Mr. Peter Kukielski reports
HUDBAY PROVIDES ANNUAL RESERVE AND RESOURCE UPDATE
Hudbay Minerals Inc. today released its annual mineral reserve and resource update and issued new three-year production guidance. All amounts are in United States dollars, unless otherwise noted.
"Our greenfield exploration efforts successfully increased our copper mineral resources last year with the release of our Copper World PEA and the initial resource estimate at Llaguen," said Peter Kukielski, Hudbay's president and chief executive officer. "Our 2023 exploration program is focused on high-potential opportunities to expand mineralization near our operations in Peru and Manitoba to position us for additional long-term reserves growth. We already have long lives at our existing operations, and we expect to add to our robust production outlook by leveraging our proven track record of delivering value through exploration and development as we advance our quality pipeline of growth assets."
Current mineral reserve estimates total 492 million tonnes at 0.30 per cent copper with approximately 1.5 million tonnes of contained copper. Constancia's expected mine life has been maintained and extends until 2038. The copper contained in measured and indicated mineral resources has increased in 2023 due to infill drilling success in converting inferred mineral resources.
Hudbay released an updated mine plan for Constancia in 2021 that reflected an increase in copper and gold production as the higher grades from the Pampacancha deposit were expected to enter the mine plan over the 2022 to 2024 period. The mine plan also incorporated higher-grade reserves from the Constancia Norte pit extension. In late 2022 and early 2023, regional road blockades in Peru limited the ability to transport fuel and concentrate, but the Constancia mill continued to steadily operate as the company implemented risk mitigation plans with strong support from the local communities. As a result of processing stockpiles to lower fuel consumption in early 2023, Pampacancha's mine life has now been extended into the first half of 2025. Annual production at the Constancia operations is expected to average approximately 110,000 tonnes of copper and 87,000 ounces of gold over the next three years, a respective 23-per-cent and 49-per-cent increase from 2022 levels.
In 2021, Hudbay also completed an internal scoping study which resulted in an inferred mineral resource estimate of 6.5 million tonnes at 1.2 per cent copper in two high-grade skarn lenses located below the open pit in the Constancia Norte area. The study concluded these two lenses could be mined by underground methods starting in 2029 to supplement the open pit production.
Current mineral reserves and resources (exclusive of reserves) for Constancia and Pampacancha as of Jan. 1, 2023, are summarized herein.
Constancia and Pampacancha in-mine exploration
A drill program is under way at the Pampacancha deposit to test the potential to add an incremental phase to the reserve pit at depth. The company is also planning a limited drill program and technical evaluations at the Constancia deposit to confirm the economic viability of adding an additional mining phase to the current mine plan that would convert a portion of the mineral resources to mineral reserves. The results from these drill programs and technical and economic evaluations are expected to be incorporated in the next annual mineral reserve and resource update.
Maria Reyna and Caballito exploration
Hudbay controls a large, contiguous block of mineral rights with the potential to host mineral deposits within trucking distance of the Constancia processing facility, including the past-producing Caballito property and the highly prospective Maria Reyna property. The company commenced early exploration activities and ground geophysical surveys at Maria Reyna and Caballito after completing a surface rights exploration agreement with the community of Uchucarcco in August, 2022. Surface investigation activities together with baseline environmental and archaeological activities necessary to support drill permit applications have been completed. Drill permit applications are expected to be submitted in May. Ground activities and geophysical surveys are under way and field evidence confirms that both Caballito and Maria Reyna host sulphide and oxide-rich copper mineralization in skarns, hydrothermal breccias and large porphyry intrusive bodies.
Peru logistics and mining activities normalized
Social unrest and road blockades in Peru, following a change in the country's political leadership in December, 2022, have continued to abate since mid-February, 2023. Transportation of Constancia's concentrate and critical supplies has now returned to normal. As a result, Hudbay has significantly decreased the level of concentrate inventories at site to less than 7,000 wet metric tonnes as of the end of March from a peak of 47,000 wet metric tonnes in mid-February. Hudbay has been able to complete several port shipments in March and expects to reach normal concentrate inventory levels at the port in April, ahead of schedule.
In addition, full mining activities resumed in the Pampacancha pit in February and the period of higher stripping from March to June is progressing well with mining of higher grade ore now expected in the second quarter of 2023, slightly ahead of schedule.
Snow Lake operations
Current mineral reserve estimates in Snow Lake total 18 million tonnes with approximately 2.1 million ounces in contained gold, and the expected mine life of the Snow Lake operations has been maintained and extends until 2038. With the Snow Lake operations achieving higher production levels after the full ramp-up of the New Britannia mill in 2022 and the transition of the Flin Flon work force and equipment to the Lalor mine, exploration activities are now prioritizing stepout drilling to identify opportunities for meaningful additions to the mineral resource base to support future growth.
Exploration efforts in 2022 focused on increasing inferred gold resources at the 1901 deposit, which offset converted inferred mineral resources at Lalor. As a result, total gold contained in inferred resources was unchanged at 1.7 million ounces. This indicates a potential to maintain strong production levels beyond 2030 and further extend the mine life in Snow Lake.
Hudbay has been executing a multiphased gold strategy in Snow Lake since 2019, which has resulted in increased annual gold production from optimization initiatives, including higher processing capacity and gold recoveries since the start-up of the New Britannia mill in late 2021. As a result, annual gold production from Snow Lake increased to 146,233 ounces in 2022, New Britannia's first full year of production, representing a 110-per-cent increase from 69,657 ounces in 2020. The New Britannia mill consistently achieved its nameplate capacity of 1,500 tonnes per day throughout 2022 and is expected to operate at 1,650 tonnes per day in 2023 with the opportunity to further exceed targeted levels in the future. Annual gold production from Snow Lake is expected to average more than 190,000 ounces over the next three years, which represents a further increase of 30 per cent from 2022 levels.
There are several opportunities to enhance the Snow Lake operations through exploration upside and mill processing projects. The Stall mill recovery improvement program is currently well advanced and is expected to result in higher gold and copper recoveries starting in the second quarter of 2023. Hudbay has also completed an internal prefeasibility study on a second phase of the Stall mill recovery improvement program which demonstrates the potential for a further increase in gold recoveries at Stall starting in 2025 by producing a lead concentrate through gravity separation.
The Lalor mine continues to advance several key initiatives to increase efficiency and support higher production levels beyond the current 4,650 tonnes per day, including building long-hole inventory, improving stope muck fragmentation and optimizing the development drift size. The company is also focused on maximizing production from the shaft to enable more ore to be hoisted to surface while reducing inefficient trucking of ore via the ramp, which is expected to lower operating costs and greenhouse gas emissions.
Current mineral reserves and resources (exclusive of reserves) for Lalor, 1901 and other Snow Lake satellite deposits as of Jan. 1, 2023, are summarized herein.
Lalor near-mine exploration
Hudbay commenced a winter drill program in January, 2023, with four drill rigs testing the down-dip gold and copper extensions of the Lalor deposit, in the first stepout drilling in the deeper zones at Lalor since the initial discovery of the gold and copper-gold zones in 2009 and 2010. A total of eight widely spaced drill holes have been planned to test the down dip extension of Lalor over a two-kilometre-by-one-kilometre area during the 2023 winter drilling season. Four of these holes have been completed to date and all holes have intersected the alteration zone that hosts the Lalor mineralization, with two holes intersecting copper-bearing sulphides identified from core logging. These results confirm that the alteration zone hosting the mineralization mined at Lalor continues down dip for two kilometres from its existing known extent. Once the 2023 drilling program is completed, all holes will be assayed and probed to guide the next campaign of exploration.
One additional drill rig is testing a geophysical anomaly located within 400 metres of existing Lalor underground infrastructure. Four drill holes have been completed during the winter drill program and assay results from base metal and copper-gold mineralized intercepts identified from core logging are pending.
Three-year production outlook
The consolidated copper and gold production guidance demonstrates the continued growth from the company's brownfield investments in Peru and Manitoba. Consolidated copper production over the next three years is expected to increase to 114,000 tonnes, 130,500 tonnes and 116,000 tonnes, respectively, which represents an increase of 9 per cent, 25 per cent and 11 per cent, respectively, from 2022 levels. Consolidated gold production over the next three years is expected to increase to 285,500 ounces, 296,500 ounces and 258,500 ounces, respectively, which represents an increase of 30 per cent, 35 per cent and 18 per cent, respectively, from 2022 levels.
Peru's three-year production guidance reflects higher copper and gold grades from Pampacancha into the first half of 2025. The mine plan has been resequenced to reflect the impacts in early 2023, as noted previously, resulting in higher copper and gold production from Pampacancha continuing into 2025. This is expected to lead to an 18-per-cent and 109-per-cent increase in copper and gold production, respectively, in 2025 compared with the mine plan issued in 2021.
Manitoba's three-year production guidance reflects higher throughput at the Lalor mine and the New Britannia mill starting in 2023, as well as positive impacts from the first phase of the Stall mill recovery improvement program beginning in the second quarter of 2023. Gold production in 2025 also reflects preliminary expected impacts from the second phase of the Stall mill recovery improvement program.
Copper World project
The 100-per-cent-owned Copper World project is located in Pima county, Arizona, approximately 50 kilometres southeast of Tucson. The Copper World project includes seven deposits discovered in 2021, together with the East deposit (formerly known as the Rosemont deposit). The new deposits were defined after the completion of an expanded drill program following a successful initial drill program in 2020. A new resource model was completed for the preliminary economic assessment (PEA) of Copper World in 2022, which included a revised resource model for the East deposit that applied resource classification criteria calibrated on historical performance at Constancia and controlled grade over-smoothing and incorporated the newly discovered deposits. This resulted in a 17-per-cent increase in contained copper in measured and indicated resources and a 328-per-cent increase in contained copper in inferred resources, as compared with the mineral resources in the 2017 feasibility study for the East deposit.
The Copper World PEA contemplates a two-phased mine plan with the first phase reflecting a stand-alone operation with processing infrastructure on Hudbay's private land and mining occurring on patented mining claims. Phase I is expected to require only state and local permits and reflects a 16-year mine life. Phase II extends the mine life to 44 years through an expansion onto federal land to mine the entire deposits. Phase II also contemplates an expansion of the processing facilities and would be subject to the federal permitting process.
At a copper price of $3.50 per pound, the after-tax net present value of phase I using a 10-per-cent discount rate is $741-million with an internal rate of return of 17 per cent. With the inclusion of phase II, the after-tax net present value of the total project using a 10-per-cent discount rate increases to $1,296-million and an internal rate of return of 18 per cent. The valuation metrics are highly sensitive to the copper price and at a price of $4.00 per pound, the after-tax net present value of phase I and the total project, using a 10-per-cent discount rate, increases to $1,193-million and $1,903-million, respectively, and the internal rate of return in phase I and the total project increases to 21 per cent and 22 per cent, respectively. For information regarding the limitations of a PEA, please refer to the qualified person and National Instrument 43-101 statement at the end of this news release.
Current mineral resource estimates for the Copper World project as of Jan. 1, 2023, are summarized herein.
Focused on derisking activities at Copper World
Following the release of the Copper World PEA, Hudbay has continued to execute its strategy to derisk the project. Prefeasibility activities for the private land phase I of the Copper World project are well advanced and are expected to support the conversion of mineral resources to mineral reserves and optimize the layout and sequencing of the mineral processing facilities, in addition to evaluating other upside opportunities. Prefeasibility level engineering of the main processing facility, together with geotechnical and hydrogeological site investigation activities, were completed by the end of 2022. In late 2022, Hudbay submitted the applications for an aquifer protection permit and an air quality permit to the Arizona Department of Environmental Quality. Hudbay continues to expect to receive these two remaining state permits in 2023. The other key state permit, the Mined Land Reclamation Plan, was received in 2022. A prefeasibility study for phase I of the Copper World project is expected to be released in mid-2023.
Upon receipt of the state level permits, the company expects to conduct a bulk sampling program at Copper World to continue to derisk the project by testing grade continuity, variable cut-off effectiveness and metallurgical strategies. Hudbay also intends to initiate a minority joint venture partner process following receipt of permits, which will allow the potential joint venture partner to participate in the design and funding of definitive feasibility study activities in 2024.
The Mason project is a large greenfield copper deposit located in the historic Yerington district of Nevada and is one of the largest undeveloped copper porphyry deposits in North America. The Mason project's measured and indicated mineral resources are comparable in size to Constancia. Hudbay views the Mason project as a long-term future development asset as part of the company's pipeline of high-quality copper growth opportunities. Since acquiring Mason, Hudbay has consolidated a prospective package of patented and unpatented mining claims contiguous to the Mason project and has advanced a number of technical studies, including a revised resource model and the completion of a PEA on Mason.
The Mason PEA was completed in April, 2021, and contemplates a 27-year mine life with average annual copper production of approximately 140,000 tonnes over the first 10 years of full production. At a copper price of $3.50 per pound, the after-tax net present value using a 10-per-cent discount rate is $1,191-million and the internal rate of return is 18 per cent. For information regarding the limitations of a PEA, please refer to the qualified person and NI 43-101 statement at the end of this news release.
There is opportunity to further enhance the project economics through exploration for higher grade satellite deposits on Hudbay's prospective land package in Nevada, including Mason Valley. The Mason Valley property hosts several historical underground copper mines that were in production in the early 1900s. Much of the Mason Valley property is located on Hudbay's wholly owned private lands within 15 kilometres of the planned processing infrastructure for the Mason project and contains highly prospective skarn mineralization. A conductivity resistivity IP ground survey conducted in the fourth quarter of 2022 was successful in identifying the mineralization associated with the historical mines and confirmed the potential for both high grade skarn targets as well as a large porphyry target below the historical mines. These results, in combination with a reinterpretation of geological data from past operating mines and previous exploration data, will be used to finalize a drill plan to test these targets in late 2023.
Current mineral resource estimates for Mason as of Jan. 1, 2023, are summarized herein.
The Llaguen project is a copper-molybdenum porphyry deposit located near the city of Trujillo, the third-largest city in Peru. Llaguen is at moderate altitude and in close proximity to existing infrastructure, including water supply, the Trujillo Nueva electric power substation (located 40 kilometres away) and the port of Salaverry (located 62 kilometres away). Hudbay completed a 28-hole confirmatory drill program in 2021 and 2022 which confirmed and extended the footprint of the known mineralization and highlighted the existence of a high grade zone in the center of the deposit.
After completing an initial mineral resource estimate in November, 2022, Hudbay initiated preliminary technical studies, including metallurgical testwork as well as geotechnical and hydrogeological studies, which are expected to be incorporated into a preliminary economic assessment for the Llaguen project. Additional exploration drilling is warranted on the Llaguen property to test the areas of the deposit that remain open and the several untested geophysical targets in the area to fully define the regional extent of the mineralization. The current mineral resource is also surrounded by a large halo of low grade hypogene copper mineralization, not currently included in the mineral resource estimate, but for which metallurgical test work could assess the potential for economic sulphide heap leaching via commercially available technologies.
Current mineral resource estimates for Llaguen as of Jan. 1, 2023, are summarized herein.
Qualified person and NI 43-101
The technical and scientific information in this news release related to the company's material mineral projects has been approved by Olivier Tavchandjian, PGeo, senior vice-president, exploration and technical services. Mr. Tavchandjian is a qualified person pursuant to NI 43-101 (as defined herein). Additional details on the company's material mineral projects, including a year-over-year reconciliation of reserves and resources, is included in Hudbay's annual information form for the year ended Dec. 31, 2022, which is available on SEDAR.
The Copper World PEA and the Mason PEA are preliminary in nature, include inferred resources that are considered too speculative to have the economic considerations applied to them that would enable them to be categorized as mineral reserves and there is no certainty the preliminary economic assessments will be realized.
Hudbay (Toronto Stock Exchange and New York Stock Exchange: HBM) is a diversified mining company with long-life assets in North and South America. The company's Constancia operations in Cusco (Peru) produce copper with gold, silver and molybdenum byproducts. Its Snow Lake operations in Manitoba (Canada) produce gold with copper, zinc and silver byproducts. Hudbay has an organic pipeline that includes the Copper World project in Arizona and the Mason project in Nevada (United States), and its growth strategy is focused on the exploration, development, operation and optimization of properties it already controls, as well as other mineral assets it may acquire that fit its strategic criteria. Hudbay's mission is to create sustainable value through the acquisition, development and operation of high-quality, long-life deposits with exploration potential in jurisdictions that support responsible mining and to see the regions and communities in which the company operates benefit from its presence.
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