Hudbay Minerals 6K Unaudited Condensed Consolidated Interim Financial Statements | HBM 4 Nov 21

Unaudited Condensed Consolidated Interim Financial Statements

(In US dollars)

HUDBAY MINERALS INC.

For the three and nine months ended, September 30, 2021 and 2020

HUDBAY MINERALS INC.
Condensed Consolidated Interim Balance Sheets
(Unaudited and in thousands of US dollars)

			Sep. 30,			Dec. 31,
	Note		2021			2020
Assets
Current assets
Cash		$	297,451		$	439,135
Trade and other receivables	6		125,613			141,199
Inventories	7		133,257			143,105
Prepaid expenses and other current assets			7,908			16,717
Other financial assets	8		19,391			3,073
Taxes receivable			-			12,446
			583,620			755,675
Receivables	6		15,755			18,568
Inventories	7		33,344			22,006
Other financial assets	8		10,964			15,669
Intangibles and other assets	9		19,659			21,173
Property, plant and equipment	10		3,724,118			3,731,655
Deferred tax assets	17b		117,201			101,899
		$	4,504,661		$	4,666,645
Liabilities
Current liabilities
Trade and other payables		$	177,256		$	233,147
Taxes payable			8,395			2,701
Other liabilities	11		52,112			51,971
Other financial liabilities	12		75,400			24,713
Lease liabilities	13		32,608			33,473
Deferred revenue	15		77,932			102,782
			423,703			448,787
Other financial liabilities	12		132,566			194,378
Lease liabilities	13		35,669			30,041
Long-term debt	14		1,182,612			1,135,675
Deferred revenue	15		442,272			443,902
Environmental and other provisions	16		416,695			331,799
Pension obligations			16,293			23,316
Other employee benefits			117,254			129,508
Deferred tax liabilities	17b		247,417			229,433
			3,014,481			2,966,839
Equity
Share capital	18b		1,778,494			1,777,340
Reserves			3,071			(24,200	)
Retained earnings			(291,385	)		(53,334	)
			1,490,180			1,699,806
		$	4,504,661		$	4,666,645
Commitments (note 21)

HUDBAY MINERALS INC.
Condensed Consolidated Interim Income Statements
(Unaudited and in thousands of US dollars)

			Three months ended September 30,						Nine months ended September 30,
	Note		2021			2020			2021			2020
Revenue	5a	$	358,961		$	316,108		$	1,076,828		$	770,128
Cost of sales
Mine operating costs			211,064			180,832			612,251			502,251
Depreciation and amortization	5c		86,010			95,998			267,997			263,244
Impairment - environmental obligation	5g		147,305			-			147,305			-
			444,379			276,830			1,027,553			765,495
Gross (loss) profit			(85,418	)		39,278			49,275			4,633
Selling and administrative expenses			9,298			10,902			29,295			26,718
Exploration and evaluation expenses			6,932			2,750			26,556			10,715
Other expenses	5e		15,972			4,798			13,654			11,566
Results from operating activities			(117,620	)		20,828			(20,230	)		(44,366	)
Net interest expense on long term debt	5f		19,300			21,738			57,837			61,102
Accretion on streaming arrangements	5f		8,295			10,785			34,359			42,816
Change in fair value of financial instruments	5f		162			(2,750	)		47,735			8,150
Other net finance costs	5f		2,453			14,999			42,441			23,566
Net finance expense			30,210			44,772			182,372			135,634
Loss before tax			(147,830	)		(23,944	)		(202,602	)		(180,000	)
Tax expense (recovery)	17a		22,581			11			31,303			(28,010	)
Loss for the period		$	(170,411	)	$	(23,955	)	$	(233,905	)	$	(151,990	)

Loss per share
Basic and Diluted		$	(0.65	)	$	(0.09	)	$	(0.89	)	$	(0.58	)

Weighted average number of common shares outstanding:
Basic and Diluted	19		261,517,461			261,272,151			261,430,996			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,
	Note		2021			2020			2021			2020
Cash generated from operating activities:
Loss for the period		$	(170,411	)	$	(23,955	)	$	(233,905	)	$	(151,990	)
Tax expense (recovery)	17a		22,581			11			31,303			(28,010	)
Items not affecting cash:
Depreciation and amortization	5c		86,451			96,465			269,400			264,552
Share-based compensation	5d		1,549			4,636			5,636			5,521
Net interest expense on long term debt	5f		19,300			21,738			57,837			61,102
Accretion on streaming arrangements	5f		8,295			10,785			34,359			42,816
Change in fair value of financial instruments	5f		162			(2,750	)		47,735			8,150
Other net finance costs	5f		2,453			14,999			42,441			23,566
Inventory adjustments	7		5,445			-			3,999			2,221
Amortization of deferred revenue and variable consideration	5a		(23,538	)		(30,156	)		(55,870	)		(53,820	)
Pension and other employee benefit payments, net of accruals			4,688			560			9,099			4,494
Impairment - environmental obligation	5g		147,305			-			147,305			-
Decommissioning and restoration payments	16		(6,538	)		(7,637	)		(16,479	)		(13,766	)
Other	22a		8,358			1,136			(3,311	)		(1,543	)
Taxes paid			(2,591	)		(1,449	)		(12,604	)		(7,501	)
Operating cash flow before change in non-cash working capital			103,509			84,383			326,945			155,792
Change in non-cash working capital	22b		36,289			(6,448	)		(38,978	)		(37,402	)
			139,798			77,935			287,967			118,390
Cash (used) from investing activities:
Acquisition of property, plant and equipment			(89,092	)		(144,461	)		(272,597	)		(243,297	)
Proceeds from disposal of investments			-			-			1,081			-
Interest received			199			297			862			1,777
			(88,893	)		(144,164	)		(270,654	)		(241,520	)
Cash (used) from financing activities:
Issuance of senior unsecured notes, net of transaction costs	14a		-			191,824			591,922			191,824
Principal repayments	14a		-			-			(600,000	)		-
Premium paid on redemption of notes	14a		-			(7,252	)		(22,878	)		(7,252	)
Interest paid on long-term debt			(33,600	)		(44,142	)		(84,435	)		(81,517	)
Financing costs			(2,501	)		(4,217	)		(10,231	)		(12,394	)
Lease payments	13		(9,622	)		(9,389	)		(28,368	)		(26,598	)
Gold prepayment proceeds	12		-			-			-			115,005
Net proceeds from exercise of stock options			10			-			750			-
Dividends paid	18b		(2,056	)		(1,979	)		(4,146	)		(3,783	)
			(47,769	)		124,845			(157,386	)		175,285
Effect of movement in exchange rates on cash			28			(738	)		(1,611	)		713
Net increase (decrease) in cash			3,164			57,878			(141,684	)		52,868
Cash, beginning of the period			294,287			391,136			439,135			396,146
Cash, end of the period		$	297,451		$	449,014		$	297,451		$	449,014
For supplemental information, see note 22.

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,
		2021			2020			2021			2020
Loss for the period	$	(170,411	)	$	(23,955	)	$	(233,905	)	$	(151,990	)

Other comprehensive income (loss):
Item that will be reclassified subsequently to profit or loss:
Recognized directly in equity:
Net (loss) gain on translation of foreign currency balances		(7,348	)		4,646			504			(5,940	)
		(7,348	)		4,646			504			(5,940	)

Items that will not be reclassified subsequently to profit or loss:
Recognized directly in equity:
Gold prepayment revaluation (note 20a)		(127	)		203			(2,311	)		(277	)
Tax effect (note 17c)		34			(55	)		621			74
Remeasurement - actuarial gain (loss)		12,997			(1,158	)		31,065			(1,256	)
Tax effect (note 17c)		(2,359	)		110			(3,631	)		(1,234	)
		10,545			(900	)		25,744			(2,693	)

Other comprehensive income (loss) net of tax, for the period		3,197			3,746			26,248			(8,633	)

Total comprehensive loss for the period	$	(167,214	)	$	(20,209	)	$	(207,657	)	$	(160,623	)

HUDBAY MINERALS INC.
Condensed Consolidated Interim Statements of Changes in Equity
(Unaudited and in thousands of US dollars)

		Share capital (note 18)		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 18b)		-		-		-			-			(3,783	)		(3,783	)
Stock options (note 5d)		-		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
Income		-		-		-			-			7,406			7,406
Other comprehensive income (loss)		-		-		10,110			(2,549	)		-			7,561
Total comprehensive income (loss)		-		-		10,110			(2,549	)		7,406			14,967
Contributions by and distributions to owners:
Dividends		-		-		-			-			-			-
Stock options		-		375		-			-			-			375
Total contributions by and distributions to owners		-		375		-			-			-			375

Balance, December 31, 2020	$	1,777,340	$	55,937	$	1,571		$	(81,708	)	$	(53,334	)	$	1,699,806

HUDBAY MINERALS INC.
Condensed Consolidated Interim Statements of Changes in Equity
(Unaudited and in thousands of US dollars)

		Share capital (note 18)		Other capital reserves			Foreign currency translation reserve		Remeasurement reserve			Retained earnings			Total equity

Balance, January 1, 2021	$	1,777,340	$	55,937		$	1,571	$	(81,708	)	$	(53,334	)	$	1,699,806
Loss		-		-			-		-			(233,905	)		(233,905	)
Other comprehensive income		-		-			504		25,744			-			26,248
Total comprehensive income (loss)		-		-			504		25,744			(233,905	)		(207,657	)

Contributions by and distributions to owners:
Dividends (note 18b)		-		-			-		-			(4,146	)		(4,146	)
Stock options (note 5d)		-		1,427			-		-			-			1,427
Transfer to share capital related to stock options redeemed		404		(404	)		-		-			-			-
Issuance of shares related to stock options redeemed		750		-			-		-			-			750
Total contributions by and distributions to owners		1,154		1,023			-		-			(4,146	)		(1,969	)

Balance, September 30, 2021	$	1,778,494	$	56,960		$	2,075	$	(55,964	)	$	(291,385	)	$	1,490,180

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, 2021 and 2020

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, 2021 and 2020 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, 2021 and 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, silver/gold doré 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, 2020 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, 2020 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, 2021.

(b) 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, 2020, except as noted below.

As a result of a new National Instrument 43-101 ("NI 43-101") technical report for the Constancia copper mine in Peru, effective January 1, 2021, which reflects an updated mine plan with a new grade and ore tonnage profile, Hudbay made a change in estimate in Peru for the allocation of mining cost to inventories and depreciation for certain mineral property, property plant and equipment ("PP&E") assets, to reflect the changes in grades following the new NI 43-101 to utilize contained metal in the respective calculations. Please see notes 5c, 7 and 10 for further details on the impact of this change in estimation method.

During the current year, as a result of volatile discount rates and inflation rates, management re-examined the inflation estimate used to calculate the decommissioning, restoration and similar liabilities ("DRO"). It was concluded that the implied difference between the nominal bond yield and the corresponding maturity real return bond yield provides a more accurate estimate of the effective inflation rate. As such, during the current year, the inflation rate estimate used to calculate DRO has been prospectively revised. Please see notes 5e and 16 for further details on the impact of this change in estimation method. In addition, an updated environmental provision following from a revised closure plan for the Flin Flon operation in Manitoba was completed and contains a number of estimates pertaining to cost, scope and timing of remediation work.

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, 2020 and comparative periods, except for the new standards noted in Note 4.

4. New standards

New standards and interpretations adopted

(a) 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 the assets to the location and condition necessary for them 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 has early adopted this amendment as of January 1, 2021 with retrospective application 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 January 1, 2020. No restatement of prior periods was required on adoption given the comparable periods contained no items would have been impacted by this accounting amendment.

(b) Interest Rate Benchmark Reform - Phase II - Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 6

These amendments require companies to determine if there is a significant change in the basis of determining contractual cash flows as a result of interest rate benchmark reform / IBOR reform. A company will be required to determine if the replacement of an existing interest rate benchmark with an alternative rate benchmark results in contractual cash flows that are significantly different for financial instruments, lease payments, insurance contracts and/or items that use hedge accounting. If IBOR reform result in a transition on an economically equivalent basis with no value transfer having occurred, the changes to the standard allow the contractual cash flow changes to be applied prospectively, similar to a change in a market rate. For Hudbay, these amendments have been in effect since January 1, 2021 and have not resulted in material changes to the interim financial statements.

As at September 30, 2021, Hudbay has not entered into any new contracts or contract modifications that are dependent on the LIBOR rate.

5. Revenue and expenses

(a) Revenue

Hudbay's revenue by significant product types:

		Three months ended September 30,						Nine months ended September 30,
		2021			2020			2021			2020
Copper	$	201,564		$	169,525		$	625,503		$	396,896
Zinc		67,673			64,972			227,150			187,546
Gold		61,965			44,934			162,043			131,703
Silver		6,052			6,945			19,676			17,979
Molybdenum		12,780			5,301			26,925			16,797
Other		1,933			2,168			6,096			4,023
		351,967			293,845			1,067,393			754,944
Non-cash streaming arrangement items ¹
Amortization of deferred revenue - gold		13,589			8,980			27,686			19,437
Amortization of deferred revenue - silver		9,949			11,694			26,567			27,715
Amortization of deferred revenue - variable consideration adjustments - prior periods		-			9,482			1,617			6,668
		23,538			30,156			55,870			53,820
Pricing and volume adjustments ²		(2,013	)		7,113			(4,725	)		3,529
		373,492			331,114			1,118,538			812,293
Treatment and refining charges		(14,531	)		(15,006	)		(41,710	)		(42,165	)

	$	358,961		$	316,108		$	1,076,828		$	770,128

¹See note 15.

²Pricing 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 agreements 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 2021, the amortization rate by which deferred revenue is drawn down into income was adjusted and, as required, a catch up adjustment is made for all prior year stream revenues since the stream agreement inception date.

The variable consideration adjustment for the three and nine months ended September 30, 2020 resulted in an increase of revenue of $9,482 and $6,668, respectively. This increase in revenue was primarily the result of updates to the 777 mine plan resulting in the mining of fewer inferred resources than what was planned previously.

In the second quarter of 2021, the Company finalized an amendment with Wheaton Precious Metals ("Wheaton") related to the Peru stream agreement. The result of the amendment was a revision to the Peru gold and silver deferred revenue amortization rates and the related significant financing component. For further details refer to note 15.

(b) Mine operating costs

During the third quarter of 2021, Hudbay recognized a non-cash write-down of materials and supplies inventories of $5,445 and a past service cost provision adjustment related to pensions for unionized employees of $4,229.

(c) Depreciation and amortization

Depreciation of PP&E and amortization of intangible assets are reflected in the interim income statements as follows:

		Three months ended September 30,				Nine months ended September 30,
		2021		2020		2021		2020
Cost of sales	$	86,010	$	95,998	$	267,997	$	263,244
Selling and administrative expenses		441		467		1,403		1,308
	$	86,451	$	96,465	$	269,400	$	264,552

Effective January 1, 2021, the Company made a change in estimate in Peru for certain mineral property PP&E assets to utilize contained metal in the depreciation calculation. This better reflects the systematic allocation of costs to inventory given the change in grade profile following the recently published NI 43-101. For the three and nine months ended September 30, 2021, depreciation expense is higher by $2,046 and by $1,531, respectively, compared to the result under the previous depreciation calculation. Since the change is in response to an updated life-of-mine plan it is being treated as a change in estimate and applied prospectively. Please see Note 10 for further details.

(d) Share-based compensation expenses

Share-based compensation expenses are reflected in the condensed consolidated interim income statements as follows:

		Cash-settled								Total share- based compensation expense
		RSUs		DSUs		PSUs		Stock options		Total share- based compensation expense
Three months ended September 30, 2021
Cost of sales	$	145	$	-	$	-	$	-	$	145
Selling and administrative		364		3		480		511		1,358
Other expenses		46		-		-		-		46
	$	555	$	3	$	480	$	511	$	1,549
Nine months ended September 30, 2021
Cost of sales	$	603	$	-	$	-	$	-	$	603
Selling and administrative		1,713		50		1,690		1,427		4,880
Other expenses		153		-		-		-		153
	$	2,469	$	50	$	1,690	$	1,427	$	5,636
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

During the three and nine months ended September 30 2021, the Company granted 509,385 stock options (three and nine months ended September 30, 2020 - nil and 1,581,385, respectively). For further details on stock options, see note 18c.

(e) Other expenses (income)

		Three months ended September 30,					Nine months ended September 30,
		2021		2020			2021			2020
Regional costs	$	879	$	803		$	2,639		$	2,583
Loss (gain) on disposal of property, plant and equipment		5,082		(65	)		4,785			2,792
Closure cost adjustment - non-producing properties		134		1,936			(4,890	)		2,980
Allocation of community costs		158		704			1,019			2,184
Restructuring - Manitoba		3,639		-			3,639			-
Other		6,080		1,420			6,462			1,027
	$	15,972	$	4,798		$	13,654		$	11,566

Due to rising risk-free interest rates during the first nine months of 2021, discount rates used in the normal course revaluation of the DRO increased correspondingly, resulting in a reduction in the associated liabilities. For certain closed sites with such reclamation obligations, the revaluation of the corresponding liability is recorded through the income statement, resulting in a loss of $134 and gain of $4,890 for the three and nine months ended September 30, 2021 respectively.

During the third quarter of 2021, there were costs incurred related to the restructuring of the Manitoba operations in preparation for the closure of 777 mine of $3,639. These costs were related to severance packages for unionized employees.

Other expenses primarily relates to other Arizona project costs (Copper World) that are not associated with Rosemont.

(f) Net finance expense

		Three months ended September 30,						Nine months ended September 30,
		2021			2020			2021			2020
Net interest expense on long-term debt
Interest expense on long-term debt	$	19,300		$	21,738		$	57,837		$	61,102
Accretion on streaming arrangements (note 15)
Additions		8,295			15,437			33,765			46,508
Variable consideration adjustments - prior periods		-			(4,652	)		594			(3,692	)
		8,295			10,785			34,359			42,816
Change in fair value of financial assets and liabilities at fair value through profit or loss
Embedded derivatives (note 14)		-			(9,147	)		49,754			(5,076	)
Gold prepayment liability		308			9,163			(6,285	)		16,735
Investments		(146	)		(2,766	)		4,266			(3,509	)
		162			(2,750	)		47,735			8,150
Other net finance costs
Net foreign exchange (gain) loss		(3,053	)		(1,150	)		352			(4,228	)
Accretion on community agreements measured at amortized cost		487			731			2,182			2,973
Unwinding of discounts on provisions		1,096			666			3,123			2,791
Withholding taxes		1,914			2,142			5,881			6,172
Premium paid on redemption of notes (note 14)		-			7,252			22,878			7,252
Write-down of unamortized transaction costs (note 14)		-			3,817			2,480			3,817
Other finance expense		2,133			1,832			6,184			6,518
Interest income		(124	)		(291	)		(639	)		(1,729	)
		2,453			14,999			42,441			23,566

Net finance expense	$	30,210		$	44,772		$	182,372		$	135,634

Other finance expense relates primarily to fees on Hudbay's revolving credit facilities and leases.

(g) Impairment - Environmental Obligation

During the third quarter of 2021, an impairment indicator was identified in relation to a revised Flin Flon closure plan. The revised closure plan, reflecting higher cost estimates, led to a large increase in the environmental obligation (note 16) and a corresponding increase to Flin Flon PP&E. The increase in Flin Flon PP&E prompted an impairment test of these assets since the Flin Flon operation is expected to close mid-2022. Hudbay recorded an impairment to PP&E by comparing the carrying value of the Flin Flon operation to its recoverable amount using the value-in-use method for future cash flows associated with the operation until closure. The value-in-use recoverable amount is considered a level 3 valuation method. This resulted in an impairment loss of $147,305. Given the closure is expected to occur in less than 12 months, future adjustments to the Flin Flon environmental provision from fair value adjustments, or otherwise, may lead to future impairment tests of the Flin Flon operation and any resulting impairments or impairment reversals will be charged to the income statement.

6. Trade and other receivables

		Sep. 30, 2021		Dec. 31, 2020
Current
Trade receivables	$	94,661	$	107,787
Statutory receivables		22,307		28,445
Other receivables		8,645		4,967
		125,613		141,199
Non-current
Taxes receivable		15,755		16,941
Other receivables		-		1,627
		15,755		18,568
	$	141,368	$	159,767

7. Inventories

		Sep. 30, 2021		Dec. 31, 2020
Current
Stockpile	$	11,374	$	13,906
Work in progress		3,039		6,364
Finished goods		64,033		72,923
Materials and supplies		54,811		49,912
		133,257		143,105
Non-current
Stockpile		31,303		16,704
Materials and supplies		2,041		5,302
		33,344		22,006
	$	166,601	$	165,111

The cost of inventories recognized as an expense, including depreciation, and included in cost of sales amounted to $267,886 and $800,727 for the three and nine months ended September 30, 2021 (three and nine months ended September 30, 2020 - $251,821 and $668,665 respectively).

During the three and nine months ended September 30, 2021, Hudbay recognized a recovery of nil and recovery of $1,446 in cost of sales related to adjustments of the carrying value of Peru inventories to net realizable value (three and nine months ended September 30, 2020 - nil and an expense of $2,221, respectively). Adjustments to the carrying value of inventories to net realizable value were related to changes in commodity prices.

Due to the upcoming closure of the Flin Flon operation, certain long term inventory supplies which are not expected to be utilized were written down and $5,445 was charged to mine operating costs in the third quarter of 2021 (note 5b).

Effective January 1, 2021, following a new NI 43-101 technical report for Peru, which reflects an updated mine plan with a new grade and ore tonnage profile, the Company changed its method of estimation of applying mining costs to stockpile and finished goods inventory. Prior to this change, mining costs were allocated using tonnes of ore mined. Starting January 1, 2021, Peru mining costs have been allocated to inventories using contained metal, incorporating tonnes of ore mined and expected mined grades. Since the change is in response to an updated life-of-mine plan, it is being treated in accordance with a change in estimate and will be applied prospectively. For the nine months ended September 30, 2021, as a result of the change in allocation, stockpile inventories have declined by $5,071 and finished goods inventories have increased by $642.

8. Other financial assets

		Sep. 30, 2021		Dec. 31, 2020
Current
Derivative assets	$	19,054	$	2,736
Restricted cash		337		337
		19,391		3,073

Non-current
Investments at fair value through profit or loss		10,964		15,669
	$	30,355	$	18,742

The derivative assets include derivative and hedging transactions. Derivative assets are carried at their fair value with changes in fair value recorded to the condensed consolidated income statements. The fair value adjustments for hedging type derivatives are recorded in revenue.

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 $19,659 (December 31, 2020 - $21,173) includes $14,094 of other assets (December 31, 2020 - $15,764) and $5,565 of intangibles (December 31, 2020 - $5,409).

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 (income) (note 5e). Intangibles mainly represent computer software costs.

10. Property, plant and equipment

Sep. 30, 2021		Cost		Accumulated depreciation and amortization			Carrying amount
Exploration and evaluation assets	$	79,905	$	-		$	79,905
Capital works in progress		990,172		-			990,172
Mining properties		2,408,221		(1,236,959	)		1,171,262
Plant and equipment		2,791,630		(1,403,294	)		1,388,336
Plant and equipment-ROU Assets¹		243,018		(148,575	)		94,443
	$	6,512,946	$	(2,788,828	)	$	3,724,118

Dec. 31, 2020		Cost		Accumulated depreciation and amortization			Carrying amount
Exploration and evaluation assets	$	79,059	$	-		$	79,059
Capital works in progress		957,162		-			957,162
Mining properties		2,217,461		(1,126,274	)		1,091,187
Plant and equipment		2,793,719		(1,271,581	)		1,522,138
Plant and equipment - ROU Assets¹		214,303		(132,194	)		82,109
	$	6,261,704	$	(2,530,049	)	$	3,731,655

¹Includes $3,667 of capital works in progress - ROU assets (cost) that relate to the Arizona Business unit (December 31, 2020 - $4,777 related to the Arizona and Manitoba Business units)

For the nine months ended September 30, 2021, the increase in property, plant and equipment (cost) of $251,242 was mainly caused by fixed asset and construction in progress asset additions of $315,128, partially offset by net decreases in decommissioning and restoration assets of $48,902 (producing assets) mostly as a result of changes in discount rates associated with remeasurement of the liabilities. During the third quarter of 2021, there was a write-down of $5.4 million related to New Britannia assets that were not utilized as part of the project (note 5e). In addition, during the third quarter of 2021, a revised Flin Flon closure plan led to a large increase in the environmental obligation (note 16) and a corresponding increase to Flin Flon PP&E. A resulting impairment indicator was identified due to the limited life of the Flin Flon operation resulting in an impairment loss of $147,305 (note 5g).

Effective January 1, 2021, following a new NI 43-101 technical report for Peru, the Company made a change in estimate for the depreciation calculation of certain mineral property PP&E assets in Peru to utilize contained metal. This better reflects the systematic allocation of costs to inventory given the change in grade profile following the recently published NI 43-101.

Since the change is in response to an updated life-of-mine plan, it is being treated in accordance with a change in estimate and will be applied prospectively. For the three months ended September 30, 2021, depreciation expense is higher by $2,046 and for the nine months ended September 30, 2021 is higher by $1,531 to the result under the previous depreciation calculation.

11. Other liabilities

		Sep. 30, 2021		Dec. 31, 2020
Current
Environmental and other provisions (note 16)	$	32,369	$	33,675
Pension liability		10,734		13,552
Other employee benefits		3,312		3,154
Unearned revenue		5,697		1,590
	$	52,112	$	51,971

12. Other financial liabilities

		Sep. 30, 2021		Dec. 31, 2020
Current
Derivative liabilities	$	6,422	$	15,312
Deferred Rosemont acquisition consideration		9,572		-
Gold prepayment liability		51,219		-
Other financial liabilities at amortized cost		8,187		9,401
		75,400		24,713

Non-current
Deferred Rosemont acquisition consideration		17,549		25,961
Gold prepayment liability		81,837		137,031
Wheaton refund liability (note 15)		5,305		-
Other financial liabilities at amortized cost		27,875		31,386
		132,566		194,378
	$	207,966	$	219,091

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.

As part of the streaming agreement for the 777 mine, Hudbay must repay, with precious metals credits, the deposit by August 1, 2052, the expiry date of the agreement. If the stream deposit is not fully repaid with precious metals credits from 777 production by the expiry date, a payment for the remaining amount will be due at the expiry date of the agreement. Given revised resource estimates and the planned closure of the 777 mine in 2022, Hudbay believes such a payment is expected and as such, as at September 30, 2021 the estimated repayment amount was reclassified to a refund liability. This will be discounted at the 9.0% rate inherent in the original agreement and accreted over the remaining term of the agreement.

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 pre-tax fair value adjustment recorded in profit or loss and other comprehensive income for the three and nine months ended September 30, 2021 totaled a net loss of $435 and net gain of $3,974, respectively (three and nine months ended September 30, 2020 - net losses of $8,960 and $17,289, 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 changes in other financial liabilities at amortized cost during the three and nine months ended September 30, 2021 primarily relates to the execution of the remaining land user agreements with certain community members, partially offset by disbursements.

The following table summarizes changes in other financial liabilities at amortized cost:

Balance, January 1, 2020	$	24,000
Net additions		116,233
Disbursements		(98,375	)
Accretion		3,641
Effects of changes in foreign exchange		(4,712	)
Balance, December 31, 2020	$	40,787
Net additions		22,192
Disbursements		(24,190	)
Accretion		2,182
Effects of changes in foreign exchange		(4,909	)
Balance, September 30, 2021	$	36,062

13. Lease Liability

Balance, January 1, 2020	$	81,947
Additional capitalized leases		17,759
Lease payments		(35,980	)
Accretion and other movements		(212	)
Balance, December 31, 2020	$	63,514
Additional capitalized leases		32,528
Lease payments		(28,368	)
Accretion and other movements		603
Balance, September 30, 2021	$	68,277

		Sep. 30, 2021		Dec. 31, 2020
Current	$	32,608	$	33,473
Non-current		35,669		30,041
	$	68,277	$	63,514

Hudbay has entered into leases for its Peru, Manitoba and Arizona business units which expire between 2021 and 2043. The interest rates on leases which were capitalized have interest rates between 2.80% to 5.99%, 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 an 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, 2021 and September 30, 2020, relating to leases for which a recognition exemption was applied.

		Three months ended September 30,				Nine months ended September 30,
		2021		2020		2021		2020
Short-term leases	$	10,872	$	8,954	$	27,109	$	29,795
Low value leases		74		45		228		169
Variable leases		14,504		10,802		29,735		33,168
Total	$	25,450	$	19,801	$	57,072	$	63,132

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, 2021			Dec. 31, 2020
Senior unsecured notes (a)	$	1,185,243		$	1,139,695
Less: Unamortized transaction costs - revolving credit facilities (b)		(2,631	)		(4,020	)
	$	1,182,612		$	1,135,675

(a) Senior unsecured notes

Balance, January 1, 2020	$	991,558
Addition to Principal, net of $8,176 transaction costs		591,824
Principal repayments		(400,000	)
Change in fair value of embedded derivative (prepayment option)		(47,169	)
Write-down of unamortized transaction costs		2,315
Accretion of transaction costs and premiums		1,167
Balance, December 31, 2020	$	1,139,695
Addition to Principal, net of $8,078 transaction costs		591,922
Principal repayments		(600,000	)
Write-down of fair value of embedded derivative (prepayment option)		49,754
Write-down of unamortized transaction costs		2,480
Accretion of transaction costs and premiums		1,392
Balance, September 30, 2021	$	1,185,243

On March 8, 2021, Hudbay completed an offering of $600,000 aggregate principle amount of 4.50% senior unsecured notes due April 2026 (the "2026 Notes").

Hudbay used the proceeds of the offering, together with available cash on hand, to satisfy and discharge all of its obligations with respect to its then outstanding $600,000 aggregate principal amount of 7.625% senior unsecured notes due 2025 (the "2025 Notes").

The unamortized transaction costs of $2,480 were expensed upon extinguishment of the 2025 Notes. The early redemption of these notes resulted in a charge of $22,878, which was recorded on the condensed consolidated interim income statements (note 5f).

The early redemption of the 2025 Notes reflected the exercise of a prepayment option previously valued at $49,754. As such, the prepayment option has been expensed in the condensed consolidated interim income statements (note 5f).

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").

In 2020, 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 statements.

As at September 30, 2021, $1,200,000 aggregate principal amount of senior notes were outstanding in two series: (i) a series of 4.50% senior notes due 2026 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, 2020	$	6,303
Accretion of transaction costs		(3,062	)
Write-down of unamortized transaction costs		(1,502	)
Transaction costs		2,281
Balance, December 31, 2020	$	4,020
Accretion of transaction costs		(2,405	)
Transaction costs		1,016
Balance, September 30, 2021 ¹	$	2,631

¹ Balance, representing deferred transaction costs, is in an asset position.

On August 31, 2020, Hudbay completed a restructuring of its two senior secured credit facilities. The total available credit was 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, 2021, the Peru business unit had $11,470 in letters of credit issued under the Peru revolving credit facility to support its reclamation obligations and the Manitoba business unit had $91,271 in letters of credit issued under the Canada revolving credit facility to support its reclamation and pension obligations. As at September 30, 2021, there were no cash advances under the credit facilities.

Surety bonds

The Arizona business unit had $8,591 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 $87,089 in letters of credit issued with various Peruvian financial institutions to support future reclamation and other operating matters. No cash collateral is required to be posted under these letters of credit.

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 Peru's production.

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/Pampacancha life-of-mine plans. 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.

777 Stream Agreement

For the three and nine months ended September 30, 2021, the drawdown rates for the 777 stream agreement for gold and silver were CA$1,578 and CA$30.38 per ounce, respectively (year ended December 31, 2020 - CA$1,589 and CA$30.63 per ounce, respectively).

As part of the streaming agreement for the 777 mine, Hudbay must repay, with precious metals credits, the stream deposit by August 1, 2052, the expiry date of the agreement. If the stream deposit is not fully repaid with precious metals credits from 777 production by the expiry date, a payment for the remaining amount will be due at the expiry date of the agreement. Given the remaining mine life is less than 12 months, Hudbay estimates that a portion of the stream deposit will not be repaid by means of precious metals credits from 777 production. As at September 30, 2021, the estimated repayment amount was reclassified to a refund liability (note 12), which will be discounted at the 9.0% rate inherent in the original 777 stream agreement and accreted over the remaining term of the agreement.

Peru Stream Agreement

During the second quarter of 2021, an amendment to the Peru gold stream was signed with Wheaton. The amendment eliminates the requirement to deliver 8,020 ounces of gold to Wheaton for not mining four million tonnes of ore from the Pampacancha deposit by June 30, 2021. In consideration for the elimination of this delivery obligation, Hudbay has agreed to increase the fixed gold recoveries that apply to Constancia ore production from 55% to 70% until December 31, 2025, which matches the fixed recovery rate that applies to Pampacancha production. As such, Hudbay revised its estimate of the remaining number of gold ounces expected to be delivered under the Peru streaming arrangement. Based on the nature of the amendment to the streaming agreement, it was determined that this contract modification should be treated as a termination of the existing contract and creation of a new contract. The accounting for such a modification is fully prospective.

As a result of the contract modification, the transaction price has been redetermined and the discount rate used to compute the significant financing component has been reassessed as of May 1, 2021. Under IFRS 15, the significant financing component is recognized as a financing charge at each reporting period and grosses up the deferred revenue balance to recognize the significant financing element that is inherent in the contract. Discount rates are significantly lower than compared to when the original contract was initiated which has resulted in lower amortized revenues and lower interest accretion expense.

Effective May 1, 2021, the drawdown rate for the Peru stream agreement for gold was $762 per ounce and prior to May 1, 2021 the drawdown rate for gold was $990 per ounce (year ended December 31, 2020 - $976 per ounce). Effective May 1, 2021 the drawdown rate for the Peru stream agreement for silver was $15.64 per ounce and prior to May 1, 2021 the drawdown rate for silver was $21.86 per ounce (year ended December 31, 2020 - $21.52 per ounce).

The following table summarizes changes in deferred revenue:

Balance, January 1, 2020	$	563,756
Amortization of deferred revenue
Liability drawdown		(67,263	)
Variable consideration adjustments - prior periods		(6,668	)
Accretion on streaming arrangements
Current year additions		60,362
Variable consideration adjustments - prior periods		(3,692	)
Effects of changes in foreign exchange		189
Balance, December 31, 2020	$	546,684
Amortization of deferred revenue
Liability drawdown		(54,253	)
Variable consideration adjustments - prior periods		(1,617	)
Accretion on streaming arrangements (note 5f)
Current year-to-date additions		33,765
Variable consideration adjustments - prior periods		594
Reclass of refund liability (note 12)		(5,305	)
Effects of changes in foreign exchange		336
Balance, September 30, 2021	$	520,204

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 2021, 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 $1,617 and an increase of finance expense of $594 for the nine months ended September 30, 2021.

During the year ended December 31, 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. This variable consideration adjustment resulted in an increase in revenue of $6,668 and reversal of finance expense of $3,692 for the year ended December 31, 2020.

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

		Sep. 30, 2021		Dec. 31, 2020
Current	$	77,932	$	102,782
Non-current		442,272		443,902
	$	520,204	$	546,684

16. Environmental and other provisions

Reflected in the condensed consolidated interim balance sheets as follows:

Sep. 30, 2021		Decommissioning, restoration and similar liabilities		Deferred share units		Restricted share units		Performance share units		Other		Total
Current (note 11)	$	18,290	$	6,686	$	3,861	$	-	$	3,532	$	32,369
Non-current		404,924		-		4,201		3,692		3,878		416,695
	$	423,214	$	6,686	$	8,062	$	3,692	$	7,410	$	449,064

Dec. 31, 2020		Decommissioning, restoration and similar liabilities		Deferred share units		Restricted share units		Performance share units		Other		Total
Current (note 11)	$	20,308	$	8,719	$	4,648	$	-	$	-	$	33,675
Non-current		322,824		-		5,801		2,030		1,144		331,799
	$	343,132	$	8,719	$	10,449	$	2,030	$	1,144	$	365,474

The other category mainly consists of restructuring provisions related to the closure of the Flin Flon operations and other miscellaneous obligations primarily in the Arizona business unit.

The following table summarizes changes in decommissioning, restoration and similar liabilities:

Balance, December 31, 2020	$	343,132
Net increase in provisions		129,330
Disbursements		(16,479	)
Effect of change in estimate to inflation rates¹		9,609
Unwinding of discounts (note 5f)		3,123
Effect of change in nominal discount rate		(46,365	)
Effect of foreign exchange		864
Balance, September 30, 2021	$	423,214

¹Represents changes in estimates of inflation rates applied to expected undiscounted cash flows.

DRO 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. The amount of this provision has been recorded based on estimates and assumptions that management believes are reasonable; however, actual decommissioning and restoration costs may differ from expectations.

During the third quarter of 2021, following a comprehensive update to the Flin Flon closure plan, additional provisions were recognized to reflect higher estimates for closure activities in Flin Flon through to the year 2122. The increase in the environmental obligation resulted in a corresponding increase in the Flin Flon PP&E. However, as the closure of Flin Flon is expected to commence within 12 months, an impairment indicator was identified which led to an impairment loss of $147,305 (note 5g).

During the first quarter of 2021, as a result of volatile discount rates and inflation rates, management re-examined the inflation estimate used to calculate the DRO liability. It was concluded that the implied difference between the nominal bond yield and the corresponding maturity real return bond yield provides a more accurate estimate of the effective inflation rate. As such, since the first quarter of 2021, the inflation rate estimate used to calculate DRO has been prospectively revised.

As at September 30, 2021, decommissioning, restoration and similar liabilities have been discounted to their present value at nominal rates ranging from 0.09% to 2.08% per annum (December 31, 2020: 0.12% to 1.65%), using pre-tax risk-free interest rates that reflect the estimated maturity of each specific liability with the latest obligation provided for occurring in the year 2122.

17. 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,
		2021			2020			2021			2020
Current:
Income taxes	$	11,182		$	9		$	14,064		$	709
Mining taxes		3,375			2,916			17,048			2,899
Adjustments in respect of prior years		-			-			3			(349	)
		14,557			2,925			31,115			3,259
Deferred:
Income tax expense (recoveries) - origination, revaluation and/or reversal of temporary differences		10,864			(669	)		(8,835	)		(28,580	)
Mining tax (recoveries) expense - origination, revaluation and/or reversal of temporary difference		(2,840	)		(2,245	)		1,984			(3,075	)
Adjustments in respect of prior years		-			-			7,039			386
		8,024			(2,914	)		188			(31,269	)
	$	22,581		$	11		$	31,303		$	(28,010	)

Adjustments in respect of prior years refers to amounts changing due to the filing of tax returns and assessments from government authorities as well as any change identified that would result in a difference to our current or deferred tax balances as reported in the prior fiscal year end.

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

		Sep. 30, 2021			Dec. 31, 2020
Deferred income tax asset	$	115,006		$	94,070
Deferred mining tax asset		2,195			7,829
		117,201			101,899

Deferred income tax liability		(235,330	)		(220,568	)
Deferred mining tax liability		(12,087	)		(8,865	)
		(247,417	)		(229,433	)
Net deferred tax liability balance, end of period	$	(130,216	)	$	(127,534	)

(c) Changes in deferred tax assets and liabilities:

		Nine months ended Sep. 30, 2021			Year ended Dec. 31, 2020
Net deferred tax liability balance, beginning of year	$	(127,534	)	$	(167,882	)
Deferred tax (expense) recovery		(188	)		43,236
OCI transactions		(3,010	)		(759	)
Foreign currency translation on the deferred tax liability		516			(2,129	)
Net deferred tax liability balance, end of period	$	(130,216	)	$	(127,534	)

18. 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, 2021			Year ended Dec. 31, 2020
	Common shares		Amount	Common shares		Amount
Balance, beginning of year	261,272,151	$	1,777,340	261,272,151	$	1,777,340
Exercise of options	248,549		1,154	-		-
Balance, end of period	261,520,700	$	1,778,494	261,272,151	$	1,777,340

During the nine months ended September 30, 2021, the Company declared two semi-annual dividends of C$0.01 per share each. The Company paid $2,090 and $2,056 in dividends on March 26, 2021 and September 24, 2021 to shareholders of record as of March 9, 2021 and September 3, 2021.

During the nine months ended September 30, 2020, 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.

(c) Equity-settled share-based compensation - stock options:

The Company's stock option plan was approved in June 2005 and amended in May 2008 (the "Plan"). Under the amended Plan, the Company may grant to employees, officers, directors or consultants of the Company or its affiliates options to purchase up to a maximum of 13 million common shares of Hudbay. The Company has determined that the appropriate accounting treatment is to classify the stock options as equity settled transactions.

The following is a continuity of the changes in the number of stock options outstanding:

	Number of shares subject to option			Weighted- average exercise price C$
Balance, January 1, 2020	-
Number of units granted during the year	1,581,385		$	3.77
Forfeited	(18,196	)	$	3.76
Balance, December 31, 2020	1,563,189		$	3.77
Number of units granted during the period	509,385		$	10.42
Exercised	(248,549	)	$	3.76
Forfeited	(45,593	)	$	5.63
Balance, September 30, 2021	1,778,432		$	5.63

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, 2021
Weighted average share price at grant date (CAD)	$	10.42
Risk-free rate		1.015%
Expected dividend yield		0.2%
Expected stock price volatility (based on historical volatility)		60.5%
Expected life of option since grant date (months)		84
Weighted average per share fair value of stock options granted (CAD)	$	6.06

Stock options outstanding and exercisable as at September 30, 2021:

Range of exercise prices C$

Number of
options
outstanding

Weighted average
remaining
contractual life
(years)

Weighted
average exercise
price C$

Number of
options
exercisable

$3.76 - $3.84

1,155,798

5.4

3.76

228,201

$3.85 - $7.17

126,076

5.4

3.92

42,024

$7.18 - $10.42

496,558

6.4

10.42

Hudbay estimates expected life of options and expected volatility based on historical data, which may differ from actual outcomes.

19. Earnings per share

Three months ended
September 30,

Nine months ended
September 30,

2021

2020

2021

2020

Basic and diluted weighted average common shares outstanding

261,517,461

261,272,151

261,430,996

261,272,151

The determination of the diluted weighted-average number of common shares excludes the impact of 496,558 weighted-average stock options outstanding that were anti-dilutive for the three and nine months ended September 30, 2021 (three and nine months ended September 30, 2020 - 1,574,357 and 1,506,625).

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, 2021, and Hudbay calculated diluted loss per share using 261,517,461 and 261,430,996, respectively (three and nine months ended September 30, 2020 - 261,272,151 common shares).

20. 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, 2021						Dec. 31, 2020
		FV			CV			FV			CV
Financial assets at amortized cost
Cash¹	$	297,451		$	297,451		$	439,135		$	439,135
Restricted cash¹		337			337			337			337
Fair value through profit or loss
Trade and other receivables ^1, ^{2, 3}		103,306			103,306			114,381			114,381
Non-hedge derivative assets ⁴		19,054			19,054			2,736			2,736
Investments ⁵		10,964			10,964			15,669			15,669
Total financial assets		431,112			431,112			572,258			572,258
Financial liabilities at amortized cost
Trade and other payables^1, ²		166,798			166,798			209,413			209,413
Deferred Rosemont acquisition consideration ⁸		27,121			27,121			25,961			25,961
Other financial liabilities ⁶		32,872			36,062			41,912			40,787
Wheaton refund liability¹⁰		5,305			5,305			-			-
Senior unsecured notes ⁷		1,226,562			1,185,243			1,277,124			1,139,695
Fair value through profit or loss
Gold prepayment liability ⁹		133,056			133,056			137,031			137,031
Non-hedge derivative liabilities ⁴		6,422			6,422			15,312			15,312
Total financial liabilities		1,598,136			1,560,007			1,706,753			1,568,199
Net financial liability	$	(1,167,024	)	$	(1,128,895	)	$	(1,134,495	)	$	(995,941	)

¹Cash, 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.

²Excludes tax and other statutory amounts.

³ Trade and other receivables contain receivables including provisionally priced receivables classified as FVTPL and various other items at amortized cost. The fair value of provisionally priced receivables is determined using forward metals prices which is a level 2 valuation method.

⁴Derivatives 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.

⁵All investments are carried at their fair value, which is determined using quoted market bid prices in active markets for listed shares.

⁶These 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.

⁷Fair value of the senior unsecured notes (note 14) has been determined using the quoted market price at the period end. Fair value incorporates the fair value of the prepayment option embedded derivative. The carrying value of this embedded derivative is at FVTPL (2021: nil; 2020: $49,754) and has been determined using a binomial tree/lattice approach based on the Hull-White single factor interest rate term structure model.

⁸Discounted value based on a risk adjusted discount rate.

⁹The 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, 2021 was a loss of $2,311 (year ended December 31, 2020 was a loss of $1,885).
¹⁰ Discounted value based on a market rate consistent with the applicable Wheaton contract (note 12).

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, 2021

Level 1

Level 2

Level 3

Total

Financial assets measured at fair value

Financial assets at FVTPL:

Non-hedge derivatives

19,054

Investments

10,964

19,054

30,018

Financial liabilities measured at fair value

Financial liabilities at FVTPL:

Non-hedge derivatives

6,422

Gold prepayment liability

133,056

Financial liabilities at amortized cost:

Other financial liabilities

32,872

Wheaton refund liability

5,305

Senior unsecured notes

1,226,562

139,478

38,177

1,404,217

December 31, 2020		Level 1		Level 2		Level 3		Total
Financial assets measured at fair value
Financial assets at FVTPL:
Non-hedge derivatives	$	-	$	2,736	$	-	$	2,736
Investments		15,669		-		-		15,669
	$	15,669	$	2,736	$	-	$	18,405
Financial liabilities measured at fair value
Financial liabilities at FVTPL:
Non-hedge derivatives	$	-	$	15,312	$	-	$	15,312
Gold prepayment liability		-		137,031		-		137,031
Financial liabilities at amortized cost:
Other financial liabilities		-		-		41,912		41,912
Senior unsecured notes		1,277,124		-		-		1,277,124
	$	1,277,124	$	152,343	$	41,912	$	1,471,379

The Company'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 nine months ended September 30, 2021 and year ended December 31, 2020, Hudbay did not make any such transfers.

(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, 2021, Hudbay had 59.1 million pounds of net copper swaps outstanding at an effective average price of $4.26/lb and settling across October 2021 to January 2022. As at December 31, 2020, Hudbay had 43.4 million pounds of net copper swaps outstanding at an effective average price of $3.22/lb and settling across January to April 2021. The aggregate fair value of the transactions at September 30, 2021 was an asset of $12,436 (December 31, 2020 - a liability position of $13,198).

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, 2021, Hudbay held contracts for forward zinc purchased of 1.2 million pounds (December 31, 2020 - 3.5 million pounds) that related to forward customer sales of zinc. Prices range from $1.09/lb to $1.38/lb (December 31, 2020 - $0.87/lb to $1.30/lb) and settlement dates extend to December 2021. The aggregate fair value of the transactions at September 30, 2021 was a net asset position of $196 (December 31, 2020 - a net asset position of $622).

(c) Provisionally priced receivables

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.

As at September 30, 2021 and December 31, 2020, 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, 2021

Dec. 31, 2020

Sep. 30, 2021

Dec. 31, 2020

pounds

Copper

(in thousands)

61,211

47,901

4.06

3.52

Gold

24,980

18,106

1,756

1,894

Silver

98,212

123,380

22.03

26.35

The aggregate changes in fair value of provisionally priced receivables within the copper and zinc concentrate sales contracts at September 30, 2021, was an asset position of $15,812 (December 31, 2020 - an asset position of $21,295).

(d) Embedded derivatives

Prepayment option embedded derivative

The senior unsecured notes (note 14) may contain prepayment options, which represent embedded derivatives that may require bifurcation from the host contract. When bifurcation is required, the embedded derivatives are measured at fair value, with changes in the fair value being recognized as change in fair value of financial instruments on the income statement (note 5f). Neither the 2026 Notes nor the 2029 Notes contain embedded derivatives that require bifurcation from the host contract. The fair value of the embedded derivative at September 30, 2021 was nil (December 31, 2020 - $49,754).

(e) 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 financial liability at September 30, 2021 was a liability of $133,056 (December 31, 2020 - $137,031).

21. Commitments and contingencies

Capital commitments

As at September 30, 2021, Hudbay had outstanding capital commitments in Canada of approximately $50,498 of which $41,031 can be terminated, approximately $41,583 in Peru, all of which can be terminated, and approximately $181,038 in Arizona, primarily related to the Rosemont project, of which approximately $88,932 can be terminated by Hudbay.

22. Supplementary cash flow information

(a) Other cash generated from/ (used in) operating activities

		Three months ended September 30,						Nine months ended September 30,
		2021			2020			2021			2020
Loss (gain) on disposal of property, plant & equipment (note 5e)	$	5,082		$	(65	)	$	4,785		$	2,792
Closure cost adjustment - non-producing properties (note 5e)		134			1,936			(4,890	)		2,980
Share based compensation paid		(20	)		-			(6,646	)		(2,981	)
Pampacancha delivery obligation paid		-			(2,960	)		-			(7,887	)
Restructuring - Manitoba (note 5e)		3,639			-			3,639			-
Other		(477	)		2,225			(199	)		3,553
	$	8,358		$	1,136		$	(3,311	)	$	(1,543	)

(b) Change in non-cash working capital:

		Three months ended September 30,						Nine months ended September 30,
		2021			2020			2021			2020
Change in:
Trade and other receivables	$	37,412		$	(22,251	)	$	14,798		$	(27,986	)
Other financial assets/liabilities		(5,791	)		(2,508	)		(25,210	)		(3,661	)
Inventories		5,335			8,320			(8,927	)		521
Prepaid expenses		2,697			(40	)		9,004			2,322
Trade and other payables		(8,918	)		11,510			(31,685	)		(10,817	)
Provisions and other liabilities		5,554			(1,479	)		3,042			2,219
	$	36,289		$	(6,448	)	$	(38,978	)	$	(37,402	)

(c) Non-cash transactions:

During the nine months ended September 30, 2021 and 2020, Hudbay entered into the following non-cash investing and financing activities which are not reflected in the condensed consolidated interim statements of cash flows:

- Remeasurement of Hudbay's decommissioning and restoration liabilities for the nine months ended September 30, 2021 led to a net decrease in related property, plant and equipment assets of $48,902 (nine months ended September 30, 2020 - a net increase of $50,807) mostly related to changes in discount rates associated with remeasurement of the liabilities.

- Property, plant and equipment included $32,528 (nine months ended September 30, 2020 - $17,420) of capital additions related to the recognition of ROU assets and $22,192 of capital additions related to agreements with communities (nine months ended September 30, 2020 - $110,541).

23. 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, 2021

Manitoba

Peru

Arizona

Corporate
and other
activities

Total

Revenue from external customers

166,523

192,438

358,961

Cost of sales

Mine operating costs

122,227

88,837

211,064

Depreciation and amortization

38,825

47,185

86,010

Impairment - environmental obligation

147,305

Gross (loss) profit

(141,834

)

56,416

(85,418

)

Selling and administrative expenses

9,298

Exploration and evaluation

1,075

1,438

4,375

6,932

Other expenses

9,034

1,302

5,158

478

15,972

Results from operating activities

(151,943

)

53,676

(9,533

)

(9,820

)

(117,620

)

Net interest expense on long term debt

19,300

Accretion on streaming arrangements

8,295

Change in fair value of financial instruments

162

Other net finance costs

2,453

Loss before tax

(147,830

)

Tax expense

22,581

Loss for the period

(170,411

)

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 expenses		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	)

Nine Months Ended September 30, 2021

Manitoba

Peru

Arizona

Corporate
and other
activities

Total

Revenue from external customers

541,791

535,037

1,076,828

Cost of sales

Mine operating costs

346,305

265,946

612,251

Depreciation and amortization

127,667

140,330

267,997

Impairment - environmental obligation

147,305

Gross (loss) profit

(79,486

)

128,761

49,275

Selling and administrative expenses

29,295

Exploration and evaluation

4,460

5,459

16,647

(10

)

26,556

Other expenses

4,486

3,659

4,932

577

13,654

Results from operating activities

(88,432

)

119,643

(21,579

)

(29,862

)

(20,230

)

Net interest expense on long term debt

57,837

Accretion on streaming arrangements

34,359

Change in fair value of financial instruments

47,735

Other net finance costs

42,441

Loss before tax

(202,602

)

Tax expense

31,303

Loss for the period

(233,905

)

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 expenses		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	)

September 30, 2021

Manitoba

Peru

Arizona

Corporate
and other
activities

Total

Total assets

766,495

2,572,622

740,577

424,967

4,504,661

Total liabilities

610,649

970,291

76,825

1,356,716

3,014,481

Property, plant and equipment¹

702,027

2,255,015

724,642

42,434

3,724,118

¹ Included in Corporate and other activities are $27.6 million of property, plant and equipment that is located in Nevada.

December 31, 2020
		Manitoba		Peru		Arizona		Corporate and other activities		Total
Total assets	$	801,691	$	2,535,939	$	718,982	$	610,033	$	4,666,645
Total liabilities		562,013		976,756		76,926		1,354,144		2,966,839
Property, plant and equipment¹		699,884		2,290,097		709,939		31,735		3,731,655

¹ Included in Corporate and other activities are $27.5 million of property, plant and equipment that is located in Nevada.

24. Events after the reporting period

Amendments to Credit Facilities

On October 26, 2021, the Company amended and restated its senior secured revolving credit facilities to increase the total amount of available borrowings to $450 million, eliminate certain financial covenants and amend others to increase its financial flexibility, reduce the effective interest rate and extend the maturity to October 26, 2025. The remaining financial covenants include maintaining a net debt to EBITDA ratio of less than 4.00:1, a senior secured debt to EBITDA of less than 3.00:1 and an interest coverage ratio of greater than 3.00:1. The two facilities have substantially similar terms and conditions and continue to be secured by all Hudbay assets except for those assets related to the Arizona business unit.

Hudbay Minerals (HBM) 6-KUnaudited Condensed Consolidated Interim Financial Statements