Hudson Bay Exploration & Development 6K Current report | SEC 11 Aug 05

Exhibit 99.1

HudBay Minerals Inc.

Interim Consolidated Financial Statements
For the Period Ended June 30, 2005
(expressed in Canadian dollars)

HudBay Minerals Inc.
Consolidated Balance Sheet
As at June 30, 2005 and December 31, 2004
(expressed in thousands of Canadian dollars)

	June 30, 2005 (unaudited)			December 31, 2004
Assets
Current assets
Cash and cash equivalents (note 10a)	$	123,967		$	64,553
Accounts receivable		70,948			73,210
Inventories		98,351			100,282
Prepaid expenses and other assets (note 9a)		6,885			3,496
Current portion of fair value of derivatives		2,201			3,418
Future income taxes		12,900			12,900

		315,252			257,859
Investments		463			463
Property, plant and equipment (note 4)		368,300			358,662
Deferred financing costs and intangible assets		9,244			10,152
Restricted cash		—			13,000
Environmental deposits		1,810			1,789
Fair value of derivatives		358			772

		695,427			642,697

Liabilities
Current liabilities
Accounts payable		56,718			64,669
Accrued liabilities		31,542			26,548
Interest payable on long-term debt		10,951			563
Current portion of obligations under capital leases		3,723			3,338
Current portion of long-term debt		4,000			2,000
Current portion of pension obligation		15,567			12,650
Current portion of other employee future benefits		2,081			2,012

		124,582			111,780
Obligations under capital leases		10,950			11,719
Debt obligations (note 10a)		224,126			223,529
Pension obligation		52,911			57,437
Other employee future benefits		59,453			57,929
Asset retirement obligation		28,391			27,120
Other non-current liabilities		5,100			417

		505,513			489,931

Shareholders' equity
Common shares (note 5a)		140,083			120,138
Warrants (note 5b)		33,321			35,850
Contributed surplus (see note 5c)		5,127			3,288
Cumulative translation adjustments		(3	)		(24	)
Retained earnings (deficit)		11,386			(6,486	)

		189,914			152,766

	$	695,427		$	642,697

Commitments (note 8)

The Notes constitute an integral part of the consolidated financial statements.

HudBay Minerals Inc.
Consolidated Statement of Operations
For the periods ended June 30, 2005 and 2004
(expressed in thousands of Canadian dollars except share and per share amounts)
(Unaudited)

		Three Months Ended June 30						Six Months Ended June 30
		2005			2004			2005			2004
Sales		$	158,188		$	—		$	309,713		$	—

Expenses
Operating			114,110			653			231,823			1,714
General and administrative			4,593			446			8,234			917
Stock-based compensation (note 5c)			1,354			160			1,354			160
Depreciation and amortization			13,228			38			25,952			75
Accretion			649			6			1,301			12
Exploration			3,216			664			3,785			898
Foreign exchange gain			(424	)		—			(674	)		—

			136,726			1,967			271,775			3,776

Operating earnings (loss)			21,462			(1,967	)		37,938			(3,776	)
Other income			635			7			1,105			14
Amortization of deferred financing costs			(366	)		—			(707	)		—
Foreign exchange gain (loss)			(2,765	)		68			(4,095	)		82
(Loss) gain on derivative instruments			(1,819	)		—			545			—
Interest expense			(5,735	)		(225	)		(11,388	)		(498	)

Earnings (loss) before taxes			11,412			(2,117	)		23,398			(4,178	)
Taxes (recovery)			2,721			—			5,526			(397	)

Earnings (loss) for the period		$	8,691		$	(2,117	)	$	17,872		$	(3,781	)

Earnings (loss) per share
	Basic	$	.11		$	(.31	)	$	.22		$	(.61	)
	Diluted (note 5d)	$	.11			Note 5d		$	.22			Note 5d
Weighted average number of commons shares outstanding
	Basic		81,388,858			6,772,354			79,646,755			6,240,727
	Diluted (note 5d)		81,959,645			Note 5d			80,133,777			Note 5d

The Notes constitute an integral part of the consolidated financial statements.

HudBay Minerals Inc.
Consolidated Statement of Retained Earnings (Deficit)
For the periods ended June 30, 2005 and 2004
(expressed in thousands of Canadian dollars)
(Unaudited)

		Three Months Ended June 30					Six Months Ended June 30
		2005		2004			2005			2004
Retained earnings (deficit) — beginning of period
As previously stated		$	2,695	$	(20,716	)	$	(6,486	)	$	(19,052	)
Changes in accounting policies
	Asset retirement obligations		—		(43	)		—			(43	)
	Exploration		—		(590	)		—			(590	)

As restated			2,695		(21,349	)		(6,486	)		(19,685	)
Earnings (loss) for the period			8,691		(2,117	)		17,872			(3,781	)

Retained earnings (deficit) — end of period		$	11,386	$	(23,466	)	$	11,386		$	(23,466	)

The Notes constitute an integral part of the consolidated financial statements.

HudBay Minerals Inc.
Consolidated Statement of Cash Flows
(expressed in thousands of Canadian dollars)
(Unaudited)

			Three Months Ended June 30						Six Months Ended June 30
			2005			2004			2005			2004
Cash generated (utilized) by:
Operating activities
Earnings (loss) for the period			$	8,691		$	(2,117	)	$	17,872		$	(3,781	)
	Items not affecting cash
		Depreciation and amortization		13,228			38			25,952			75
		Accretion of debt component of convertible debentures		—			156			—			333
		Accretion on asset retirement obligation		649			6			1,301			12
		Non-cash interest		268			—			502			—
		Future income taxes		3,468			—			5,470			(397	)
		Unrealized portion of change in fair value of derivative		2,869			—			1,631			—
		Amortization of deferred financing charges		366			—			707			—
		Stock-based compensation		1,354			160			1,354			160
		Unrealized foreign exchange loss on debt notes		2,765			—			4,095			—
		Unrealized foreign exchange loss on cash held in foreign currency		(720	)		—			(964	)		—
		Net change in other non-cash operating items		(87	)		67			(261	)		67

				32,851			(1,690	)		57,659			(3,531	)
Net change in non-cash working capital items (note 10c)				5,157			77			8,235			(116	)

				38,008			(1,613	)		65,894			(3,647	)

Investing activities
Increase in environmental deposits				(21	)		(165	)		(21	)		(329	)
Decrease (increase) in restricted cash				—			—			13,000			—
Property, plant and equipment expenditures				(18,292	)		17			(35,590	)		(2,121	)

				(18,313	)		(148	)		(22,611	)		(2,450	)

Financing activities
Financing and acquisition costs				(217	)		(729	)		(350	)		(777	)
Decrease in debenture subscription receivable				—			—			—			2,000
Issuance of common shares				—			—			—			600
Proceeds on exercise of stock options				—			—			—			64
Proceeds on exercise of warrants				—			104			—			104
Repayments of obligations under capital lease				(916	)		—			(384	)		—
Repayment of debt obligations				(2,000	)		—			(2,000	)		—
Issuance of shares and warrants				9,232			(187	)		17,901			5,083

				6,099			(812	)		15,167			7,074

Foreign exchange loss on cash held in foreign currency				720			—			964			—
Change in cash and cash equivalents				26,514			(2,573	)		59,414			977
Cash and cash equivalents — beginning of period				97,453			5,664			64,553			2,114

Cash and cash equivalents — end of period				123,967			3,091			123,967			3,091

The Notes constitute an integral part of the consolidated financial statements.

HudBay Minerals Inc.
Notes to the Interim Consolidated Financial Statements
(expressed in thousands of Canadian dollars unless otherwise noted)
(Unaudited)

1 NATURE OF THE OPERATIONS

HudBay Minerals Inc. (the "Company") changed its name from ONTZINC Corporation by way of Articles of Amendment dated December 21, 2004. The Company is incorporated under the Ontario Business Corporations Act. Prior to December 21, 2004, the Company was engaged in the business of evaluation, acquisition and exploration of mineral properties. Substantially all of the efforts of the Company were devoted to these business activities. Prior to that date, the Company had not earned significant revenue and was considered to be in the development stage.

On December 21, 2004, the Company completed a public offering of common shares and warrants raising gross proceeds of $143,813 and also completed an offering of U.S.$175,000 Senior Secured Notes. The Company then utilized the proceeds from these financings to complete the acquisition from Anglo American International, S.A. ("Anglo American") of all of the outstanding shares of 152640 Canada Inc., which held all of the outstanding shares of Hudson Bay Mining and Smelting Co., Ltd. ("HBMS"). As a result, the Company's primary business activity is now base metals production with facilities consisting of mines, mills and a metallurgical complex for the extraction of copper and zinc in the Provinces of Manitoba and Saskatchewan.

Also on December 21, 2004, the Company completed a 30 for 1 common share consolidation that has been retroactively reflected as if the common share consolidation had occurred on January 1, 2002. All references to common shares within these consolidated financial statements reflect the consolidation.

2 BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The interim consolidated financial statements of the Company have been prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP") and followed the same accounting principles and methods of application as those disclosed in Note 1 to the Company's consolidated financial statements for the year ended December 31, 2004. These interim consolidated financial statements do not include all disclosures required by Canadian GAAP for annual financial statements and, accordingly, should be read in conjunction with the Company's consolidated financial statements included in its 2004 Annual Report.

These interim consolidated financial statements include the accounts of the Company, all of its subsidiaries and the proportionate share of the assets and liabilities of any joint ventures where the Company shares joint control. Inter-company accounts and transactions have been eliminated on consolidation.

3 ACQUISITION OF HUDSON BAY MINING AND SMELTING CO., LIMITED

On December 21, 2004, the Company acquired all of the outstanding common shares of HBMS for total purchase consideration of $315,790, plus $4,324 of corporate transaction costs. The total purchase consideration of $315,790 was satisfied by cash of $302,790 and by the issuance to Anglo American of 5,777,777 common shares and 86,666,667 share purchase warrants, where every 30 share purchase warrants are exercisable for one common share at an exercise price of $3.15 per common share. The value of the common share consideration of $11,700 was determined based on the average of the closing price of the Company's common shares for the two days before and after the date of announcement of the transaction on October 7, 2004. The value of the warrant consideration of $1,300 was based on a similar method to the valuation of the warrants issued in the public offering. The acquisition is being accounted for by the purchase method.

The following table summarizes the preliminary allocation of the purchase consideration based on management's current best estimate of the fair value of the assets and liabilities acquired on the date of acquisition (December 21, 2004):

Current assets (including cash of $51,504)	$	229,601
Investments		463
Property, plant and equipment		349,358
Intangible assets		552
Current liabilities		(72,665	)
Debt obligations		(15,179	)
Pensions and post-retirement benefit obligations		(130,353	)
Asset retirement obligations		(26,213	)
Obligations under capital leases		(15,074	)
Other non-current liabilities		(376	)

	$	320,114

Management expects to obtain additional information in the last half of 2005, including independent valuations, that may require additional adjustments to amounts shown above for property, plant and equipment, intangible assets and asset retirement obligations, and these potential adjustments may be material.

4 PROPERTY, PLANT AND EQUIPMENT

	June 30, 2005			December 31, 2004
Property, plant and equipment	$	211,080		$	203,705
Accumulated depreciation		(7,787	)		(418	)

		203,293			203,287

Mine development		184,395			156,189
Accumulated amortization		(19,388	)		(814	)

		165,007			155,375

	$	368,300		$	358,662

5 SHARE CAPITAL

(a): Common shares

Authorized: Unlimited common shares

Issued:

	Number of Common Shares		Amount
Balance, December 31, 2003	5,661,592		$	21,379
Issued for debt	5,334			40
Issued on private placements, net	2,382,466			6,795
Issued pursuant to public offering	69,694,778			143,877
Cancellation of repurchased shares	(340,000	)		(336	)
Exercise of warrants	28,030			160
Exercise of options	19,334			64
Value attributed to warrants issued	—			(29,465	)
Tax effect of flow-through shares	—			(397	)
Elimination of fractional shares	(906	)		—
Stated capital reduction	—			(21,979	)

Balance, December 31, 2004	77,450,628			120,138
Exercise of warrants	2,476,371			7,736
Issued on private placement, flow-through shares	806,452			2,323

Balance, March 31, 2005	80,733,451		$	130,197
Exercise of warrants	788,054			2,808
Issued on private placement, flow-through shares	2,193,000			7,078

Balance, June 30, 2005	83,714,505		$	140,083

On February 22, 2005, the Company completed a private placement of 806,452 flow-through common shares at a price of $3.10 per share for aggregate gross proceeds of approximately $2,500. Commission related to the offering was paid to the underwriters resulting in net proceeds of $2,323. The gross proceeds are being used to incur Canadian exploration expenses that will be renounced in favour of the holders for the 2005 taxation year.

On June 22, 2005, the Company completed a private placement of 2,193,000 flow-through common shares at a price of $3.42 per share for aggregate gross proceeds of approximately $7,500. Commission related to the offering was paid to the underwriters resulting in net proceeds of $7,078. The gross proceeds are being used to incur Canadian exploration expenses that will be renounced in favour of the holders for the 2005 taxation year.

Broker warrants issued in connection with the Company's offering of subscription receipts on December 21, 2004 were exercised during the six months ended June 30, 2005 aggregating the following amounts: 89,232,120 warrants to purchase 2,974,404 common shares for proceeds of $9,750.

(b): Warrants

Pursuant to the share consolidation effective December 21, 2004, 30 common share purchase warrants are required to purchase one common share.

	Number of warrants		Amount
Balance outstanding, December 31, 2003	74,894,424		$	4,433
Issued on private placements	40,140,997			2,380
Issued pursuant to public offering⁽¹⁾	1,045,421,667			27,181
Issued to agents for public offering	115,050,600			2,078
Warrants repurchased	(5,100,000	)		(173	)
Exercised	(840,909	)		(43	)
Cancelled	(88,456	)		(6	)

Balance outstanding, December 31, 2004	1,269,478,323			35,850
Exercised	(74,291,193	)		(1,391	)
Expired	(350,000	)		(10	)

Balance outstanding, March 31, 2005	1,194,837,130			34,449
Exercised	(23,641,660	)		(655	)
Expired	(9,455,650	)		(473	)

Balance outstanding, June 30, 2005	1,161,739,820		$	33,321

(1): Listed on Toronto Stock Exchange

Warrants outstanding to acquire common shares of the Company at June 30, 2005 are as follows:

Number of Warrants Outstanding		Exercise Price Per Warrant	Expiry Date
2,086,544		0.13	August 25, 2005
26,428,825		0.14	September 8-23, 2005
250,000		0.10	October 3, 2005
33,000,000		U.S. 0.12	October 9-21, 2005
1,984,200		0.30	December 23-31, 2005
406,840		0.25	December 30, 2005
768,400		U.S. 0.12	January 13, 2006
15,553,797		0.20	March 31, 2006
6,517,450		0.06	September 28, 2006
396,860		0.05	September 28, 2006
2,589,000		0.12	November 30, 2006
517,800		0.09	November 30, 2006
42,380,937		0.086	December 21, 2006
1,028,859,167	⁽¹⁾	0.105	December 21, 2009

1,161,739,820		(1) Listed on The Toronto Stock Exchange

(c): Stock option plan:

During the six months ended June 30, 2005, options in respect of 605,667 common shares expired or were cancelled.

	Number of Share Options		Weighted Average Exercise Price
Balance outstanding, December 31, 2003	550,000		$	5.08
Cancelled	(334,167	)		4.80
Granted	466,667			3.60
Exercised	(19,333	)		3.30

Balance outstanding, December 31, 2004	663,167			3.60
Cancelled	(293,334	)		(3.56	)

Balance outstanding, March 31, 2005	369,833			3.63
Granted	3,640,000			2.59
Cancelled	(312,333	)		(4.26	)

Balance outstanding, June 30, 2005	3,697,500		$	2.61

Under the Company's stock option plan (the "Plan") approved in June, 2005, the Company may grant options up to 10% of the issued and outstanding common shares of the Company to employees, officers, and directors of the Company for a maximum term of ten years. Of the common shares covered by the stock option plan, the first 33¹/3% are exercisable immediately, the next 33¹/3% are exercisable after one year, and the last 33¹/3% exercisable after two years. Shares in respect of which options are not exercised as well as shares in respect of which options are exercised, shall become available for the grant of subsequent options. Except in specified circumstances, options are not assignable and terminate upon the optionee ceasing to be employed by or associated with the Company. The terms of the Plan further provide that the price at which shares may be issued under the Plan cannot be less than the market price of the shares when the relevant options are granted. Certain restrictions apply on the issuance of options pursuant to the Plan.

The fair value of the options granted during 2005 has been estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 3.2%; dividend yield of 0%; volatility factor of the expected market price of the Company's common stock of 42%; and a weighted average expected life of these options of 4 years.

Stock-based compensation amounted to $1,354 for the three months ended June 30, 2005.

The following table summarizes the options outstanding at June 30, 2005.

Number of options outstanding	Exercise price per share		Weighted average remaining contractual life (years)	Number of options exercisable	Weighted average remaining contractual life (years)
5,000	$	4.50	1.0	5,000	1.0
11,667		7.50	2.2	11,667	2.2
40,833		3.00	3.0	40,833	3.0
3,640,000		2.59	9.9	1,213,212	9.9

3,697,500	$	2.61		1,270,712

(d): Earnings (loss) per share:

Basic earnings (loss) per share are computed using the weighted average number of common shares outstanding during the period. Fully diluted earnings (loss) per share are computed using the treasury stock method whereby the weighted average number of common shares used in the basic earnings per share calculation is increased by the number of common shares potentially issuable upon exercise of all outstanding options and warrants that had an exercise price higher than the average market price during the period.

The conversion of stock options and warrants to calculate fully diluted was not done for the six months ended June 30, 2004, because the conversion would have been anti-dilutive.

6 INVESTMENT IN JOINT VENTURE

Considar Metal Marketing SA, an entity incorporated under the laws of the Grand Duchy of Luxembourg, is a Joint Venture in which the Company holds a 50% interest. The Joint Venture, together with its wholly-owned subsidiary, Considar Metal Marketing Inc., carries on the business of providing metal marketing to customers in various metal related industries.

The following is a summary of the Company's 50% pro rata share of the assets, liabilities, revenues and expenses of the Considar Metal Marketing SA Joint Venture. Substantially all of the Company's sales are transacted with the joint venture. Such information is presented prior to inter-company eliminations.

		June 30 2005			December 31 2004
Assets
Current assets
	Cash	$	7,730		$	1,405
	Accounts receivable		20,043			20,262
	Inventories		32,115			27,394
	Prepaid expense and other assets		30			56
	Fair value of derivatives		2,200			3,418

			62,118			52,535

Fair value of derivatives			358			772
Property, plant and equipment			102			112

		$	62,578		$	53,419

Liabilities
Current liabilities
	Accounts payable and accrued liabilities		59,086			48,578
	Fair value of derivatives		88			178
	Deferred charge		282			508

		$	59,456		$	49,264

Future income tax payable			822			1,290

Shareholders' equity
Share capital			1,605			1,605
Cumulative translation adjustment			(313	)		(333	)
Retained earnings			1,008			1,593

			2,300			2,865

		$	62,578		$	53,419

	For the Three Months Ended June 30, 2005			For the Six Months Ended June 30, 2005
Revenues	$	82,122		$	161,465

Costs and expenses
Operating, general and administrative		82,765			162,904
Depreciation and amortization		8			14
Foreign exchange loss		50			40

	$	82,823		$	162,958

Operating earnings (loss)	$	(701	)	$	(1,493	)
Other income		8			11
Gain (loss) on derivative instruments		(1,819	)		545

Loss before taxes		(2,512	)		(937	)
Taxes		970			352

Loss for the period		(1,542	)		(585	)

Cash flow from operating activities	$	7,882		$	6,895

7 SEGMENTED INFORMATION

The Company is an integrated base metals producer and operates in a single reportable operating segment.

The Company's revenue by significant product types:

		For the Three Months Ended June 30, 2005		For the Six Months Ended June 30, 2005
Revenues
	Copper	$	86,932	$	169,008
	Zinc		33,928		66,780
	Zinc oxide		18,336		35,986
	Gold		14,532		27,815
	Other		4,460		10,124

		$	158,188	$	309,713

8 COMMITMENTS

For the mutual benefit of both parties, HBMS has terminated its agreement to purchase 40,000 dry metric tonnes of copper concentrate per year, effective June 30, 2005. The termination which would otherwise have expired in 2008, is not expected to impact the Company's ability to supply copper to the Flin Flon smelter.

9 FOREIGN CURRENCY RISK MANAGEMENT

The Company employs derivative financial instruments, including forwards and option contracts, to manage risk originating from actual exposures to commodity price risk and foreign exchange risk.

a): Foreign currency

In 2004, the Company paid US$1.2 million to purchase an option giving it the right but not the obligation to pay an additional US$2.9 million to purchase US dollar put options. The put options secure the right, but not the obligation to sell US$4.375 million per quarter at $1.20482 starting in April 2005 and continuing to January 2009. The additional US$2.9 million was paid in 2005, and, together with the initial option payment, has been recorded in Prepaid expenses and other assets and will be amortized over the life of the option.

b): Commodity price

Through its joint venture interest in Considar Metal Marketing SA, the Company manages the risk associated with forward physical sales that are made on a fixed price basis regarding zinc and zinc oxide, and accordingly, enters into forward zinc purchase contracts. Although in management's opinion, the contracts continue to be effective in mitigating the Company's exposure to commodity price risk, the Company has not designated these as accounting hedges under The Canadian Institute of Chartered Accountants' ("CICA") Accounting Guideline 13 ("AcG-13"), Hedging Relationships, and, accordingly, has accounted for these derivative instruments using the fair value accounting method.

At June 30, 2005, the joint venture had outstanding forward contracts to purchase 18,152 tonnes of zinc at prices ranging from US$834 to US$1,370 per tonne with settlement dates in the next three years.

10 OTHER SUPPLEMENTARY INFORMATION

a): Debt obligations

	June 30, 2005		December 31, 2004
Province of Manitoba	$	13,681	$	15,179
Senior secured notes		214,445		210,350

		228,126		225,529
Less: Current portion of long-term debt		4,000		2,000

	$	224,126	$	223,529

The terms of the loan from the Province of Manitoba have been amended whereby the Company must meet certain minimal employment levels and exploration expenditures in each calendar year to maintain the interest-free nature of the loan. The interest rate applicable if the terms are not met varies from Crown Rate to Crown Rate plus 4% depending on the shortfall. For the current calendar year, management believes the restrictions will be met and no interest will be payable.

The Company has outstanding letters of credit in the amount of $35.2 million that are secured by an equal amount of cash.

The Company has received a commitment from the Bank of Nova Scotia to establish a revolving credit facility in the amount of $50 million. The first $25 million is committed, with the remainder contingent upon meeting certain conditions precedent. The facility is expected to close before the end of the year.

b): Defined pension and other future employee benefit expense

		For the Three Months Ended June 30, 2005			For the Six Months Ended June 30, 2005
Pension expense		$	2,325		$	4,650
Other future employee benefits expense		$	1,254		$	2,404

c): Supplemental cash flow information

		For the Three Months Ended June 30			For the Six Months Ended June 30
		2005		2004	2005		2004
Net change in non-cash working capital items
	Accounts receivable	(1,049	)	—	2,262		—
	Inventories	(8,362	)	—	1,931		—
	Accounts payable and accrued liabilities	7,863		5	(2,957	)	(13	)
	Interest payable	5,245		—	10,388		—
	Prepaid expenses and other assets	1,460		72	(3,389	)	(103	)

		5,157		77	8,235		(116	)

Taxes paid		307		—	582		—
Interest paid		1,506		156	1,799		156

11 HUDSON BAY MINING AND SMELTING CO., LIMITED

As indicated in Note 3, the Company acquired HBMS on December 21, 2004. The following highlights key financial information of HBMS prior to consolidation.

	For the Three Months Ended June 30				For the Six Months Ended June 30
	2005		2004		2005		2004
Total revenues	$	155,380	$	132,647	$	306,905	$	274,878
Net earnings	$	16,789	$	4,471	$	29,602	$	23,613
Long term financial debt (excluding current portion)	$	235,076	$	27,054	$	235,076	$	27,054
Total assets	$	883,385	$	557,400	$	883,385	$	557,400

Included in total assets for 2005 is an intercompany account in the amount of $214,445 due from the Company.

12 COMPARATIVE FIGURES

Certain of the prior period's comparative numbers have been restated to conform to the current period's presentation.

Hudson Bay Exploration & Development Inactive 6-KCurrent report (foreign)