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August 14, 2007
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HudBay Reports Second Quarter 2007 Results -- Record Revenues and Strong Cash Flow Growth Continues --
- Revenue increases 37% to a record $358.3 million
- Operating cash flow(1) climbs 40% to $137.7 million
- Earnings before tax increases 29% to $122.0 million
- Significant tax pools continue to shelter cash income taxes
- Net earnings of $69.1 million versus $152.8 million in Q2 2006
- Cash cost per pound of zinc sold, net of by-product credits "negative" US$0.30
- Mineral resources substantially increased with completion of NI 43-101 report on Tom & Jason deposits
- Lalor Lake drilling program delivering high grade zinc results
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WINNIPEG, MANITOBA--(Marketwire - Aug. 14, 2007) - HudBay Minerals Inc. (TSX:HBM) ("HudBay" or the "Company") today announced a 37% increase in revenue to $358.3 million for the quarter ended June 30, 2007, compared to the second quarter of 2006, contributing to net earnings of $69.1 million or $0.55 per share. Operating cash flow for the quarter increased to $137.7 million or by 40% from a year earlier.
FINANCIAL HIGHLIGHTS
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Three months Six months
ended June 30 ended June 30
($000's except per ------------------------------------------
share amounts) 2007 2006 2007 2006
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Revenue 358,298 261,727 707,440 469,690
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Earnings before tax 121,953 94,590 239,468 156,233
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Net Earnings 69,139 152,836 132,215 228,822
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Basic EPS(2) 0.55 1.71 1.05 2.62
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EBITDA(3) 129,607 111,962 274,377 189,584
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Operating cash flow(1) 137,660 98,328 280,160 176,302
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Cash and cash equivalents(4) 564,685 113,440 564,685 113,440
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Total Assets(4) 1,426,587 929,323 1,426,587 929,323
--------------------------------------------------------------------------The bracketed values that follow denote the comparative figures for the respective periods in 2006.
(1) Operating cash flow excluding changes in non-cash working capital.
(2) Earnings per share.
(3) Earnings before interest, taxes, depreciation and amortization, loss/gain on derivative instruments, interest and other income and other.
(4) At June 30th.
"The second quarter and first half of 2007 results reflect our production strength," said Peter Jones, President & CEO. "Our growing production profile and our positive exploration results at Lalor Lake fit well with our strategy."
OPERATING HIGHLIGHTS
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Three months Six months
ended June 30 ended June 30
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Production 2007 2006 2007 2006
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Zinc(5) tonnes 30,805 26,654 62,213 56,560
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Copper tonnes 22,752 17,066 44,476 40,752
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Gold troy oz. 27,617 18,825 51,830 45,336
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Silver troy oz. 343,599 265,192 696,046 655,422
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Metal Sold(6)
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Zinc, including
sales to Zochem(7) tonnes 33,121 19,774 64,978 49,946
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Copper tonnes 22,565 17,218 47,227 36,150
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Gold troy oz. 23,696 25,062 53,412 39,908
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Sliver troy oz. 310,477 354,024 694,396 586,480
-----------------------------------------------------------------------Financial and Operating Results
Earnings
Earnings before tax in Q2 2007 (second quarter of 2007) increased strongly by 29% to $122.0 million ($94.6 million). During the first six months of 2007 (year to date), earnings before tax increased by 53% to $239.5 million ($156.2 million). The Company continues to benefit from its significant tax pools and minimal cash income taxes were paid year to date. The benefit of these tax pools is expected to continue for the balance of 2007, resulting in minimal cash income taxes this year. The Company expects to continue to pay Manitoba mining taxes in 2007.
Net earnings were $69.1 million for the quarter, or $0.55 per share ($152.8 million, or $1.71 per share). Year to date net earnings were $132.2 million or $1.05 per share ($228.8 million or $2.62 per share). Lower year-over-year net earnings is primarily attributable to a non-cash tax expense of $41.9 million this quarter (non-cash tax benefit of $66.7 million) and $83.8 million year to date (non-cash tax benefit of $81.6 million).
Adding back non-cash tax expense to net earnings recognizes the significant value of HudBay's tax pools. On this basis, net earnings in Q2 2007 were $111.0 million or $0.88 per share ($86.1 million), which represents an increase of 29%. Year to date earnings on this basis were $216.0 million ($147.2 million) representing an increase of 46.7%.
Revenue
Total revenue for Q2 2007 was $358.3 million ($261.7 million) reflecting higher sales volumes for zinc and copper metal together with higher realized metal prices in Q2 2007. This was partially offset by marginally lower sales volumes for gold and silver in Q2 2007 as well as appreciation in the Canadian dollar versus the US dollar. Total revenue year to date was $707.4 million ($469.7 million) reflecting higher metal sales volumes together with higher realized metal prices year to date 2007. This was partially offset by appreciation in the Canadian dollar versus the US dollar.
(5) Production in 2007 includes Balmat metal in concentrate shipped.
(6) Excludes inventory changes prior to the contractual change with HudBay's joint venture company Considar Metal Marketing Inc.
(7) Zinc sales include sales to Zochem and the Balmat payable in concentrate shipped (including to HBMS) in 2007.
Through the second quarter, the Company continued to receive attractive prices, which include premiums for its finished metals that were above London Metals Exchange ("LME") averages.
Realized Metal Prices and Exchange Rate
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HudBay Realized Prices
Q2 2007 Three Months Ended Six Months Ended
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Average June 30 June 30 % June 30 June 30 %
Prices(1) 2007 2006 Change 2007 2006 Change
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Zinc US$/lb. 1.66 1.75 1.55 13% 1.70 1.26 35%
Copper US$/lb. 3.47 3.53 3.50 1% 3.16 2.89 9%
Gold US$/troy oz. 667 665 593 12% 657 567 16%
Silver US$/troy oz. 13.34 13.33 10.95 22% 13.39 10.25 31%
C$/US$ exchange rate 1.10 1.10 1.12 (2%) 1.13 1.14 (1%)
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(1) LME average for zinc, copper and gold prices, London Spot US equivalent
for silver prices.Operating Expenses
Operating expenses for Q2 2007 were $197.3 million ($138.9 million) and $381.9 million year to date ($260.8 million). The 2007 increases were primarily attributable to strong increases in sales volumes and higher costs of production. Sales of zinc metal were 67% higher in Q2 2007 and 30% higher year to date. Sales of copper metal were also significantly higher in 2007, increasing by 31% in Q2 2007 and year to date. Increased costs of production reflect higher pricing and volumes for purchased zinc and copper concentrates as well as generally higher costs for mining and processing operations. Growth in administrative costs and employee profit sharing costs related to the strong growth in net income also contributed to the year over year increases in operating expenses.
HudBay's Q2 2007 cash cost per pound of zinc sold, net of by-product credits, was negative US$0.30 (negative US$0.95). Year to date, HudBay's cash cost per pound of zinc sold, net of by-product credits was negative US$0.32 (negative US$0.34). A reconciliation of this non-GAAP measure is provided in the Company's Q2 2007 MD&A.
Depreciation and amortization increased in Q2 2007 to $23.3 million ($15.6 million) and increased to $45.2 million year to date ($31.2 million). The increases primarily reflect the inclusion of Balmat beginning in Q1 2007 and increased depreciation and amortization expense at the Trout Lake mine.
Tax Expense
Tax expense in Q2 2007 was $52.8 million compared with a net tax benefit of $58.2 million in Q2 2006. The Q2 2007 tax expense is comprised of $38.8 million of income tax expense ($66.6 million tax benefit) and $14.0 million of mining tax expense ($8.3 million). The year to date tax expense is comprised of $77.4 million of income tax expense ($80.9 million benefit) and $29.8 million of mining tax expense ($8.3 million). Importantly, the income tax portion is largely a non-cash expense due to the draw down of the Company's tax asset, which was established in 2006 and is associated with prior losses.
In Q2 2007 HudBay incurred cash mining taxes of $10.8 million ($8.3 million) and $23.3 million year to date ($8.3 million).
CORPORATE HIGHLIGHTS
2007 Exploration Program Delivering Results
HudBay continues to make strong progress in the execution of its 2007 exploration program.
1. NI 43-101 Report Completed on Tom and Jason Deposits -- In July 2007, HudBay released a National Instrument 43-101 (NI 43-101) compliant in-situ mineral resource estimate for its Tom and Jason deposits in the Yukon Territory (see press release dated July 6, 2007). The mineral resource estimate for the two deposits totalled 6.43 million tonnes of indicated mineral resources and 24.55 million tonnes of inferred mineral resources and confirmed the combined deposits as one of the largest undeveloped zinc/lead deposits in North America. The Tom and Jason deposits are located in close proximity to each other on a property of 5,278 hectares, close to the Yukon-Northwest Territories border. The property is approximately 400 km east of Whitehorse where the deposits straddle the North Canol Road and share a common airstrip.
2. High Grade Zinc Results from Lalor Lake Drilling Program -- The new Lalor Lake exploration discovery in the Snow Lake area of Manitoba continues to be a major focus. The Lalor Lake property is approximately 3 km off highway 395 and 15 km from HudBay's Snow Lake concentrator, which has additional capacity. Results from the ongoing Diamond drill program at the Lalor Lake property were announced in early August 2007 (see press release dated August 2, 2007). Mineralization intersections at approximately 800 metres from surface indicate a strike length of approximately 550 metres and a width of approximately 700 metres measured in plan view. The mineralization remains open in at least three directions. With ten drill holes completed and high zinc grades reported, the Company has assigned four drills to the site to further define the deposit.
3. Bur Deposit Update -- HudBay's 2007 $8.5 million Bur Deposit project continues. The Bur deposit is only 22 kilometres from HudBay's Snow Lake concentrator. The Company has accessed the site and is in the process of completing a feasibility study. A decision on whether or not to proceed with the project will follow the feasibility study, which is expected to be completed in the third quarter.
HudBay's $45.2 million exploration program for 2007 includes drilling of electromagnetic anomalies, known deposits, structural re-interpretations to discover new ore bodies as well as exploration in our operating mines to potentially increase our ore reserves and extend the life of our existing mines. Land holdings now total 419,422 hectares including 379,218 hectares in the Flin Flon Greenstone Belt. Year to date, approximately $20.5 million ($8.1 million) was spent on exploration activities at all locations.
VMS Venture Option Agreement
In August 2007, HudBay announced it had entered into an option agreement with VMS Ventures Inc. (VMS) covering 573 hectares in the Snow Lake area of Manitoba. The agreement builds on HudBay's own $45.2 million exploration program for 2007 and further leverages the Company's exploration opportunities. With the VMS agreement, HudBay now has option agreements in place with four mineral exploration companies in the Flin Flon Greenstone Belt.
Safety and the Environment
HudBay's lost time accident frequency rate, based on 200,000 hours worked was 1.2 year to date, compared with 1.1 in 2006. There were no significant environmental non-compliances during the quarter.
For further information, please see attached hereto selected financial information for the periods ended June 30, 2007 and 2006. Please also see HudBay's financial statements together with Management's Discussion and Analysis of Operations and Financial Condition for the three and six months ended June 30, 2007. A copy of HudBay's financial statements for the periods ended June 30, 2007 and June 30, 2006 as well as its MD&A for the three and six months ended June 30, 2007 are available under the profile of HudBay on SEDAR at www.sedar.com and on the HudBay website at www.hudbayminerals.com.
About HudBay Minerals Inc.
HudBay Minerals Inc. is an integrated mining company operating mines, concentrators and a metal production facility in northern Manitoba and Saskatchewan. HudBay also owns a zinc oxide production facility in Ontario, the White Pine copper refinery in Michigan and the Balmat zinc mine operations in New York state. HudBay is a member of the S&P/TSX Composite Index and the S&P/TSX Global Mining Index.
Forward-Looking Information
This news release contains "forward-looking information", within the meaning of applicable Canadian securities legislation. Forward-looking information includes, but is not limited to, statements with respect to taxation policies and pools, drilling programs with respect to the Lalor Lake property and HudBay's exploration program and plans with respect to the Bur deposit. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "seeks", "expects", "budget" or variations of such words or state that certain actions, events or results "may", "could", "will", "will be", "would be" or "is expected to be". Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of HudBay to be materially different from those expressed or implied by such forward-looking information, including risks associated with the mining industry such as economic factors, government regulation and approvals, environmental risks, success of exploration activities, future commodity prices, capital expenditures, possible variations in ore reserves, resources, grade or recovery rates, requirements for additional capital, taxation policies, changes in project parameters as plans continue to be refined, conclusions of economic evaluations as well as those factors discussed in the section entitled "Risk Factors" in HudBay's Annual Information Form for the year ended December 31, 2006, available on www.sedar.com. Although HudBay has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. HudBay does not undertake to update any forward-looking information, except in accordance with applicable securities laws.
(HBM-F)
To view the Management's Discussion and Analysis, please click the following link:
http://www.ccnmatthews.com/docs/hbmmdaQ207.pdf
To view the Financial Statements, please click the following link:
http://www.ccnmatthews.com/docs/hbmifsQ207.pdf
HudBay Minerals Inc.
Consolidated Statements of Earnings
Unaudited
(In thousands of Canadian dollars, except share and per share amounts)
Three months ended Six months ended
June 30 June 30
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2007 2006 2007 2006
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Revenue (note 14) $ 358,298 $ 261,727 $ 707,440 $ 469,690
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Expenses:
Operating 197,344 138,942 381,852 260,829
Depreciation and
amortization 23,294 15,649 45,168 31,191
General and
administrative 4,898 4,495 9,471 8,172
Stock-based compensation
(note 10e) 2,074 1,823 6,783 4,074
Accretion of asset
retirement obligation 789 659 1,578 1,319
Foreign exchange
loss (gain) 13,074 (25) 15,118 (1,293)
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241,473 161,543 459,970 304,292
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Operating earnings 116,825 100,184 247,470 165,398
Exploration (10,512) (3,871) (18,261) (7,005)
Gain (loss) on
derivative
instruments 2,919 9,221 (8,060) 13,552
Interest and
other income 12,846 1,972 18,808 3,144
Interest expense (416) (3,279) (815) (8,033)
Other 291 (9,637) 326 (10,823)
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Earnings before tax 121,953 94,590 239,468 156,233
Tax expense (benefit)
(note 9) 52,814 (58,246) 107,253 (72,589)
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Net earnings for the
period $ 69,139 $ 152,836 $ 132,215 $ 228,822
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Earnings per share:
Basic $ 0.55 $ 1.71 $ 1.05 $ 2.62
Diluted $ 0.54 $ 1.30 $ 1.03 $ 2.03
Weighted average number
of common shares
outstanding (note 10f)
Basic 126,656,543 89,335,965 126,398,873 87,375,369
Diluted 128,440,639 117,203,669 128,337,978 112,702,524
See accompanying notes to interim consolidated financial statements.
HudBay Minerals Inc.
Consolidated Statements of Retained Earnings
Unaudited
(In thousands of Canadian dollars)
Three months ended Six months ended
June 30 June 30
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2007 2006 2007 2006
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Retained earnings, beginning
of period $ 704,794 $ 154,718 $ 642,723 $ 78,732
Net earnings for the period 69,139 152,836 132,215 228,822
Transition adjustment -
financial instruments
(note 3a) - - (1,005) -
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Retained earnings,
end of period $ 773,933 $ 307,554 $ 773,933 $ 307,554
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Consolidated Statements of Comprehensive Income
Unaudited
(In thousands of Canadian dollars)
Three months ended Six months ended
June 30 June 30
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2007 2006 2007 2006
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Net earnings for
the period $ 69,139 $ 152,836 $ 132,215 $ 228,822
Other comprehensive
income (loss),
net of tax (note 11) (11,432) - (16,374) -
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Comprehensive income,
end of period $ 57,707 $ 152,836 $ 115,841 $ 228,822
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See accompanying notes to interim consolidated financial statements.
HudBay Minerals Inc.
Consolidated Balance Sheets
Unaudited
(In thousands of Canadian dollars)
June 30, 2007 December 31, 2006
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Assets:
Current assets:
Cash and cash equivalents $ 564,685 $ 385,864
Accounts receivable 110,585 132,275
Inventories 188,796 163,842
Prepaid expenses 4,861 7,288
Current portion of fair value of
derivatives (note 12b) 5,376 2,579
Future income and mining tax assets
(note 9b) 82,877 154,063
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957,180 845,911
Property, plant and equipment (note 4) 448,528 444,044
Other assets (note 5) 20,879 28,560
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$1,426,587 $1,318,515
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Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable and accrued liabilities $ 115,930 $ 139,922
Taxes payable 13,297 30,217
Current portion of other liabilities
(note 6) 37,328 28,087
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166,555 198,226
Long-term debt (note 7) 3,409 10,214
Pension obligations 39,350 41,675
Other employee future benefits 67,516 65,083
Asset retirement obligations 35,097 33,548
Fair value of derivatives (note 12b) 25,616 -
Obligations under capital leases 3,535 4,979
Future income tax liabilities (note 9b) 533 582
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$ 341,611 $ 354,307
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Shareholders' equity:
Share capital:
Common shares (note 10b) 309,451 308,441
Warrants (note 10c) 1 3
Contributed surplus (note 10e) 17,554 13,098
Cumulative translation adjustment - (57)
Retained earnings 773,933 642,723
Accumulated other comprehensive income
(loss) (note 11) (15,963) -
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1,084,976 964,208
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$1,426,587 $1,318,515
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See accompanying notes to interim consolidated financial statements.
HudBay Minerals Inc.
Consolidated Statements of Cash Flows
Unaudited
(In thousands of Canadian dollars)
Three months ended Six months ended
June 30 June 30
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2007 2006 2007 2006
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Cash provided by (used in):
Operating activities:
Net earnings for the period $ 69,139 $ 152,836 $ 132,215 $ 228,822
Items not affecting cash:
Depreciation and amortization 23,294 15,649 45,168 31,191
Future tax expense (benefit) 41,940 (66,705) 83,799 (81,643)
Foreign exchange (gain) loss 8,274 (5,861) 8,746 (5,343)
Amortization of deferred
financing costs - 4,706 - 5,068
Accretion expense on
asset retirement
obligation 789 659 1,578 1,319
Stock-based compensation 2,074 1,823 6,783 4,074
Change in fair value of
derivatives (6,218) (3,837) 6,265 (6,996)
Other (1,632) (942)_ (4,394) (190)
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137,660 98,328 280,160 176,302
Change in non-cash working
capital (note 13) (54,650) (13,974) (41,259) (65,822)
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83,010 84,354 238,901 110,480
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Financing activities:
Repayment of loans payable (4,000) (4,000) (4,000) (4,000)
Repayment of senior secured
notes - (110,350) - (111,518)
Repayment of obligations
under capital leases (1,003) (950) (1,992) (1,886)
Issuance of common shares,
net of cost - 16,958 - 16,958
Proceeds on exercise of
stock options 4,424 2,568 5,922 3,748
Proceeds on exercise
of warrants - 40,019 10 44,288
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(579) (55,755) (60) (52,410)
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Investing activities:
Additions to property,
plant and equipment (26,529) (41,155) (50,490) (68,158)
Acquisition of White Pine
Copper Refinery, Inc.,
net of cash acquired - - - (17,041)
Purchase of investments (400) - (400) -
Additions to environmental
deposits - 48 - 63
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(26,929) (41,107) (50,890) (85,136)
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Effect of exchange rate
changes on cash
and cash equivalents (8,589) (1,416) (9,130) (1,154)
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Change in cash and cash
equivalents 46,913 (13,924) 178,821 (28,220)
Cash and cash equivalents,
beginning of period 517,772 127,364 385,864 141,660
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Cash and cash equivalents,
end of period $ 564,685 $ 113,440 $ 564,685 $ 113,440
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Cash and cash equivalents is
comprised of:
Cash on hand and demand
deposits $ 51,099 $ 113,059 $ 51,099 $ 113,059
Money market instruments 513,586 381 513,586 381
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$ 564,685 $ 113,440 $ 564,685 $ 113,440
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See accompanying notes to interim consolidated financial statements.
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