Unaudited Condensed Consolidated Interim Financial Statements
(In US dollars)
HUDBAY MINERALS INC.
For the three months ended March 31, 2022 and 2021
HUDBAY MINERALS INC. |
Mar. 31, | Dec. 31, | ||||||
Note | 2022 | 2021 | |||||
Assets | |||||||
Current assets | |||||||
Cash | $ | 213,359 | $ | 270,989 | |||
Trade and other receivables | 6 | 185,231 | 204,081 | ||||
Inventories | 7 | 199,239 | 158,453 | ||||
Prepaid expenses and other current assets | 15,760 | 15,338 | |||||
Other financial assets | 8 | 6,643 | 7,867 | ||||
620,232 | 656,728 | ||||||
Receivables | 6 | 16,805 | 16,084 | ||||
Inventories | 7 | 23,438 | 37,573 | ||||
Other financial assets | 8 | 13,210 | 11,158 | ||||
Intangibles and other assets | 9 | 19,800 | 20,138 | ||||
Property, plant and equipment | 10 | 3,713,732 | 3,740,966 | ||||
Deferred tax assets | 130,997 | 133,584 | |||||
$ | 4,538,214 | $ | 4,616,231 | ||||
Liabilities | |||||||
Current liabilities | |||||||
Trade and other payables | $ | 185,082 | $ | 207,777 | |||
Taxes payable | 8,371 | 15,243 | |||||
Other liabilities | 11 | 54,460 | 63,002 | ||||
Other financial liabilities | 12 | 107,712 | 100,702 | ||||
Lease liabilities | 13 | 29,518 | 33,529 | ||||
Deferred revenue | 15 | 73,243 | 88,963 | ||||
458,386 | 509,216 | ||||||
Other financial liabilities | 12 | 106,945 | 120,972 | ||||
Lease liabilities | 13 | 47,507 | 44,473 | ||||
Long-term debt | 14 | 1,181,119 | 1,180,274 | ||||
Deferred revenue | 15 | 418,939 | 426,363 | ||||
Pension obligations | 10,770 | 6,252 | |||||
Other employee benefits | 108,674 | 128,588 | |||||
Environmental and other provisions | 16 | 368,800 | 461,501 | ||||
Deferred tax liabilities | 275,096 | 261,764 | |||||
2,976,236 | 3,139,403 | ||||||
Equity | |||||||
Share capital | 18b | 1,780,182 | 1,778,848 | ||||
Reserves | 21,894 | (182 | ) | ||||
Retained earnings | (240,098 | ) | (301,838 | ) | |||
1,561,978 | 1,476,828 | ||||||
$ | 4,538,214 | $ | 4,616,231 | ||||
Commitments (note 21) |
HUDBAY MINERALS INC. |
Note | Three months ended March 31, | ||||||
2022 | 2021 | ||||||
Revenue | 5a | $ | 378,619 | $ | 313,624 | ||
Cost of sales | |||||||
Mine operating costs | 212,260 | 178,430 | |||||
Depreciation and amortization | 5b | 81,091 | 82,682 | ||||
293,351 | 261,112 | ||||||
Gross profit | 85,268 | 52,512 | |||||
Selling and administrative expenses | 11,841 | 9,945 | |||||
Exploration expenses | 18,630 | 6,847 | |||||
Evaluation expenses | 3, 5c | 7,036 | 267 | ||||
Environmental obligation adjustment | 3, 16 | (79,856 | ) | (4,499 | ) | ||
Other expenses | 3, 5d | 2,012 | 1,091 | ||||
Results from operating activities | 125,605 | 38,861 | |||||
Net interest expense on long term debt | 5e | 16,898 | 21,232 | ||||
Accretion on streaming arrangements | 5e | 4,836 | 15,528 | ||||
Change in fair value of financial instruments | 5e | 7,216 | 39,007 | ||||
Other net finance costs | 5e | 7,794 | 32,686 | ||||
Net finance expense | 36,744 | 108,453 | |||||
Profit (loss) before tax | 88,861 | (69,592 | ) | ||||
Tax expense (recovery) | 17 | 25,046 | (9,490 | ) | |||
Profit (loss) for the period | $ | 63,815 | $ | (60,102 | ) | ||
Profit (loss) per share | |||||||
Basic and diluted | $ | 0.24 | $ | (0.23 | ) | ||
Weighted average number of common shares outstanding: | |||||||
Basic | 19 | 261,689,263 | 261,321,074 | ||||
Diluted | 19 | 262,267,240 | 261,321,074 |
HUDBAY MINERALS INC. |
Note | Three months ended March 31, | ||||||
2022 | 2021 | ||||||
Cash generated from operating activities: | |||||||
Profit (loss) for the period | $ | 63,815 | $ | (60,102 | ) | ||
Tax expense (recovery) | 17 | 25,046 | (9,490 | ) | |||
Items not affecting cash: | �� | ||||||
Depreciation and amortization | 5b | 81,533 | 83,162 | ||||
Share-based compensation | 3,303 | 1,786 | |||||
Net interest expense on long term debt | 5e | 16,898 | 21,232 | ||||
Accretion on streaming arrangements | 5e | 4,836 | 15,528 | ||||
Change in fair value of financial instruments | 5e | 7,216 | 39,007 | ||||
Other net finance costs | 5e | 7,794 | 32,686 | ||||
Inventory adjustments | 7 | (461 | ) | (723 | ) | ||
Amortization of deferred revenue and variable consideration | 5a | (28,219 | ) | (15,227 | ) | ||
Pension and other employee benefit payments, net of accruals | (708 | ) | 2,641 | ||||
Environmental obligation adjustment | 3, 16 | (79,856 | ) | (4,499 | ) | ||
Decommissioning and restoration payments | 16 | (3,341 | ) | (4,637 | ) | ||
Other | 22a | (4,614 | ) | (6,311 | ) | ||
Taxes paid | (16,189 | ) | (4,397 | ) | |||
Operating cash flow before change in non-cash working capital | 77,053 | 90,656 | |||||
Change in non-cash working capital | 22b | (13,746 | ) | (38,859 | ) | ||
63,307 | 51,797 | ||||||
Cash used in investing activities: | |||||||
Acquisition of property, plant and equipment | (55,894 | ) | (82,950 | ) | |||
Interest received | 162 | 438 | |||||
(55,732 | ) | (82,512 | ) | ||||
Cash used in financing activities: | |||||||
Issuance of senior unsecured notes, net of transaction costs | 14a | - | 591,928 | ||||
Principal repayments | 14a | - | (600,000 | ) | |||
Premium paid on redemption of notes | 14a | - | (22,878 | ) | |||
Interest paid on long-term debt | (31,875 | ) | (50,835 | ) | |||
Financing costs | (3,151 | ) | (3,586 | ) | |||
Lease payments | 13 | (9,863 | ) | (9,773 | ) | ||
Gold prepayment repayments | 12 | (18,623 | ) | - | |||
Net proceeds from exercise of stock options | 868 | 443 | |||||
Dividends paid | 18b | (2,075 | ) | (2,090 | ) | ||
(64,719 | ) | (96,791 | ) | ||||
Effect of movement in exchange rates on cash | (486 | ) | (1,065 | ) | |||
Net decrease in cash | (57,630 | ) | (128,571 | ) | |||
Cash, beginning of the period | 270,989 | 439,135 | |||||
Cash, end of the period | $ | 213,359 | $ | 310,564 |
HUDBAY MINERALS INC. |
Three months ended March 31, | ||||||
2022 | 2021 | |||||
Profit (loss) for the period | $ | 63,815 | $ | (60,102 | ) | |
Other comprehensive income: | ||||||
Item that will be reclassified subsequently to profit or loss: | ||||||
Recognized directly in equity: | ||||||
Net gain on translation of foreign currency balances | 3,308 | 3,461 | ||||
3,308 | 3,461 | |||||
Items that will not be reclassified subsequently to profit or loss: | ||||||
Recognized directly in equity: | ||||||
Gold prepayment revaluation | 175 | (1,547 | ) | |||
Tax effect | (46 | ) | 416 | |||
Remeasurement - actuarial gain | 18,017 | 20,549 | ||||
Tax effect | 790 | (1,109 | ) | |||
18,936 | 18,309 | |||||
Other comprehensive income net of tax, for the period | 22,244 | 21,770 | ||||
Total comprehensive profit (loss) for the period | $ | 86,059 | $ | (38,332 | ) |
HUDBAY MINERALS INC. |
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 | - | - | - | - | (60,102 | ) | (60,102 | ) | ||||||||||
Other comprehensive income | - | - | 3,461 | 18,309 | - | 21,770 | ||||||||||||
Total comprehensive income (loss) | - | - | 3,461 | 18,309 | (60,102 | ) | (38,332 | ) | ||||||||||
Contributions by and distributions to owners: | ||||||||||||||||||
Dividends (note 18b) | - | - | - | - | (2,090 | ) | (2,090 | ) | ||||||||||
Stock options | - | 423 | - | - | - | 423 | ||||||||||||
Issuance of shares related to stock options redeemed | 681 | (238 | ) | - | - | - | 443 | |||||||||||
Total contributions by and distributions to owners | 681 | 185 | - | - | (2,090 | ) | (1,224 | ) | ||||||||||
Balance, March 31, 2021 | $ | 1,778,021 | $ | 56,122 | $ | 5,032 | $ | (63,399 | ) | $ | (115,526 | ) | $ | 1,660,250 | ||||
Loss | - | - | - | - | (184,256 | ) | (184,256 | ) | ||||||||||
Other comprehensive (loss) income | - | - | (2,125 | ) | 2,982 | - | 857 | |||||||||||
Total comprehensive (loss) income | - | - | (2,125 | ) | 2,982 | (184,256 | ) | (183,399 | ) | |||||||||
Contributions by and distributions to owners: | ||||||||||||||||||
Dividends (note 18b) | - | - | - | - | (2,056 | ) | (2,056 | ) | ||||||||||
Stock options | - | 1,496 | - | - | - | 1,496 | ||||||||||||
Issuance of shares related to stock options redeemed | 827 | (290 | ) | - | - | - | 537 | |||||||||||
Total contributions by and distributions to owners | 827 | 1,206 | - | - | (2,056 | ) | (23 | ) | ||||||||||
Balance, December 31, 2021 | $ | 1,778,848 | $ | 57,328 | $ | 2,907 | $ | (60,417 | ) | $ | (301,838 | ) | $ | 1,476,828 |
HUDBAY MINERALS INC. |
Share capital (note 18) | Other capital reserves | Foreign currency translation reserve | Remeasurement reserve | Retained earnings | Total equity | |||||||||||||
Balance, January 1, 2022 | $ | 1,778,848 | $ | 57,328 | $ | 2,907 | $ | (60,417 | ) | $ | (301,838 | ) | $ | 1,476,828 | ||||
Profit | - | - | - | - | 63,815 | 63,815 | ||||||||||||
Other comprehensive income | - | - | 3,308 | 18,936 | - | 22,244 | ||||||||||||
Total comprehensive income | - | - | 3,308 | 18,936 | 63,815 | 86,059 | ||||||||||||
Contributions by and distributions to owners: | ||||||||||||||||||
Dividends (note 18b) | - | - | - | - | (2,075 | ) | (2,075 | ) | ||||||||||
Stock options | - | 298 | - | - | - | 298 | ||||||||||||
Issuance of shares related to stock options redeemed | 1,334 | (466 | ) | - | - | - | 868 | |||||||||||
Total contributions by and distributions to owners | 1,334 | (168 | ) | - | - | (2,075 | ) | (909 | ) | |||||||||
Balance, March 31, 2022 | $ | 1,780,182 | $ | 57,160 | $ | 6,215 | $ | (41,481 | ) | $ | (240,098 | ) | $ | 1,561,978 |
HUDBAY MINERALS INC. |
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 months ended March 31, 2022 and 2021 represent the financial position and the financial performance of the Company and its subsidiaries (together referred to as "Hudbay").
Wholly owned subsidiaries as at March 31, 2022 and 2021 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), silver/gold doré, 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, 2021 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, 2021 and have been consistently applied in the preparation of these interim financial statements.
The Board of Directors approved these interim financial statements on May 9, 2022.
HUDBAY MINERALS INC. |
(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, 2021.
(c) Estimation uncertainty:
The Company has assessed the economic impacts of the novel coronavirus pandemic and Russia's invasion of Ukraine on its interim financial statements. As at March 31, 2022, management has determined that the Company's ability to execute its medium and longer term plans and the economic viability of its assets (including the carrying value of its long-lived assets and inventory valuations) are not materially impacted.
In making this judgment, the Company has assessed various criteria including, but not limited to, existing laws, regulations, orders, disruptions and potential disruptions in our supply chain, disruptions in the markets for our products, commodity prices and foreign exchange prices and the actions that the Company has taken at its operations to protect the health and safety of its workforce and local community.
3. Reclassification of comparative amounts
Certain prior period amounts have been reclassified for consistency with the current period presentation. Evaluation expenses (note 5c) and environmental obligation adjustment (note 16) have been reclassified to their own financial statement line items within the condensed consolidated interim income statements due to the significant increases in these balances. These balances were previously included in exploration and evaluation expenses and other expenses respectively. Environmental obligation adjustment was previously included within Other in the operating activities section of the condensed consolidated interim statements of cash flows and has now been reclassified to its own line within operating activities. These reclassifications had no effect on the previous reported net loss or cash generated from operating activities.
4. New standards
New standards and interpretations not yet adopted
Amendment to IAS 1 - Presentation of Financial Statements
The amendments to IAS 1 promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current or non-current (based on a substantive right to defer settlement). This amendment is in effect January 1, 2023 with early adoption permitted. The Company has not yet determined the effect of adoption of this amendment on its consolidated financial statements.
HUDBAY MINERALS INC. |
5. Revenue and expenses
(a) Revenue
Hudbay's revenue by significant product types:
Three months ended March 31, | ||||||
2022 | 2021 | |||||
Copper | $ | 208,989 | $ | 173,686 | ||
Zinc | 66,426 | 82,103 | ||||
Gold | 67,552 | 42,193 | ||||
Silver | 6,621 | 6,397 | ||||
Molybdenum | 9,194 | 6,970 | ||||
Other | 2,437 | 1,559 | ||||
Revenue from contracts | 361,219 | 312,908 | ||||
Non-cash streaming arrangement items 1 | ||||||
Amortization of deferred revenue - gold | 13,202 | 4,873 | ||||
Amortization of deferred revenue - silver | 11,772 | 8,737 | ||||
Amortization of deferred revenue - variable consideration adjustments - prior periods | 3,245 | 1,617 | ||||
28,219 | 15,227 | |||||
Pricing and volume adjustments 2 | 1,264 | (2,575 | ) | |||
390,702 | 325,560 | |||||
Treatment and refining charges | (12,083 | ) | (11,936 | ) | ||
$ | 378,619 | $ | 313,624 | |||
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 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 2022, the amortization rate by which deferred revenue is drawn down into income was adjusted and, as required, a catch up adjustment was made for all prior year stream revenues since the stream agreement inception date. This variable consideration adjustment resulted in an increase of revenue of $3,245 for the three months ended March 31, 2022 (March 31, 2021 - increase of revenue of $1,617).
HUDBAY MINERALS INC. |
(b) Depreciation and amortization
Depreciation of PP&E and amortization of intangible assets are reflected in the condensed consolidated interim income statements as follows:
Three months ended March 31, | ||||||
2022 | 2021 | |||||
Cost of sales | $ | 81,091 | $ | 82,682 | ||
Selling and administrative expenses | 442 | 480 | ||||
$ | 81,533 | $ | 83,162 |
(c) Evaluation expenses
Evaluation expenses primarily relate to Arizona's Copper World Preliminary Economic Assessment study costs.
(d) Other expenses
Three months ended March 31, | ||||||
2022 | 2021 | |||||
Regional costs | $ | 1,219 | $ | 820 | ||
Gain on disposal of property, plant and equipment | (532 | ) | (303 | ) | ||
Amortization of community costs (other assets) | 562 | 353 | ||||
Restructuring - Manitoba | 748 | - | ||||
Other | 15 | 221 | ||||
$ | 2,012 | $ | 1,091 |
During the first quarter of 2022, there were costs incurred related to the restructuring of the Manitoba operations in preparation for the closure of 777 mine of $748. These costs were related to activities performed in advance of the mine's expected closure in June 2022.
HUDBAY MINERALS INC. |
(e) Net finance expense
Three months ended March 31, | ||||||
2022 | 2021 | |||||
Net interest expense on long-term debt | ||||||
Interest expense on long-term debt | $ | 16,898 | $ | 21,232 | ||
Accretion on streaming arrangements (note 15) | ||||||
Additions | 7,363 | 14,934 | ||||
Variable consideration adjustments - prior periods | (2,527 | ) | 594 | |||
4,836 | 15,528 | |||||
Change in fair value of financial assets and liabilities at fair value through profit or loss | ||||||
Embedded derivatives (note 14) | - | 49,754 | ||||
Gold prepayment liability | 9,108 | (12,500 | ) | |||
Investments | (1,892 | ) | 1,753 | |||
7,216 | 39,007 | |||||
Other net finance costs | ||||||
Net foreign exchange gains | 1,506 | 1,670 | ||||
Accretion on community agreements measured at amortized cost | 610 | 653 | ||||
Accretion on environmental provisions | 1,892 | 861 | ||||
Withholding taxes | 1,563 | 2,023 | ||||
Premium paid on redemption of notes | - | 22,878 | ||||
Write-down of unamortized transaction costs (note 14) | - | 2,480 | ||||
Other finance expense | 2,325 | 2,484 | ||||
Interest income | (102 | ) | (363 | ) | ||
7,794 | 32,686 | |||||
Net finance expense | $ | 36,744 | $ | 108,453 |
Other finance expense relates primarily to fees on Hudbay's revolving credit facilities and leases.
HUDBAY MINERALS INC. |
6. Trade and other receivables
Mar. 31, 2022 | Dec. 31, 2021 | |||||
Current | ||||||
Trade receivables | $ | 140,450 | $ | 166,524 | ||
Statutory receivables | 39,502 | 31,191 | ||||
Other receivables | 5,279 | 6,366 | ||||
185,231 | 204,081 | |||||
Non-current | ||||||
Taxes receivable | 16,805 | 16,084 | ||||
$ | 202,036 | $ | 220,165 |
The decrease in trade receivables for the three months ended March 31, 2022 primarily relates to three shipments, representing approximately 30,000 tonnes of copper, which occurred late in fiscal 2021 for which payment occurred in early 2022.
7. Inventories
Mar. 31, 2022 | Dec. 31, 2021 | |||||
Current | ||||||
Stockpile | $ | 28,571 | $ | 12,768 | ||
Work in progress | 6,650 | 5,647 | ||||
Finished goods | 106,402 | 78,958 | ||||
Materials and supplies | 57,616 | 61,080 | ||||
199,239 | 158,453 | |||||
Non-current | ||||||
Stockpile | 18,553 | 34,156 | ||||
Materials and supplies | 4,885 | 3,417 | ||||
23,438 | 37,573 | |||||
$ | 222,677 | $ | 196,026 |
The cost of inventories recognized as an expense, including depreciation, and included in cost of sales amounted to $261,174 for the three months ended March 31, 2022 (three months ended March 31, 2021 - $237,398).
During the three months ended March 31, 2022, Hudbay recognized a recovery of $461 in cost of sales related to adjustments of the carrying value of Peru inventories to net realizable value (three months ended March 31, 2021 - recovery $723). Adjustments of the carrying value of inventories to net realizable value were related to changes in commodity prices.
HUDBAY MINERALS INC. |
8. Other financial assets
Mar. 31, 2022 | Dec. 31, 2021 | |||||
Current | ||||||
Derivative assets | $ | 6,206 | $ | 7,430 | ||
Restricted cash | 437 | 437 | ||||
6,643 | 7,867 | |||||
Non-current | ||||||
Investments at fair value through profit or loss | 13,210 | 11,158 | ||||
$ | 19,853 | $ | 19,025 |
9. Intangibles and other assets
Intangibles and other assets of $19,800 (December 31, 2021 - $20,138) includes $14,039 of other assets (December 31, 2021 - $14,240) and $5,761 of intangibles (December 31, 2021 - $5,898).
Other assets represent the carrying value of certain future community costs that relate to original agreements with communities for the Constancia operation which allow Hudbay to extract minerals over the useful life of the Constancia operation. The liability remaining for these costs is recorded in agreements with communities recorded at amortized cost (note 12). Amortization of the carrying amount is recorded in the condensed consolidated interim income statements within other expenses (note 5d) or exploration expense, depending on the nature of the agreement.
Intangibles mainly represent computer software costs.
HUDBAY MINERALS INC. |
10. Property, plant and equipment
Mar. 31, 2022 | Cost | Accumulated depreciation and amortization | Carrying amount | ||||||
Exploration and evaluation assets | $ | 90,284 | $ | - | $ | 90,284 | |||
Capital works in progress | 873,384 | - | 873,384 | ||||||
Mining properties | 2,470,651 | (1,332,432 | ) | 1,138,219 | |||||
Plant and equipment | 3,004,363 | (1,499,697 | ) | 1,504,666 | |||||
Plant and equipment-ROU Assets1 | 264,783 | (157,604 | ) | 107,179 | |||||
$ | 6,703,465 | $ | (2,989,733 | ) | $ | 3,713,732 | |||
Dec. 31, 2021 | Cost | Accumulated depreciation and amortization | Carrying amount | ||||||
Exploration and evaluation assets | $ | 88,207 | $ | - | $ | 88,207 | |||
Capital works in progress | 858,230 | - | 858,230 | ||||||
Mining properties | 2,434,000 | (1,284,369 | ) | 1,149,631 | |||||
Plant and equipment | 2,983,919 | (1,445,122 | ) | 1,538,797 | |||||
Plant and equipment - ROU Assets1 | 259,726 | (153,625 | ) | 106,101 | |||||
$ | 6,624,082 | $ | (2,883,116 | ) | $ | 3,740,966 | |||
1 Includes $4,871 of capital works in progress - ROU assets (cost) that relate to the Arizona segment (December 31, 2021 - $5,112 related to the Arizona segment). |
11. Other liabilities
Mar. 31, 2022 | Dec. 31, 2021 | |||||
Current | ||||||
Environmental and other provisions (note 16) | $ | 41,502 | $ | 41,017 | ||
Pension liability | 8,998 | 10,472 | ||||
Other employee benefits | 3,631 | 3,530 | ||||
Unearned revenue | 329 | 7,983 | ||||
$ | 54,460 | $ | 63,002 |
HUDBAY MINERALS INC. |
12. Other financial liabilities
Mar. 31, 2022 | Dec. 31, 2021 | |||||
Current | ||||||
Derivative liabilities | $ | 15,873 | $ | 12,451 | ||
Deferred Rosemont acquisition consideration | 9,855 | 9,713 | ||||
Gold prepayment liability | 75,744 | 71,394 | ||||
Agreements with communities recorded at amortized cost | 6,240 | 7,144 | ||||
107,712 | 100,702 | |||||
Non-current | ||||||
Deferred Rosemont acquisition consideration | 18,068 | 17,805 | ||||
Gold prepayment liability | 54,574 | 68,614 | ||||
Agreements with communities recorded at amortized cost | 28,757 | 29,129 | ||||
Wheaton refund liability (note 15) | 5,546 | 5,424 | ||||
106,945 | 120,972 | |||||
$ | 214,657 | $ | 221,674 |
The changes to agreements with communities recorded at amortized cost during the three months ended March 31, 2022 primarily relates to disbursements, partially offset by changes in estimates and effects of changes in foreign exchange.
The following table summarizes changes in the gold prepayment liability:
Balance, January 1, 2021 | $ | 137,031 | |
Change in fair value recorded in profit or loss | 293 | ||
Change in fair value recorded in other comprehensive income | 2,684 | ||
Balance, December 31, 2021 | $ | 140,008 | |
Change in fair value recorded in profit or loss (note 5e) | 9,108 | ||
Change in fair value recorded in other comprehensive income | (175 | ) | |
Repayments | (18,623 | ) | |
Balance, March 31, 2022 | $ | 130,318 |
HUDBAY MINERALS INC. |
13. Lease liability
Balance, January 1, 2021 | $ | 63,514 | |
Additional capitalized leases | 49,695 | ||
Lease payments | (37,719 | ) | |
Accretion and other movements 1 | 2,512 | ||
Balance, December 31, 2021 | $ | 78,002 | |
Additional capitalized leases | 7,772 | ||
Lease payments | (9,863 | ) | |
Accretion and other movements | 1,114 | ||
Balance, March 31, 2022 | $ | 77,025 | |
1 Includes $1,844 of sale lease back additions to ROU leases. |
Lease liabilities are reflected in the condensed consolidated interim balance sheets as follows:
Mar. 31, 2022 | Dec. 31, 2021 | |||||
Current | $ | 29,518 | $ | 33,529 | ||
Non-current | 47,507 | 44,473 | ||||
$ | 77,025 | $ | 78,002 |
Hudbay has entered into leases which expire between 2022 and 2043. The interest rates on leases which were capitalized have interest rates between 2.50% and 7.43%, 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, relating to leases for which a recognition exemption was applied.
Three months ended March 31, | ||||||
2022 | 2021 | |||||
Short-term leases | $ | 11,770 | $ | 8,539 | ||
Low value leases | 204 | 93 | ||||
Variable leases | 10,437 | 8,083 | ||||
Total | $ | 22,411 | $ | 16,715 |
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 segment 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.
HUDBAY MINERALS INC. |
14. Long-term debt
Long-term debt is comprised of the following:
Mar. 31, 2022 | Dec. 31, 2021 | |||||
Senior unsecured notes (a) | $ | 1,186,375 | $ | 1,185,805 | �� | |
Less: Unamortized transaction costs - revolving credit facilities (b) | (5,256 | ) | (5,531 | ) | ||
$ | 1,181,119 | $ | 1,180,274 |
(a) Senior unsecured notes
Balance, January 1, 2021 | $ | 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 | 1,954 | ||
Balance, December 31, 2021 | $ | 1,185,805 | |
Accretion of transaction costs and premiums | 570 | ||
Balance, March 31, 2022 | $ | 1,186,375 |
As at March 31, 2022, $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.
(b) Unamortized transaction costs - revolving credit facilities
Balance, January 1, 2021 | $ | 4,020 | |
Accretion of transaction costs | (2,816 | ) | |
Transaction costs | 4,327 | ||
Balance, December 31, 2021 | $ | 5,531 | |
Accretion of transaction costs | (391 | ) | |
Transaction costs | 116 | ||
Balance, March 31, 2022 1 | $ | 5,256 | |
1 Balance, representing deferred transaction costs, is in an asset position. |
As at March 31, 2022, the Peru segment had nil in letters of credit issued under the Peru revolving credit facility to support its reclamation obligations and the Manitoba segment had $92,543 in letters of credit issued under the Canada revolving credit facility to support its reclamation and pension obligations. As at March 31, 2022, there were no cash advances under the credit facilities.
Surety bonds
The Arizona segment had $28,291 in surety bonds issued to support future reclamation and closure obligations. No cash collateral is required to be posted under these surety bonds.
HUDBAY MINERALS INC. |
Other letters of credit
The Peru segment had $107,920 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
777 Stream Agreement
For the three months ended March 31, 2022, the drawdown rates for the 777 stream agreement for gold and silver were C$1,584 and C$31.28 per ounce, respectively (year ended December 31, 2021 - C$1,578 and CA$30.38 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 March 31, 2022, the estimated repayment amount was reclassified to a refund liability (note 12), which is and 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
For the three months ended March 31, 2022, the drawdown rates for the Peru stream agreement for gold and silver were $734 and $14.95 per ounce, respectively (year ended December 31, 2021 - $791 and $17.47 per ounce, respectively).
HUDBAY MINERALS INC. |
The following table summarizes changes in deferred revenue:
Balance, January 1, 2021 | $ | 546,684 | |
Amortization of deferred revenue | |||
Liability drawdown | (71,519 | ) | |
Variable consideration adjustments - prior periods | (1,617 | ) | |
Accretion on streaming arrangements | |||
Current year additions | 42,060 | ||
Variable consideration adjustments - prior periods | 594 | ||
Reclass of refund liability (note 12) | (5,424 | ) | |
Stream deposit | 4,000 | ||
Effects of changes in foreign exchange | 548 | ||
Balance, December 31, 2021 | $ | 515,326 | |
Amortization of deferred revenue (note 5a) | |||
Liability drawdown | (24,974 | ) | |
Variable consideration adjustments - prior periods | (3,245 | ) | |
Accretion on streaming arrangements (note 5e) | |||
Current year-to-date additions | 7,363 | ||
Variable consideration adjustments - prior periods | (2,527 | ) | |
Effects of changes in foreign exchange | 239 | ||
Balance, March 31, 2022 | $ | 492,182 |
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 2022, the amortization rate by which deferred revenue is drawn down into income was adjusted and, as required, a current period catch up adjustment was made for all prior period stream revenues since the stream agreement inception date. This variable consideration adjustment resulted in an increase in revenue of $3,245 and a decrease of finance expense of $2,527 for the three months ended March 31, 2022 (December 31, 2021 - increase in revenue of $1,617 and an increase of finance expense of $594).
Deferred revenue is reflected in the condensed consolidated interim balance sheets as follows:
Mar. 31, 2022 | Dec. 31, 2021 | |||||
Current | $ | 73,243 | $ | 88,963 | ||
Non-current | 418,939 | 426,363 | ||||
$ | 492,182 | $ | 515,326 |
HUDBAY MINERALS INC. |
16. Environmental and other provisions
Reflected in the condensed consolidated interim balance sheets as follows:
Mar. 31, 2022 | Decommissioning, restoration and similar liabilities | Deferred share units | Restricted share units | Performance share units | Other | Total | ||||||||||||
Current (note 11) | $ | 15,136 | $ | 9,124 | $ | 5,646 | $ | 5,034 | $ | 6,562 | $ | 41,502 | ||||||
Non-current | 362,435 | - | 1,405 | 1,048 | 3,912 | 368,800 | ||||||||||||
$ | 377,571 | $ | 9,124 | $ | 7,051 | $ | 6,082 | $ | 10,474 | $ | 410,302 | |||||||
Dec. 31, 2021 | Decommissioning, restoration and similar liabilities | Deferred share units | Restricted share units | Performance share units | Other | Total | ||||||||||||
Current (note 11) | $ | 16,759 | $ | 8,107 | $ | 5,061 | $ | 4,622 | $ | 6,468 | $ | 41,017 | ||||||
Non-current | 451,041 | - | 5,828 | 780 | 3,852 | 461,501 | ||||||||||||
$ | 467,800 | $ | 8,107 | $ | 10,889 | $ | 5,402 | $ | 10,320 | $ | 502,518 |
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 segment.
The following table summarizes changes in decommissioning, restoration and similar liabilities ("DRO"):
Balance, December 31, 2021 | $ | 467,800 | |
Net increase in provisions | 3,187 | ||
Disbursements | (3,341 | ) | |
Unwinding of discount (note 5e) | 1,892 | ||
Effect of change in discount rate | (97,225 | ) | |
Effect of foreign exchange | 5,258 | ||
Balance, March 31, 2022 | $ | 377,571 |
HUDBAY MINERALS INC. |
The following summarizes net increase in provision and effect of change in discount rates for the three months ended March 31, 2022 on decommissioning, restoration and similar assets:
| Net increase (decrease) in provision | Effect of change in discount rate | DRO Adjustment | ||||||
Producing properties | |||||||||
Peru | $ | 3,534 | $ | (14,245 | ) | ||||
Manitoba | (313 | ) | (81,312 | ) | |||||
Non-producing properties | |||||||||
Manitoba | (34 | ) | (1,668 | ) | |||||
3,187 | (97,225 | ) | $ | (94,038 | ) | ||||
Less: DRO asset, remaining carrying value 1 | 14,182 | ||||||||
Environmental obligation adjustment | $ | (79,856 | ) | ||||||
1 Includes effects of foreign exchange. |
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. 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 first quarter of 2022, we recorded a non-cash gain of $79,856 in the condensed consolidated income statements mainly related to a revaluation adjustment to the Flin Flon operation's environmental reclamation provision. The first quarter revaluation was substantially impacted by an increase in long term, risk-free discount rates based on changes in Canadian bond yields. Typically, an operating location will reflect any revaluation adjustments to the environmental reclamation provision against its reclamation assets. However, as the Flin Flon operations are set to close in June of this year, the corresponding Flin Flon assets have been nearly fully depreciated and cannot be reduced below zero resulting in the remaining impact being recorded as a gain in the condensed consolidated income statements.
During the first quarter of 2021, we recorded a non-cash gain of $4,499 related to a revaluation adjustment of certain non-producing properties. For non-producing properties with such reclamation obligations, the revaluation of the corresponding liability is recorded through the condensed consolidated interim income statements.
These estimates have been discounted to their present value at rates ranging from 1.36% to 2.46% per annum (December 31, 2021: 0.39% to 1.94%), using pre-tax, risk-free interest rates that reflect the estimated maturity of each specific liability.
HUDBAY MINERALS INC. |
17. Income and mining taxes
The tax expense (recoveries) is applicable as follows:
Three months ended March 31, | ||||||
2022 | 2021 | |||||
Current: | ||||||
Income taxes | $ | 5,477 | $ | 967 | ||
Mining taxes | 4,978 | 4,244 | ||||
10,455 | 5,211 | |||||
Deferred: | ||||||
Income tax expense (recoveries) - origination, revaluation and/or reversal of temporary differences | 9,601 | (26,492 | ) | |||
Mining tax expense - origination, revaluation and/or reversal of temporary difference | 4,990 | 11,699 | ||||
Adjustments in respect of prior years | - | 92 | ||||
14,591 | (14,701 | ) | ||||
$ | 25,046 | $ | (9,490 | ) |
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.
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:
Three months ended March 31, 2022 | Year ended Dec. 31, 2021 | |||||||||||
Common shares | Amount | Common shares | Amount | |||||||||
Balance, beginning of year | 261,598,312 | $ | 1,778,848 | 261,272,151 | $ | 1,777,340 | ||||||
Exercise of options | 288,343 | 1,334 | 326,161 | 1,508 | ||||||||
Balance, end of period | 261,886,655 | $ | 1,780,182 | 261,598,312 | $ | 1,778,848 |
During the three months ended March 31, 2022, the Company declared a dividend of C$0.01 per share. The Company paid $2,075 in dividends on March 25, 2022 to shareholders of record as of March 8, 2022.
HUDBAY MINERALS INC. |
During the year ended December 31, 2021, the Company declared two semi-annual dividends of C$0.01 per share each. The Company paid $2,090 and $2,056 in dividends on March 26, 2021 and September 24, 2021 to shareholders of record as of March 9, 2021 and September 3, 2021.
(c) Equity-settled share-based compensation - stock options:
The Company's stock option plan was approved in June 2005 and amended in May 2008 (the "Plan"). Under the amended Plan, the Company may grant to employees, officers, directors or consultants of the Company or its affiliates options to purchase up to a maximum of 13 million common shares of Hudbay. The Company has determined that the appropriate accounting treatment is to classify the stock options as equity settled transactions.
The following table outlines the changes in the number of stock options outstanding:
Mar. 31, 2022 | Dec. 31, 2021 | |||||||||||
Number of shares subject to option | Weighted- average exercise price C$ | Number of shares subject to option | Weighted average exercise price C$ | |||||||||
Balance, beginning of year | 1,659,288 | $ | 5.71 | 1,563,189 | $ | 3.77 | ||||||
Number of units granted | 572,331 | $ | 9.92 | 509,385 | $ | 10.42 | ||||||
Exercised | (288,343 | ) | $ | 3.76 | (326,161 | ) | $ | 3.76 | ||||
Forfeited | (127,962 | ) | $ | 6.04 | (87,125 | ) | $ | 5.79 | ||||
Balance, end of period | 1,815,314 | $ | 7.32 | 1,659,288 | $ | 5.71 |
The following table presents the weighted average fair value assumptions used in the Black-Scholes valuation of these options:
For options granted during the period | Mar. 31, 2022 | Dec. 31, 2021 | ||||
Weighted average share price at grant date (CAD) | $ | 9.92 | $ | 10.42 | ||
Risk-free rate | 1.75% | 1.02% | ||||
Expected dividend yield | 0.20% | 0.20% | ||||
Expected stock price volatility (based on historical volatility) | 55.9% | 60.5% | ||||
Expected life of option (months) | 84 | 84 | ||||
Weighted average per share fair value of stock options granted (CAD) | $ | 5.53 | $ | 6.06 |
HUDBAY MINERALS INC. |
The following table outlines stock options outstanding and exercisable:
Mar. 31, 2022 | |||||||||||||||
Range of exercise prices C$ | Number of options outstanding | Weighted average remaining contractual life (years) | Weighted average exercise price C$ | Number of options exercisable | Weighted average share price at exercise date C$ | ||||||||||
$3.76 - $3.92 | 803,908 | 4.9 | $ | 3.78 | 353,789 | $ | 3.79 | ||||||||
$9.92 - $9.92 | 571,770 | 6.9 | $ | 9.92 | - | $ | - | ||||||||
$10.42 - $10.42 | 439,636 | 5.9 | $ | 10.42 | 146,615 | $ | 10.42 |
Dec. 31, 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 | Weighted average share price at exercise date C$ | ||||||||||
$3.76 - $3.92 | 1,176,399 | 5.15 | $ | 3.78 | 191,651 | $ | 3.79 | ||||||||
$10.42 - $10.42 | 482,889 | 6.15 | $ | 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 | ||||||
Mar. 31, 2022 | Mar. 31, 2021 | |||||
Weighted average common shares outstanding | ||||||
Basic | 261,689,263 | 261,321,074 | ||||
Plus net incremental shares from: | ||||||
Assumed conversion: stock options | 577,977 | - | ||||
Diluted weighted average common shares outstanding | 262,267,240 | 261,321,074 |
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.
The determination of the diluted weighted-average number of common shares excludes the impact of 590,385 weighted-average stock options outstanding that were anti-dilutive for the three months ended March 31, 2021 as the Company recorded a loss in the financial period.
HUDBAY MINERALS INC. |
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:
Mar. 31, 2022 | Dec. 31, 2021 | |||||||||||
FV | CV | FV | CV | |||||||||
Financial assets at amortized cost | ||||||||||||
Cash1 | $ | 213,359 | $ | 213,359 | $ | 270,989 | $ | 270,989 | ||||
Restricted cash1 | 437 | 437 | 437 | 437 | ||||||||
Fair value through profit or loss | ||||||||||||
Trade and other receivables 1, 2, 3 | 145,729 | 145,729 | 172,890 | 172,890 | ||||||||
Non-hedge derivative assets 4 | 6,206 | 6,206 | 7,430 | 7,430 | ||||||||
Investments 5 | 13,210 | 13,210 | 11,158 | 11,158 | ||||||||
Total financial assets | $ | 378,941 | $ | 378,941 | $ | 462,904 | $ | 462,904 | ||||
Financial liabilities at amortized cost | ||||||||||||
Trade and other payables1, 2 | 169,040 | 169,040 | 189,179 | 189,179 | ||||||||
Deferred Rosemont acquisition consideration 8 | 27,923 | 27,923 | 27,518 | 27,518 | ||||||||
Agreements with communities 6 | 31,474 | 34,997 | 33,947 | 36,273 | ||||||||
Wheaton refund liability10 | 11,914 | 5,546 | 5,424 | 5,424 | ||||||||
Senior unsecured notes 7 | 1,204,740 | 1,186,375 | 1,239,018 | 1,185,805 | ||||||||
Fair value through profit or loss | ||||||||||||
Gold prepayment liability 9 | 130,318 | 130,318 | 140,008 | 140,008 | ||||||||
Non-hedge derivative liabilities 4 | 15,873 | 15,873 | 12,451 | 12,451 | ||||||||
Total financial liabilities | $ | 1,591,282 | $ | 1,570,072 | $ | 1,647,545 | $ | 1,596,658 | ||||
1 Cash, 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 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. | ||||||||||||
4 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. | ||||||||||||
5 All investments are carried at their fair value, which is determined using quoted market bid prices in active markets for listed shares. | ||||||||||||
6 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. | ||||||||||||
7 Fair value of the senior unsecured notes (note 14) has been determined using the quoted market price at period end. | ||||||||||||
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 three months ended March 31, 2022 was a gain of $175 (year ended December 31, 2021 was a loss of $2,684). | ||||||||||||
10 Discounted value based on a market rate at inception of the applicable Wheaton contract (note 15). |
HUDBAY MINERALS INC. |
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.
March 31, 2022 | Level 1 | Level 2 | Level 3 | Total | ||||||||
Financial assets measured at fair value | ||||||||||||
Financial assets at FVTPL: | ||||||||||||
Non-hedge derivatives | $ | - | $ | 6,206 | $ | - | $ | 6,206 | ||||
Investments | 13,210 | - | - | 13,210 | ||||||||
$ | 13,210 | $ | 6,206 | $ | - | $ | 19,416 | |||||
Financial liabilities measured at fair value | ||||||||||||
Financial liabilities at FVTPL: | ||||||||||||
Non-hedge derivatives | $ | - | $ | 15,873 | $ | - | $ | 15,873 | ||||
Gold prepayment liability | - | 130,318 | - | 130,318 | ||||||||
Financial liabilities at amortized cost: | ||||||||||||
Agreements with communities | - | - | 31,474 | 31,474 | ||||||||
Wheaton refund liability | - | - | 11,914 | 11,914 | ||||||||
Senior unsecured notes | 1,204,740 | - | - | 1,204,740 | ||||||||
$ | 1,204,740 | $ | 146,191 | $ | 43,388 | $ | 1,394,319 |
December 31, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||
Financial assets measured at fair value | ||||||||||||
Financial assets at FVTPL: | ||||||||||||
Non-hedge derivatives | $ | - | $ | 7,430 | $ | - | $ | 7,430 | ||||
Investments | 11,158 | - | - | 11,158 | ||||||||
$ | 11,158 | $ | 7,430 | $ | - | $ | 18,588 | |||||
Financial liabilities measured at fair value | ||||||||||||
Financial liabilities at FVTPL: | ||||||||||||
Non-hedge derivatives | $ | - | $ | 12,451 | $ | - | $ | 12,451 | ||||
Gold prepayment liability | - | 140,008 | - | 140,008 | ||||||||
Financial liabilities at amortized cost: | ||||||||||||
Agreements with communities | - | - | 33,947 | 33,947 | ||||||||
Wheaton refund liability | - | - | 5,424 | 5,424 | ||||||||
Senior unsecured notes | 1,239,018 | - | - | 1,239,018 | ||||||||
$ | 1,239,018 | $ | 152,459 | $ | 39,371 | $ | 1,430,848 |
HUDBAY MINERALS INC. |
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 three months ended March 31, 2022 and year ended December 31, 2021, Hudbay did not make any such transfers.
Valuation techniques used for instruments categorized in Levels 2 and 3 are consistent with the year ended December 31, 2021.
(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 March 31, 2022, Hudbay had 63.5 million pounds of net copper swaps outstanding at an effective average price of $4.55/lb and settling across April to August 2022. As at December 31, 2021, Hudbay had 72.8 million pounds of net copper swaps outstanding at an effective average price of $4.34/lb and settling across January to April 2022. The aggregate fair value of the transactions at March 31, 2022 was a liability of $10,165 (December 31, 2021 - a liability position of $5,440).
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 March 31, 2022, Hudbay held contracts for forward zinc purchased of 1.8 million pounds (December 31, 2021 - 3.1 million pounds) that related to forward customer sales of zinc. Prices range from $1.44/lb to $1.95/lb (December 31, 2021 - $1.44/lb to $1.52/lb) and settlement dates extend to June 2022. The aggregate fair value of the transactions at March 31, 2022 was a net asset position of $498 (December 31, 2021 - a net asset position of $419).
(c) Provisionally priced receivables
Changes in fair value of provisionally priced receivables
Hudbay records changes in fair value of provisionally priced receivables related to provisional pricing in concentrate purchase, concentrate sale and certain other sale contracts. Under the terms of these contracts, prices are subject to final adjustment at the end of a future period after title transfers based on quoted market prices during the quotation period specified in the contract. The period between provisional pricing and final pricing is typically up to three months.
Changes in fair value of provisionally priced receivables are presented in trade and other receivables when they relate to sales contracts and in trade and other payables when they relate to purchase contracts. At each reporting date, provisionally priced metals are marked-to-market based on the forward market price for the quotation period stipulated in the contract, with changes in fair value recognized in revenue for sales contracts and in inventory or cost of sales for purchase concentrate contracts. Cash flows related to changes in fair value of provisionally priced receivables are classified in operating activities.
HUDBAY MINERALS INC. |
As at March 31, 2022 and December 31, 2021, Hudbay's net position consisted of contracts awaiting final pricing which are as indicated below:
Metal in concentrate | Sales awaiting final pricing | Average YTD price ($/unit) | |||||||||||
Unit | Mar. 31, 2022 | Dec. 31, 2021 | Mar. 31, 2022 | Dec. 31, 2021 | |||||||||
Copper | pounds (in thousands) | 56,999 | 75,681 | 4.71 | 4.42 | ||||||||
Gold | oz | 18,573 | 27,304 | 1,950 | 1,828 | ||||||||
Silver | oz | 76,697 | 125,800 | 25.13 | 23.33 |
The aggregate fair value of provisionally priced receivables within the copper and refined zinc sales contracts at March 31, 2022, was an asset position of $17,306 (December 31, 2021 - an asset position of $6,500).
(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 financial liability at March 31, 2022 was a liability of $130,318 (December 31, 2021 - $140,008).
21. Commitments
Capital commitments
As at March 31, 2022, Hudbay had outstanding capital commitments in Canada of approximately $29,129 of which $19,456 can be terminated, approximately $37,232 in Peru, all of which can be terminated, and approximately $180,103 in Arizona, primarily related to the Rosemont project, of which approximately $87,928 can be terminated by Hudbay.
22. Supplementary cash flow information
(a) Other cash generated from / (used in) operating activities:
Three months ended March 31, | ||||||
2022 | 2021 | |||||
Gain on disposal of property, plant & equipment (note 5d) | $ | (532 | ) | $ | (303 | ) |
Share based compensation paid | (5,111 | ) | (6,626 | ) | ||
Restructuring - Manitoba (note 5d) | 748 | - | ||||
Other | 281 | 618 | ||||
$ | (4,614 | ) | $ | (6,311 | ) |
HUDBAY MINERALS INC. |
(b) Change in non-cash working capital:
Three months ended March 31, | ||||||
2022 | 2021 | |||||
Change in: | ||||||
Trade and other receivables | $ | 20,715 | $ | (14,950 | ) | |
Other financial assets/liabilities | 4,726 | 190 | ||||
Inventories | (18,723 | ) | (21,489 | ) | ||
Prepaid expenses | (313 | ) | (396 | ) | ||
Trade and other payables | (11,258 | ) | (20,798 | ) | ||
Provisions and other liabilities | (8,893 | ) | 18,584 | |||
$ | (13,746 | ) | $ | (38,859 | ) |
(c) Non-cash transactions:
During the three months ended March 31, 2022 and 2021, 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 three months ended March 31, 2022 led to a net decrease in related property, plant and equipment assets of $14,182 (three months ended March 31, 2021 - a net decrease of $64,504), mainly related to changes to discount rates associated with remeasurement of the liabilities.
- Property, plant and equipment included $7,772 (three months ended March 31, 2021 - $1,321) of capital additions related to the recognition of ROU assets. Property, plant and equipment and other assets include $1,225 of capital additions related to agreements with communities (three months ended March 31, 2021 - $18,757).
HUDBAY MINERALS INC. |
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 March 31, 2022 | |||||||||||||||
Manitoba | Peru | Arizona | Corporate and other activities | Total | |||||||||||
Revenue from external customers | $ | 177,239 | $ | 201,380 | $ | - | $ | - | $ | 378,619 | |||||
Cost of sales | |||||||||||||||
Mine operating costs | 114,907 | 97,353 | - | - | 212,260 | ||||||||||
Depreciation and amortization | 32,729 | 48,362 | - | - | 81,091 | ||||||||||
Gross profit | 29,603 | 55,665 | - | - | 85,268 | ||||||||||
Selling and administrative expenses | - | - | - | 11,841 | 11,841 | ||||||||||
Exploration expenses | 6,006 | 2,603 | 9,830 | 191 | 18,630 | ||||||||||
Evaluation expenses | 525 | - | 6,511 | - | 7,036 | ||||||||||
Environmental obligation adjustment | (79,856 | ) | - | - | - | (79,856 | ) | ||||||||
Other expenses | 237 | 1,651 | 72 | 52 | 2,012 | ||||||||||
Results from operating activities | $ | 102,691 | $ | 51,411 | $ | (16,413 | ) | $ | (12,084 | ) | $ | 125,605 | |||
Net interest expense on long term debt | 16,898 | ||||||||||||||
Accretion on streaming arrangements | 4,836 | ||||||||||||||
Change in fair value of financial instruments | 7,216 | ||||||||||||||
Other net finance costs | 7,794 | ||||||||||||||
Profit before tax | 88,861 | ||||||||||||||
Tax expense | 25,046 | ||||||||||||||
Profit for the period | $ | 63,815 |
HUDBAY MINERALS INC. |
Three months ended March 31, 2021 | |||||||||||||||
Manitoba | Peru | Arizona | Corporate and other activities | Total | |||||||||||
Revenue from external customers | $ | 177,956 | $ | 135,668 | $ | - | $ | - | $ | 313,624 | |||||
Cost of sales | |||||||||||||||
Mine operating costs | 100,577 | 77,853 | - | - | 178,430 | ||||||||||
Depreciation and amortization | 42,247 | 40,435 | - | - | 82,682 | ||||||||||
Gross profit | 35,132 | 17,380 | - | - | 52,512 | ||||||||||
Selling and administrative expenses | - | - | - | 9,945 | 9,945 | ||||||||||
Exploration expenses | 1,853 | 871 | 4,383 | (260 | ) | 6,847 | |||||||||
Evaluation expenses | 205 | - | 62 | - | 267 | ||||||||||
Environmental obligation adjustment | (4,499 | ) | - | - | - | (4,499 | ) | ||||||||
Other expenses | (152 | ) | 1,077 | (8 | ) | 174 | 1,091 | ||||||||
Results from operating activities | $ | 37,725 | $ | 15,432 | $ | (4,437 | ) | $ | (9,859 | ) | $ | 38,861 | |||
Net interest expense on long term debt | 21,232 | ||||||||||||||
Accretion on streaming arrangements | 15,528 | ||||||||||||||
Change in fair value of financial instruments | 39,007 | ||||||||||||||
Other net finance costs | 32,686 | ||||||||||||||
Loss before tax | (69,592 | ) | |||||||||||||
Tax recovery | (9,490 | ) | |||||||||||||
Loss for the period | $ | (60,102 | ) |
March 31, 2022 | |||||||||||||||
Manitoba | Peru | Arizona | Corporate and other activities | Total | |||||||||||
Total assets | $ | 800,830 | $ | 2,591,013 | $ | 750,237 | $ | 396,134 | $ | 4,538,214 | |||||
Total liabilities | 560,758 | 974,724 | 75,353 | 1,365,401 | 2,976,236 | ||||||||||
Property, plant and equipment1 | 712,015 | 2,220,230 | 738,924 | 42,563 | 3,713,732 | ||||||||||
1 Included in Corporate and other activities are $28.3 million of property, plant and equipment that is located in Nevada. |
December 31, 2021 | |||||||||||||||
Manitoba | Peru | Arizona | Corporate and other activities | Total | |||||||||||
Total assets | $ | 812,137 | $ | 2,624,251 | $ | 745,371 | $ | 434,472 | $ | 4,616,231 | |||||
Total liabilities | 655,095 | 1,023,186 | 75,782 | 1,385,340 | 3,139,403 | ||||||||||
Property, plant and equipment1 | 706,330 | 2,265,687 | 735,127 | 42,822 | 3,740,966 | ||||||||||
1 Included in Corporate and other activities are $28.3 million of property, plant and equipment that is located in Nevada. |