Hudbay’s plan to boost Copper Mountain output comes at a cost

Hudbay Minerals (TSX: HBM; NYSE: HBM) on Tuesday tabled a new mine plan for its Copper Mountain acquisition in southern British Columbia, outlining a planned 90% production hike at half the 2022 cost despite higher upfront cost.

The new mine plan foresees an average yearly copper production of 46,500 tonnes over the next five years at a cash cost of US$1.89 per lb. and 45,000 tonnes per year copper at US$1.72 per lb. over the next decade. Additionally, Copper Mountain is expected to contribute about 49,500 oz. gold per year for 10 years.

The new 21-year mine plan includes operational enhancements such as remobilizing idle haul trucks, opening additional mining faces, and accelerating stripping to access higher-grade ore. A capital investment of $31.2 million in 2025-26 is expected to boost mill throughput to 50,000 tonnes per day.

Canaccord Genuity capital Markets mining analyst Dalton Baretto says the financial benefits of increased production might be offset by the substantial upfront investment required. “While the medium-term production profile is better than we had anticipated, economically, this has been more than offset by ~50% of the higher capex being front-loaded over the 2024-2026 period,” he said in a note to clients.

Hudbay closed the US$439-million purchase of Copper Mountain and its mine of the same name in June. Early in November, it said it was working on finalizing the new mine plan to address what Hudbay’s president and CEO Peter Kukielski described at the time as “very optimistic assumptions on all aspects of the 2022 life of mine plan,” which he says the company never endorsed.

Copper Mountain is expected to be a critical asset in Hudbay’s producing portfolio. “With the addition of Copper Mountain, we expect to maintain annual consolidated copper production above 150,000 tonnes through to the end of the decade and are better positioned to achieve our deleveraging objectives and deliver on future copper growth,” said Kukielski in a press release Tuesday.

“This increased scale and diversification enhances the company’s ability to prudently advance our organic growth pipeline of brownfield expansion and greenfield development opportunities in tier-one mining jurisdictions.”

Hudbay is also weighing the use of renewable diesel fuel, installing wind turbines, and examining the potential for trolley-assist trucks and conveyors for haulage.

Since acquiring Copper Mountain in June, Hudbay owns 75% of the mine, 21 km south of Princeton, with Mitsubishi Materials of Japan owning the remaining 25%.

Hudbay shares closed 1.6% lower Tuesday at $6.24, taking the 12-month trend down 20.5%. Shares traded at $5.46 and $8.47 over the period. Hudbay has a market capitalization of $$2.2 billion.