,000 | |
Net additions | 110,541 | ||
Disbursements | (87,861 | ) | |
Accretion | 2,973 | ||
Effects of changes in foreign exchange | (4,439 | ) | |
Balance, September 30, 2020 | $ | 45,214 |
13. Lease Liability
Sep. 30, 2020 | Dec. 31, 2019 | |||||
Total minimum lease payments - lease liabilities | $ | 78,905 | $ | 88,096 | ||
Effect of discounting | (5,535 | ) | (6,149 | ) | ||
Present value of minimum lease payments | 73,370 | 81,947 | ||||
Less: current portion | (34,910 | ) | (32,781 | ) | ||
$ | 38,460 | $ | 49,166 | |||
Minimum payments under leases: | ||||||
Less than 12 months | $ | 36,538 | $ | 27,557 | ||
13 - 36 months | 35,619 | 48,503 | ||||
37 - 60 months | 2,466 | 7,798 | ||||
More than 60 months | 4,282 | 4,238 | ||||
$ | 78,905 | $ | 88,096 |
Hudbay has entered into leases for its Peru, Manitoba and Arizona business units which expire between 2020 and 2043. The interest rates on leases which were capitalized have 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 entity acting as lessee and duration of the lease. For certain leases, Hudbay has the option to purchase the equipment and vehicles leased at the end of the terms of the leases. Hudbay's obligations under these leases are secured by the lessor's title to the leased assets. The present value of applicable lease payments has been recognized as a ROU asset, which was included as a non-cash addition to property, plant and equipment, and a corresponding amount as a lease liability.
There are no restrictions placed on Hudbay by entering into these leases.
The following outlines expenses recognized within the Company's condensed consolidated interim income statements for the periods ended September 30, 2020, relating to leases for which a recognition exemption was applied.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Short-term leases | $ | 8,954 | $ | 13,236 | $ | 29,795 | $ | 35,387 | ||||
Low value leases | 45 | 13 | 169 | 82 | ||||||||
Variable leases | 10,802 | 13,468 | 33,168 | 44,472 | ||||||||
Total | $ | 19,801 | $ | 26,717 | $ | 63,132 | $ | 79,941 |
Payments made for short term, low value and variable leases would mostly be captured as expenses in the condensed consolidated interim 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.
14. Long-term debt
Long-term debt is comprised of the following:
Sep. 30, 2020 | Dec. 31, 2019 | |||||
Senior unsecured notes (a) | $ | 1,179,709 | $ | 991,558 | ||
Less: Unamortized transaction costs - revolving credit facilities (b) | (4,605 | ) | (6,303 | ) | ||
$ | 1,175,104 | $ | 985,255 |
(a) Senior unsecured notes
Balance, January 1, 2019 | $ | 989,306 | |
Change in fair value of embedded derivative (prepayment option) | 1,079 | ||
Accretion of transaction costs and premiums | 1,173 | ||
Balance, December 31, 2019 | $ | 991,558 | |
Addition to Principal, net of $8,176 transaction costs | 191,824 | ||
Change in fair value of embedded derivative (prepayment option) | (6,871 | ) | |
Write-down of unamortized transaction costs | 2,315 | ||
Accretion of transaction costs and premiums | 883 | ||
Balance, September 30, 2020 | $ | 1,179,709 |
On September 23, 2020, Hudbay completed an offering of $600,000 aggregate principal amount of 6.125% senior unsecured notes due April 2029 (the "2029 Notes").
Hudbay used the proceeds of the offering to satisfy and discharge all of its obligations with respect to its then outstanding $400,000 aggregate principal amount of 7.25% senior unsecured notes due 2023 (the "2023 Notes").
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
The unamortized transaction costs of $2,315 were expensed upon extinguishment of the 2023 Notes. The early redemption of these notes resulted in a charge of $7,252, which was recorded on the condensed consolidated interim income statement (note 5f).
As at September 30, 2020, $1,200,000 aggregate principal amount of senior notes were outstanding in two series: (i) a series of 7.625% senior notes due 2025 in an aggregate principal amount of $600,000 and (ii) a series of 6.125% senior notes due 2029 in an aggregate principal amount of $600,000.
The senior notes are guaranteed on a senior unsecured basis by substantially all of the Company's subsidiaries, other than HudBay (BVI) Inc. and certain excluded subsidiaries, which include the Company's subsidiaries that own an interest in the Rosemont project and any newly formed or acquired subsidiaries that primarily hold or may develop non-producing mineral assets that are in the pre-construction phase of development. Hudbay's revolving credit facilities are secured against substantially all of the Company's assets, other than those associated with the Arizona business unit.
(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 | (2,376 | ) | |
Write-down of unamortized transaction costs | (1,502 | ) | |
Transaction costs | 2,180 | ||
Balance, September 30, 2020 | $ | 4,605 |
On August 31, 2020, Hudbay completed a restructuring of its two senior secured credit facilities. The total available credit has been reduced from $550,000 to $400,000 and various financial covenants have been amended.
The unamortized transaction costs of $1,502 were expensed upon restructuring of the credit facilities.
As at September 30, 2020, 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 $83,795 in letters of credit issued under the Canada revolving credit facility to support its reclamation and pension obligations. As at September 30, 2020, there were no cash advances under the credit facilities.
Surety bonds
The Arizona business unit had $8,591 in surety bonds and the Peru business unit had $20,000 in surety bonds, issued to support future reclamation and closure obligations. No cash collateral is required to be posted under these surety bonds.
Other letters of credit
The Peru business unit had $45,000 in letters of credit issued with various Peruvian financial institutions. No cash collateral is required to be posted under these letters of credit.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
15. Deferred revenue
On August 8, 2012 and November 4, 2013, Hudbay entered into precious metals stream transactions with Wheaton whereby Hudbay has received aggregate deposit payments of $455,100 against delivery of (i) 100% of payable gold and silver from the 777 mine until the end of 2016, and delivery of 50% of payable gold and 100% of payable silver for the remainder of the 777 mine life; and aggregate deposit payments of $429,900 against the delivery of (ii) 100% of payable silver and 50% of payable gold from the Constancia mine.
In addition to the aggregate deposit payments of $885,000, as gold and silver is delivered under the stream agreements, Hudbay receives cash payments equal to the lesser of (i) the market price and (ii) $400 per ounce (for gold) and $5.90 per ounce (for silver), subject to 1% annual escalation after three years, from the inception of the agreement.
Hudbay recorded the deposits received as deferred revenue and recognizes amounts in revenue as gold and silver are delivered under the stream agreements. Hudbay determines the amortization of deferred revenue to the condensed consolidated interim income statements on a per unit basis using the estimated total number of gold and silver ounces expected to be delivered under the stream agreements over the life of the 777 and Constancia life-of-mine plans. At September 30, 2020, Hudbay revised its estimate of remaining mineralization for the 777 deposit and as such adjusted the drawdown rates for the remainder of the year. For the nine months ended September 30, 2020 the drawdown rates for the 777 stream agreement for gold and silver were $1,155 and $22.07 per ounce, respectively (year ended December 31, 2019 - $1,177 and $22.51 per ounce, respectively). For the nine months ended September 30, 2020 the drawdown rates for the Constancia stream agreement for gold and silver were $976 and $21.52 per ounce, respectively (year ended December 31, 2019 - $948 and $21.77 per ounce, respectively). Hudbay estimates the current portion of deferred revenue based on deliveries anticipated over the next twelve months.
Hudbay has determined that precious metals stream contracts are subject to variable consideration and contain a significant financing component. As such, the Company recognizes a financing charge at each reporting period and will gross up the deferred revenue balance to recognize the significant financing element that is part of these contracts. Hudbay's streaming arrangements are secured against the mining properties and other business unit assets associated with the applicable stream.
Hudbay expects that the remaining performance obligations for the 777 and Constancia streams will be settled by the expiry of their respective stream agreements, which is no earlier than 2036.
As part of the streaming agreement for the 777 mine, Hudbay must repay, with precious metals credits, the legal deposit provided by August 1, 2052, the expiry date of the agreement. If the legal deposit is not fully repaid with precious metals credits from 777 production by the expiry date, a cash payment for the remaining amount will be due at the expiry date of the agreement. Given the mineral reserve and resources of the 777 mine and the current mine plan, there is a possibility that an amount of the legal deposit may not be repaid by means of 777 mine's precious metals credits over its expected remaining mine life. As at September 30, 2020, this prepayment amount does not meet the definition of a financial liability. Hudbay incorporates the possibility of repayment as part of its assessment of variable consideration in recognizing the amount of deferred revenue to recognize in income.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
The following table summarizes changes in deferred revenue:
Balance, January 1, 2019 | $ | 566,078 | |
Amortization of deferred revenue | |||
Liability drawdown | (92,398 | ) | |
Variable consideration adjustments - prior periods | 16,295 | ||
Accretion on streaming arrangements | |||
Current year additions | 63,725 | ||
Variable consideration adjustments - prior periods | 6,047 | ||
Effects of changes in foreign exchange | 4,009 | ||
Balance, December 31, 2019 | $ | 563,756 | |
Amortization of deferred revenue | |||
Liability drawdown | (47,152 | ) | |
Variable consideration adjustments - prior periods | (6,668 | ) | |
Accretion on streaming arrangements (note 5f) | |||
Current year additions | 46,508 | ||
Variable consideration adjustments - prior periods | (3,692 | ) | |
Effects of changes in foreign exchange | (2,171 | ) | |
Balance, September 30, 2020 | $ | 550,581 |
Consideration from the Company's stream agreement is considered variable. Gold and silver stream revenue can be subject to cumulative adjustments when the number of ounces to be delivered under the contract changes. As a result of changes in the Company's mineral reserve and resource estimate in the first quarter of 2020 and amendments made to the 777 mine plan in the third quarter of 2020, the amortization rate by which deferred revenue is drawn down into income was adjusted and, as required, a current period catch up adjustment is made for all prior period stream revenues since the stream agreement inception date. This variable consideration adjustment resulted in an increase in revenue of $6,668 and reversal of finance expense of $3,692 for the nine months ended September 20, 2020 (December 31, 2019 - revenue reversal of $16,295 and additional finance expense $6,047).
During the nine months ended September 30, 2020, the Company recognized an adjustment to gold and silver revenue and finance costs due to a net increase in the Company's mineral reserve and resources estimates coupled with a change to the 777 mine plan. During the year ended December 31, 2019, and first quarter of 2020, the Company recognized an adjustment to gold and silver revenue and finance costs.
Deferred revenue is reflected in the condensed consolidated interim balance sheets as follows:
Sep. 30, 2020 | Dec. 31, 2019 | |||||
Current | $ | 73,296 | $ | 86,933 | ||
Non-current | 477,285 | 476,823 | ||||
$ | 550,581 | $ | 563,756 |
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
16. Provisions
Reflected in the condensed consolidated interim balance sheets as follows:
Sep. 30, 2020 | Decommissioning, restoration and similar liabilities | Deferred share units | Restricted share units | Performance share units | Other | Total | ||||||||||||
Current (note 11) | $ | 21,327 | $ | 4,979 | $ | 2,478 | $ | - | $ | - | $ | 28,784 | ||||||
Non-current | 318,995 | - | 2,710 | 831 | 1,344 | 323,880 | ||||||||||||
$ | 340,322 | $ | 4,979 | $ | 5,188 | $ | 831 | $ | 1,344 | $ | 352,664 | |||||||
Dec. 31, 2019 | Decommissioning, restoration and similar liabilities | Deferred share units | Restricted share units | Performance 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.
Decommissioning, restoration and similar liabilities have been discounted to their present value at rates ranging from 0.13% to 1.46% per annum (2019 - 1.59% to 2.39%), using pre-tax risk-free interest rates that reflect the estimated maturity of each specific liability.
During the nine months ended September 30, 2020, the decommissioning, restoration and similar liabilities increased by $38,206. This was mainly the result of lower discount rates, compared to December 31, 2019, associated with discounting the provisions, increasing the liabilities by $52,972, which was partially offset by payments of $13,766 and a weaker Canadian dollar impacting the liabilities of the Manitoba segment by $4,183.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
17. Pension and other employee benefits
Pension obligations
Hudbay uses a December 31 measurement date for all of its plans. As at September 30, 2020, the discount rate applied to the most recent actuarial valuation decreased to 2.67% compared to the December 31, 2019 discount rate of 3.08%, reflecting lower corporate bond yields utilized for discounting pension liabilities. The decrease in the discount rate has resulted in an increase in the defined benefit pension obligation which was offset by changes in plan assets.
Other employee benefits
Hudbay sponsors both other long-term employee benefit plans and non-pension post-employment benefits plans and uses a December 31 measurement date. As at September 30, 2020, the discount rate applied to the most recent actuarial valuation decreased to 2.88% compared to the December 31, 2019 discount rate of 3.17%, reflecting lower corporate bond yields utilized for discounting other employee benefit liabilities. The decrease in the discount rate has resulted in an increase in the long-term employee benefit plans and non-pension post-employment benefit plans obligation.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
18. Income and mining taxes
(a) Tax recoveries:
The tax expense (recoveries) is applicable as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Current: | ||||||||||||
Income taxes | $ | 9 | $ | 6,542 | $ | 709 | $ | 12,198 | ||||
Mining taxes | 2,916 | (1,573 | ) | 2,899 | 4,282 | |||||||
Adjustments in respect of prior years | - | - | (349 | ) | (642 | ) | ||||||
2,925 | 4,969 | 3,259 | 15,838 | |||||||||
Deferred: | ||||||||||||
Income tax recoveries - origination, revaluation and/or reversal of temporary differences | (669 | ) | (81,200 | ) | (28,580 | ) | (84,774 | ) | ||||
Mining tax (recoveries) expenses - origination, revaluation and/or reversal of temporary difference | (2,245 | ) | 2,442 | (3,075 | ) | 283 | ||||||
Adjustments in respect of prior years | - | 218 | 386 | 599 | ||||||||
(2,914 | ) | (78,540 | ) | (31,269 | ) | (83,892 | ) | |||||
$ | 11 | $ | (73,571 | ) | $ | (28,010 | ) | $ | (68,054 | ) |
Adjustments in respect of prior years refers to amounts changing due to the filing of tax returns and assessments from government authorities.
(b) Deferred tax assets and liabilities as represented on the condensed consolidated interim balance sheets:
Sep. 30, 2020 | Dec. 31, 2019 | |||||
Deferred income tax asset | $ | 78,060 | $ | 69,950 | ||
Deferred mining tax asset | 7,682 | 5,096 | ||||
85,742 | 75,046 | |||||
Deferred income tax liability | (212,074 | ) | (233,218 | ) | ||
Deferred mining tax liability | (9,119 | ) | (9,710 | ) | ||
(221,193 | ) | (242,928 | ) | |||
Net deferred tax liability balance, end of period | $ | (135,451 | ) | $ | (167,882 | ) |
Hudbay has retroactively changed its presentation of deferred tax assets and liabilities to separate out the Canadian mining tax assets and liabilities, which has the effect of changing the prior reported balances of deferred tax assets and deferred tax liabilities. There is no net impact to cash flows or net deferred tax liabilities.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
(c) Changes in deferred tax assets and liabilities:
Nine months ended September 30, 2020 | Year ended Dec. 31, 2019 | |||||
Net deferred tax liability balance, beginning of year | $ | (167,882 | ) | $ | (308,577 | ) |
Deferred tax recovery | 31,269 | 144,865 | ||||
OCI transactions | (1,160 | ) | 1,878 | |||
Foreign currency translation on the deferred tax liability | 2,322 | (6,048 | ) | |||
Net deferred tax liability balance, end of period | $ | (135,451 | ) | $ | (167,882 | ) |
19. Share capital
(a) Preference shares:
Authorized: Unlimited preference shares without par value.
Issued and fully paid: Nil.
(b) Common shares:
Authorized: Unlimited common shares without par value.
Issued and fully paid:
Nine months ended September 30, 2020 | Year ended Dec. 31, 2019 | |||||||||||
Common shares | Amount | Common shares | Amount | |||||||||
Beginning and end of period | 261,272,151 | $ | 1,777,340 | 261,272,151 | $ | 1,777,340 |
During the nine months ended September 30, 2020, the Company declared two semi-annual dividends of C$0.01 per share each. The Company paid $1,804 and $1,979 in dividends on March 27, 2020 and September 25, 2020 to shareholders of record as of March 10, 2020 and September 4, 2020.
During the nine months ended September 30, 2019, the Company paid $1,955 and $1,972 in dividends on March 29, 2019 and September 27, 2019 to shareholders of record as of March 8, 2019 and September 6, 2019.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
(c) Equity-settled share-based compensation - stock options:
Hudbay may grant options to employees, officers, directors or consultants of Hudbay or its affiliates to purchase common shares of Hudbay.
During the nine months ended September 30, 2020, the Company granted 1,581,385 stock options (nine months ended September 30, 2019 - nil). The following table presents the weighted average fair value assumptions used in the Black-Scholes valuation of these options:
For options granted during the nine months ended: | Sep. 30, 2020 | ||
Weighted average share price at grant date (CAD) | $ | 3.77 | |
Risk-free rate | 1.14% | ||
Expected dividend yield | 0.5% | ||
Expected stock price volatility (based on historical volatility) | 57.0% | ||
Expected life of option (months) | 84 | ||
Weighted average per share fair value of stock options granted (CAD) | $ | 2.02 |
During the nine months ended September 30, 2020, 12,052 stock options were forfeited, which resulted in 1,569,333 options outstanding as of September 30, 2020. There are no stock options outstanding that are exercisable as at September 30, 2020.
20. Earnings per share
Three months ended September 30, | Nine Months Ended September 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Basic and diluted weighted average common shares outstanding | 261,272,151 | 261,272,151 | 261,272,151 | 261,272,151 |
The determination of the diluted weighted-average number of common shares excludes the impact of 1,574,357 and 1,506,625 weighted-average stock options outstanding that were anti-dilutive for the three and nine months ended September 30, 2020 (three and nine months ended September 30, 2019 - nil).
For periods where Hudbay records a loss, Hudbay calculates diluted loss per share using the basic weighted average number of shares. If the diluted weighted average number of shares were used, the result would be a reduction in the loss, which would be anti-dilutive. For the three and nine months ended September 30, 2020 and 2019, Hudbay calculated diluted loss per share using 261,272,151 common shares.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
21. Financial instruments
(a) Fair value and carrying value of financial instruments:
The following presents the fair value ("FV") and carrying value ("CV") of Hudbay's financial instruments and non-financial derivatives:
Sep. 30, 2020 | Dec. 31, 2019 | |||||||||||
FV | CV | FV | CV | |||||||||
Financial assets at amortized cost | ||||||||||||
Cash and cash equivalents 1 | $ | 449,014 | $ | 449,014 | $ | 396,146 | $ | 396,146 | ||||
Restricted cash1 | 337 | 337 | 337 | 337 | ||||||||
Fair value through profit or loss | ||||||||||||
Trade and other receivables1, 2 | 113,311 | 113,311 | 91,046 | 91,046 | ||||||||
Non-hedge derivative assets3 | 1,392 | 1,392 | 1,712 | 1,712 | ||||||||
Prepayment option - embedded derivatives7 | 9,456 | 9,456 | 2,585 | 2,585 | ||||||||
Investments at FVTPL4 | 14,378 | 14,378 | 11,287 | 11,287 | ||||||||
Total financial assets | 587,888 | 587,888 | 503,113 | 503,113 | ||||||||
Financial liabilities at amortized cost | ||||||||||||
Trade and other payables1, 2 | 143,988 | 143,988 | 184,604 | 184,604 | ||||||||
Deferred Rosemont acquisition consideration8 | 25,585 | 25,585 | 24,491 | 24,491 | ||||||||
Other financial liabilities5 | 39,446 | 45,214 | 21,338 | 24,000 | ||||||||
Senior unsecured notes6 | 1,210,488 | 1,189,165 | 1,050,126 | 994,143 | ||||||||
Fair value through profit or loss | ||||||||||||
Embedded derivatives3 | 2,982 | 2,982 | 9,074 | 9,074 | ||||||||
Gold prepayment liability9 | 132,017 | 132,017 | - | - | ||||||||
Non-hedge derivative liabilities3 | 6,282 | 6,282 | 10,295 | 10,295 | ||||||||
Total financial liabilities | 1,560,788 | 1,545,233 | 1,299,928 | 1,246,607 | ||||||||
Net financial liability | $ | (972,900 | ) | $ | (957,345 | ) | $ | (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. | ||||||||||||
9 The gold prepayment liability (note 12) is designated as fair value through profit or loss under the fair value option. Gains and losses related to the Company's own credit risk have been recorded at fair value through other comprehensive income. The fair value adjustment recorded in other comprehensive income for the nine months ended September 30, 2020 was a loss of $277. |
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 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.
September 30, 2020 | Level 1 | Level 2 | Level 3 | Total | ||||||||
Financial assets measured at fair value | ||||||||||||
Financial assets at FVTPL: | ||||||||||||
Non-hedge derivatives | $ | - | $ | 1,392 | $ | - | $ | 1,392 | ||||
Investments at FVTPL | 14,378 | - | - | 14,378 | ||||||||
Prepayment option embedded derivative | - | 9,456 | - | 9,456 | ||||||||
$ | 14,378 | $ | 10,848 | $ | - | $ | 25,226 | |||||
Financial liabilities measured at fair value | ||||||||||||
Financial liabilities at FVTPL: | ||||||||||||
Embedded derivatives | $ | - | $ | 2,982 | $ | - | $ | 2,982 | ||||
Non-hedge derivatives | - | 6,282 | - | 6,282 | ||||||||
Gold prepayment liability1 | - | 132,017 | - | 132,017 | ||||||||
$ | - | $ | 141,281 | $ | - | $ | 141,281 | |||||
1The gold prepayment liability (note 12) is designated as fair value through profit or loss under the fair value option. Gains and losses related to the Company's own credit risk have been recorded at fair value through other comprehensive income. The fair value adjustment recorded in other comprehensive income for the nine months ended September 30, 2020 was a loss of $277. |
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 |
Hudbay'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 and nine months ended September 30, 2020 and 2019 Hudbay did not make any transfers.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 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 September 30, 2020, Hudbay had 57.3 million pounds of net copper swaps outstanding at an effective average price of $2.93/lb and settling across October 2020 to January 2021. As at December 31, 2019, Hudbay had 66.1 million pounds of net copper swaps outstanding at an effective average price of $2.67/lb and settling across January to April 2020. The aggregate fair value of the transactions at September 30, 2020 was a liability of $5,675 (December 31, 2019 was a liability position of $8,362).
Transactions involving derivatives are with large multi-national financial institutions that Hudbay believes to be credit worthy.
Non-hedge derivative zinc contracts
Hudbay enters into future dated fixed price sales contracts with zinc customers and, to ensure that the Company continues to receive a floating or unhedged realized zinc price, Hudbay enters into forward zinc purchase contracts that effectively offset the fixed price sales contracts. At September 30, 2020, Hudbay held contracts for forward zinc purchased of 7.7 million pounds (December 31, 2019 - 12.7 million pounds) that related to forward customer sales of zinc. Prices range from $0.87/lb to $1.14/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 September 30, 2020 was a net asset position of $785 (December 31, 2019 - a net liability position of $221).
(c) Embedded derivatives
Changes in fair value of provisionally priced receivables
Hudbay records changes in fair value of provisionally priced receivables related to provisional pricing in concentrate purchase, concentrate sale and certain other sale contracts. Under the terms of these contracts, prices are subject to final adjustment at the end of a future period after title transfers based on quoted market prices during the quotation period specified in the contract. The period between provisional pricing and final pricing is typically up to three months.
Changes in fair value of provisionally priced receivables are presented in trade and other receivables when they relate to sales contracts and in trade and other payables when they relate to purchase contracts. At each reporting date, provisionally priced metals are marked-to-market based on the forward market price for the quotation period stipulated in the contract, with changes in fair value recognized in revenue for sales contracts and in inventory or cost of sales for purchase concentrate contracts. Cash flows related to changes in fair value of provisionally priced receivables are classified in operating activities.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
As at September 30, 2020 and 2019, Hudbay's net position consisted of contracts awaiting final pricing which are as indicated below:
Metal in concentrate | Sales awaiting final pricing | Average YTD price ($/unit) | |||||||||||
Unit | Sep. 30, 2020 | Dec. 31, 2019 | Sep. 30, 2020 | Dec. 31, 2019 | |||||||||
Copper | pounds (in thousands) | 64,104 | 72,977 | 2.98 | 2.80 | ||||||||
Gold | oz | 11,664 | 16,152 | 1,519 | 1,522 | ||||||||
Silver | oz | 85,782 | 124,371 | 16.94 | 17.86 | ||||||||
The aggregate changes in fair value of provisionally priced receivables within the copper and zinc concentrate sales contracts at September 30, 2020, was an asset position of $4,889 (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 change in fair value of financial instruments (note 5f). The fair value of the embedded derivative at September 30, 2020 was an asset of $9,456 (December 31, 2019 - an asset of $2,585).
Pampacancha delivery obligation-embedded derivative
Hudbay has recognized an obligation to deliver additional precious metal credits to Wheaton as a result of the Pampacancha deposit not being mined until after 2020 (note 12). The fair value of the embedded derivative at September 30, 2020 was a liability of $2,982 (December 31, 2019 - a liability of $9,074).
(d) Other financial liabilities
Gold prepayment liability
The gold prepayment liability (note 12) requires settlement by physical delivery of gold ounces or equivalent gold credits. The fair value of the embedded derivative at September 30, 2020 was a liability of $132,017 (December 31, 2019 - nil).
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
22. Commitments and contingencies
Capital commitments
As at September 30, 2020, Hudbay had outstanding capital commitments in Canada of approximately $42,902 of which $37,703 can be terminated, approximately $34,674 in Peru, all of which can be terminated, and approximately $179,782 in Arizona, primarily related to the Rosemont project, of which approximately $89,194 can be terminated by Hudbay.
23. Supplementary cash flow information
(a) Change in non-cash working capital:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Change in: | ||||||||||||
Trade and other receivables | $ | (22,251 | ) | $ | (31,590 | ) | $ | (27,986 | ) | $ | (2,611 | ) |
Other financial assets/liabilities | (2,508 | ) | 1,181 | (3,661 | ) | 223 | ||||||
Inventories | 8,320 | (7,083 | ) | 521 | (25,308 | ) | ||||||
Prepaid expenses | (40 | ) | 4,818 | 2,322 | (368 | ) | ||||||
Trade and other payables | 11,510 | 788 | (10,817 | ) | (3,241 | ) | ||||||
Provisions and other liabilities | (1,479 | ) | 4,165 | 2,219 | 5,352 | |||||||
$ | (6,448 | ) | $ | (27,721 | ) | $ | (37,402 | ) | $ | (25,953 | ) |
Hudbay 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.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
(b) Non-cash transactions:
During the nine months ended September 30, 2020 and 2019, Hudbay entered into the following non-cash investing and financing activities which are not reflected in the consolidated statements of cash flows:
- Remeasurement of Hudbay's decommissioning and restoration liabilities for the nine months ended September 30, 2020 led to a net increase in related property, plant and equipment assets of $50,807 (nine months ended September 30, 2019 - increase of $42,849) related to lower discount rates associated with remeasurement of the liabilities.
- Property, plant and equipment included $17,420 (nine months ended September 30, 2019 - $19,751) of capital additions related to the recognition of ROU assets.
- Immediately prior to purchasing United Copper & Moly LLC's ("UCM") remaining interest in the Rosemont project, Hudbay agreed to release UCM from repayment obligations under a Rosemont project loan in exchange for an increase in equity in Rosemont. As a result, the loan receivable balance of $25,978 was written off. Hudbay recognized the loss on write-off of the loan receivable in the income statement (refer to Note 5d). In addition, in order to recognize previously unfunded contributions to the Rosemont Project due from UCM, Hudbay recognized an increase to other capital reserves, a component of shareholder's equity.
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
24. Segmented information
Corporate and other activities include the Company's exploration activities in Chile, Canada and the State of Nevada. These exploration entities are not individually significant, as they do not meet the minimum quantitative thresholds for standalone segment disclosure. Corporate and other activities are not considered a segment and are included as a reconciliation to total consolidated results.
Three months ended September 30, 2020 | |||||||||||||||
Manitoba | Peru | Arizona | Corporate and other activities | Total | |||||||||||
Revenue from external customers | $ | 164,719 | $ | 151,389 | $ | - | $ | - | $ | 316,108 | |||||
Cost of sales | |||||||||||||||
Mine operating costs | 90,460 | 90,372 | - | - | 180,832 | ||||||||||
Depreciation and amortization | 42,977 | 53,021 | - | - | 95,998 | ||||||||||
Gross profit | 31,282 | 7,996 | - | - | 39,278 | ||||||||||
Selling and administrative expenses | - | - | - | 10,902 | 10,902 | ||||||||||
Exploration and evaluation | 719 | 1,984 | - | 47 | 2,750 | ||||||||||
Other expense | 2,060 | 1,377 | 1,104 | 257 | 4,798 | ||||||||||
Results from operating activities | $ | 28,503 | $ | 4,635 | $ | (1,104 | ) | $ | (11,206 | ) | $ | 20,828 | |||
Net interest expense on long term debt | 21,738 | ||||||||||||||
Accretion on streaming arrangements | 10,785 | ||||||||||||||
Change in fair value of financial instruments | (2,750 | ) | |||||||||||||
Other net finance costs | 14,999 | ||||||||||||||
Loss before tax | (23,944 | ) | |||||||||||||
Tax expense | 11 | ||||||||||||||
Loss for the period | $ | (23,955 | ) |
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
Three months ended September 30, 2019 | |||||||||||||||
Manitoba | Peru | Arizona | Corporate and other activities | Total | |||||||||||
Revenue from external customers | $ | 132,981 | $ | 158,301 | $ | - | $ | - | $ | 291,282 | |||||
Cost of sales | |||||||||||||||
Mine operating costs | 96,854 | 81,187 | - | - | 178,041 | ||||||||||
Depreciation and amortization | 35,050 | 47,236 | - | - | 82,286 | ||||||||||
Gross profit | 1,077 | 29,878 | - | - | 30,955 | ||||||||||
Selling and administrative expenses | - | - | - | 5,177 | 5,177 | ||||||||||
Exploration and evaluation | 5,209 | 1,133 | - | 1,326 | 7,668 | ||||||||||
Other expense (income) | 4,131 | 2,210 | 572 | (343 | ) | 6,570 | |||||||||
Asset Impairment | - | - | 322,249 | - | 322,249 | ||||||||||
Results from operating activities | $ | (8,263 | ) | $ | 26,535 | $ | (322,821 | ) | $ | (6,160 | ) | $ | (310,709 | ) | |
Net interest expense on long term debt | 16,286 | ||||||||||||||
Accretion on streaming arrangements | 15,944 | ||||||||||||||
Change in fair value of financial instruments | 2,072 | ||||||||||||||
Other net finance costs | 3,356 | ||||||||||||||
Loss before tax | (348,367 | ) | |||||||||||||
Tax recovery | (73,571 | ) | |||||||||||||
Loss for the period | $ | (274,796 | ) |
Nine Months Ended September 30, 2020 | |||||||||||||||
Manitoba | Peru | Arizona | Corporate and other activities | Total | |||||||||||
Revenue from external customers | $ | 443,832 | $ | 326,296 | $ | - | $ | - | $ | 770,128 | |||||
Cost of sales | |||||||||||||||
Mine operating costs | 283,541 | 218,710 | - | - | 502,251 | ||||||||||
Depreciation and amortization | 129,830 | 133,414 | - | - | 263,244 | ||||||||||
Gross profit (loss) | 30,461 | (25,828 | ) | - | - | 4,633 | |||||||||
Selling and administrative expenses | - | - | - | 26,718 | 26,718 | ||||||||||
Exploration and evaluation | 5,713 | 4,700 | - | 302 | 10,715 | ||||||||||
Other expense | 4,735 | 4,356 | 1,262 | 1,213 | 11,566 | ||||||||||
Results from operating activities | $ | 20,013 | $ | (34,884 | ) | $ | (1,262 | ) | $ | (28,233 | ) | $ | (44,366 | ) | |
Net interest expense on long term debt | 61,102 | ||||||||||||||
Accretion on streaming arrangements | 42,816 | ||||||||||||||
Change in fair value of financial instruments | 8,150 | ||||||||||||||
Other net finance costs | 23,566 | ||||||||||||||
Loss before tax | (180,000 | ) | |||||||||||||
Tax recovery | (28,010 | ) | |||||||||||||
Loss for the period | $ | (151,990 | ) |
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
Nine Months Ended September 30, 2019 | |||||||||||||||
Manitoba | Peru | Arizona | Corporate and other activities | Total | |||||||||||
Revenue from external customers | $ | 392,674 | $ | 520,279 | $ | - | $ | - | $ | 912,953 | |||||
Cost of sales | |||||||||||||||
Mine operating costs | 282,402 | 254,033 | - | - | 536,435 | ||||||||||
Depreciation and amortization | 98,422 | 152,188 | - | - | 250,610 | ||||||||||
Gross profit | 11,850 | 114,058 | - | - | 125,908 | ||||||||||
Selling and administrative expenses | - | - | - | 30,499 | 30,499 | ||||||||||
Exploration and evaluation | 13,174 | 3,680 | - | 4,156 | 21,010 | ||||||||||
Other expenses (income) | 6,862 | 11,847 | 28,526 | (59 | ) | 47,176 | |||||||||
Asset impairment | - | - | 322,249 | - | 322,249 | ||||||||||
Results from operating activities | $ | (8,186 | ) | $ | 98,531 | $ | (350,775 | ) | $ | (34,596 | ) | $ | (295,026 | ) | |
Net interest expense on long term debt | 48,784 | ||||||||||||||
Accretion on streaming arrangements | 53,827 | ||||||||||||||
Change in fair value of financial instruments | 212 | ||||||||||||||
Other net finance costs | 12,560 | ||||||||||||||
Loss before tax | (410,409 | ) | |||||||||||||
Tax recovery | (68,054 | ) | |||||||||||||
Loss for the period | $ | (342,355 | ) |
September 30, 2020 | |||||||||||||||
Manitoba | Peru | Arizona | Corporate and other activities | Total | |||||||||||
Total assets | $ | 784,047 | $ | 2,522,230 | $ | 709,610 | $ | 574,801 | $ | 4,590,688 | |||||
Total liabilities | 551,271 | 931,808 | 77,103 | 1,346,042 | 2,906,224 | ||||||||||
Property, plant and equipment1 | 670,979 | 2,288,828 | 702,302 | 31,831 | 3,693,940 | ||||||||||
1 Included in Corporate and other activities are $27,290 of property, plant and equipment that is located in Nevada. |
December 31, 2019 | |||||||||||||||
Manitoba | Peru | Arizona | Corporate and other activities | Total | |||||||||||
Total assets | $ | 779,896 | $ | 2,556,895 | $ | 700,799 | $ | 423,467 | $ | 4,461,057 | |||||
Total liabilities | 556,267 | 926,642 | 78,988 | 1,051,037 | 2,612,934 | ||||||||||
Property, plant and 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. |
HUDBAY MINERALS INC. Notes to Unaudited Condensed Consolidated Interim Financial Statements (in thousands of US dollars, except where otherwise noted) For the three and nine months ended September 30, 2020 and 2019 |
25. Events after the reporting period
777 Operations Update
Production at the 777 mine was temporarily suspended due to an incident that occurred on October 9th during routine maintenance of the hoist rope and skip. Underground mining activity has resumed at 777 with limited production from the mine's ramp access. Fourth quarter production and sales volumes will be impacted, and the Company is implementing production mitigation plans.