Hudbay Minerals is a Canadian mining copper-focused company, with three long-life operations in Canada, Peru and the United States.
What in copper continues to connect us today?
Historically, copper has been essential for societal development, from enabling the shift from agrarian landscapes to urban centers and improving infrastructure. It has been vital in building societies, and today, it remains just as important. While countries like China have already built much of their infrastructure, other nations continue to develop, and now there is a new dimension to copper's significance—climate change.
The market is increasingly focused on combating climate change, and copper is a critical element in this effort. It is, in my view, the most crucial material for a cleaner future and the global transition to net zero. However, there is a significant shortfall in copper supply to meet the growing demand spurred by climate concerns. Even a small part of this demand, like electric vehicles, highlights the challenge. While electric vehicles are not the largest factor, copper is essential for electricity transmission in these new technologies. This all underlines copper’s ongoing role in shaping a cleaner future.
What is behind the shortage in copper supply that you mentioned?
There is plenty of copper out there, but accessible resources are increasingly scarce, especially in mining-friendly jurisdictions. This scarcity is compounded by the long lead times required to bring new projects online. For example, it can take a decade or more from discovery to production, and in today’s world, few new copper projects are in development, especially in mining-friendly areas.
The bigger copper projects recently built demonstrate the challenges. These projects are in remote locations with significant infrastructure requirements, driving up costs. The more accessible, lower-cost projects have already been developed. So, future projects will increasingly require more capital and time to bring online. At Hudbay, our Copper World project in Arizona is an exception—it is near Tucson, requiring less infrastructure, which lowers capital intensity and time to market.
What makes for a mining-friendly jurisdiction?
A mining-friendly jurisdiction is one where the country understands the value mining brings to society. Mining companies effectively rent these resources from the country, so it is their duty to be responsible custodians, benefiting stakeholders, local communities, and the nation. Countries that understand this and support mining tend to create mining-friendly environments.
Examples include many countries in the Americas, like the U.S. and Canada, where governments recognize the benefits mining brings in terms of foreign exchange and improving local communities. However, there are also jurisdictions where mining is riskier, due to expropriation or sudden changes in fiscal policies, which can quickly turn a viable project into an uneconomical one.
Can you tell us about the Copper World Project and its significance in the U.S. copper market?
The Copper World Project is a highly exciting development project for us. Once it is built, it will be the third largest copper cathode producer in the United States, and more importantly, the highest-grade copper project in the Americas with a copper grade of 0.54%. The project’s low capital intensity in its first phase—approximately $16,000 per ton annually—underscores its efficiency compared to more remote projects.
Copper World will produce 85,000 tons per year in its first 20 years, and it benefits from being located on private land, which simplifies the permitting process. The project aligns with the growing emphasis on “Made in America” copper, ensuring that the copper produced contributes to U.S. green energy independence. Additionally, it will operate in the lowest quartile of cash costs and create significant local employment opportunities while contributing over $850 million in federal and state taxes.
Could you tell us briefly about Hudbay’s other projects, such as Snow Lake?
Beyond Copper World, we have exciting developments elsewhere, like our Mason project, which is larger but further behind in the pipeline. We also have our operations at Snow Lake, where we recently expanded our land holdings through acquisitions, allowing us to carry out the largest exploration and geophysics program in our history.
At Snow Lake, we have also focused on improving efficiency, refurbishing an old gold mill, which increased gold recovery rates from 60% to roughly 90%. This operational efficiency is crucial as we aim to find more material to feed our mills and increase production without expanding our environmental footprint.
What can you tell us about the Constancia mine in Peru?
Constancia is one of our flagship operations and a critical low-cost, open-pit sulphide copper mine in South America. It was designed to be efficient and fit-for-purpose when it was built in 2014, and we’ve since developed an agile and cost-effective team. Our relationship with the local communities is a key strength, with over 40% of the workforce drawn from these areas, and more than 30% of our concentrate is transported by local companies.
During last year’s political turbulence in Peru, many mines faced disruptions, but Constancia remained fully operational, thanks to the community's strong support. The mine produces about 100,000 tons of copper annually at first quartile costs. We also recently brought the Pampacancha satellite pit online, which is delivering higher copper and gold grades. Looking ahead, we’re excited about the potential from exploration assets around Constancia, which could extend its operational life for decades.
Hudbay has had a good year, but recent months saw some stock challenges. What explains the downturn?
I believe there are two factors at play. First, there is a certain cadence to our production, and while Q1 was strong, Q2 and Q3 will see reduced output due to planned stripping activities at Constancia. This means we will produce less copper and gold in those quarters, while Q4 will be a very strong quarter. However, this cadence does not fully explain stock performance; the market's recent volatility, particularly concerns about the global economy, has been the more significant driver.
Copper prices have been under pressure recently, which directly impacts our share price, as Hudbay is highly leveraged to copper prices. Over the course of the year, we have performed well overall, but the short-term fluctuations in copper pricing have influenced our recent performance.
Why should our readers follow Hudbay in the coming years?
Copper is, without a doubt, the most essential metal for the future of the global economy, especially as we move toward a more electrified and sustainable world. It is irreplaceable in most of its applications, making Hudbay an exciting investment opportunity. We are a copper-focused company, with three long-life mines and one of the most robust development pipelines in the Americas.
Hudbay has a solid base of production with 150,000 tons of copper annually, and we have strategically added exploration properties that are becoming increasingly valuable in this copper-hungry environment. Our Copper World project in Arizona, which will produce “Made-in-America copper”, is another major asset.
Beyond copper, we also produce around 300,000 ounces of counter-cyclical gold, which helps balance economic volatility and supports our growth. We have also consistently delivered strong free cash flow, and our balance sheet is in the best shape it has been in years, setting us up for continued success.
