2017 Annual and CSR Report
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Positioned for Growth

2017 Annual and CSR Report

In 2017, a rising demand for copper and zinc, a foundation of long-life assets and a robust development platform combined to ensure that Hudbay was positioned for growth.

Several trends are driving the renewed demand for copper: improved performance in the overall global economy, national infrastructure initiatives, and global efforts to reduce the carbon footprint generated by energy production, energy usage and transportation.

Growing Demand:
Meeting the Demand for Responsible Copper and Zinc

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Growing Demand: Meeting the Demand for Responsible Copper and Zinc

A copper battery

After a cyclical downturn, which began in 2011, prices for copper and zinc began to recover in the second half of 2016. At present, prices and demand for both metals, particularly copper, are expected to continue rising.

Several trends are driving the renewed demand for copper. Improved performance in the overall global economy is creating broader demand for products that use copper. National infrastructure initiatives, notably in China, are also fueling demand. Finally, increased demand can also be tied to global efforts to reduce the carbon footprint generated by energy production, energy usage and transportation.

Copper will be essential to global carbon reduction initiatives. The typical battery-powered electric vehicle requires approximately four times the copper used in a conventional internal combustion engine vehicle. Copper is a key component of the cables that carry the energy generated by wind turbines and solar panels. It helps to reduce energy loss in electric motors and air conditioners, making them more efficient. It is integral to electric batteries, notably those used in electric vehicles.

“Improved performance in the overall global economy is creating broader demand for products that use copper. Hudbay is well positioned to take advantage of these favourable supply-demand fundamentals.”

Copper is also essential to high-tech equipment, from computers and servers to tablets and smartphones. Your phone contains more copper than any other metal, and copper comprises 12% of your phone’s total weight1. Increasingly, it is replacing aluminum in the manufacture of computer chips, in part because it delivers faster operating speeds.

Like copper, zinc has a range of applications across many industries, including agriculture, construction, pharmaceuticals and transportation. Approximately half of the world’s supply goes toward making corrosion-proof galvanized steel, which is widely used in infrastructure projects. Zinc sheeting is used for cladding, roofing and gutter systems. Zinc-coated steel is also widely used for building framing, bridge construction and the reinforcing bar in concrete structures. Because of its anti-corrosive properties, zinc can make a crucial contribution to infrastructure projects, and in recent years there has been a steady demand for galvanized steel from China.

During the downturn, many mining companies held off on developing or expanding their assets. Exploration was also curtailed. And while sentiment, demand and market fundamentals are changing, it could take years – given the time required to locate and transform a viable resource into a permitted operating mine – to close the gap between supply and demand.

Hudbay is well positioned to take advantage of these favourable supply-demand fundamentals. The Company operates long-life mines and has a robust exploration program. Its Rosemont project has reached the final stages of permitting, and development is expected to commence not long after the conclusion of that process. Once it becomes fully operational, Rosemont is expected to account for roughly 10% of US copper production.

Hudbay operates responsibly and sustainably, in accordance with local laws and international commitments, such as the Towards Sustainable Mining (TSM) initiative developed by the Mining Association of Canada (MAC). Rosemont, in particular, will be a showcase for sustainable mining. The mine will take an innovative approach to tailings and water conservation. It will feature an outdoor light management program, designed to comply with Arizona’s Dark Sky commitment to preserving the nighttime environment. There’s even a workforce bus transit plan in place to minimize traffic and air quality impacts.

As yet, no established framework exists for demonstrating the provenance of copper and zinc used in goods and materials. Nonetheless, we believe that ensuring copper and zinc are responsibly mined and sourced will be increasingly important to consumers and investors. It is a challenge and an opportunity that Hudbay is well prepared to meet.

  1. http://www.coppermatters.org/copper-facts
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Hudbay is in business to mine copper and other metals – efficiently, profitably and responsibly. Participating in a comprehensive, thoughtful permitting process, as we are at Rosemont, makes an essential contribution to achieving that goal.

Responsible Growth:
The Permitting Process at Rosemont

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Responsible Growth: The Permitting Process at Rosemont

Bird’s eye view of Hudbay's Rosemont site

Robust permit processes make good projects.

That belief has been our guide throughout the permitting process for our Rosemont project, which we expect will receive its final outstanding approval, the Section 404 Water Permit from the US Army Corps of Engineers, shortly.

The Rosemont project has a projected life of 19 years. When in full production, it is expected to be the third-largest producer of copper in the United States. The project is located in Arizona, a jurisdiction that upholds among the highest standards for safety, labour practices, environmental protection and social responsibility.

“We expect that Rosemont, as a long-life asset, will provide a dependable return on investment for many years.”

We believe these features make the Rosemont project a good fit for Hudbay. We also firmly believe that the permitting process, which began in 2007, has been – and needs to be – comprehensive and rigorous.

The federal agency leading the review process is the US Forest Service, supported by the US Army Corps of Engineers. In total, 17 different federal and state agencies (including the Arizona Department of Environmental Quality) played a role in the process, generating requests for clarifications and mitigations that Hudbay responded to in our Mine Plan of Operation (MPO), which is now over 4,000 pages long and comprises four separate volumes. In accordance with state practice, costs associated with permitting – including for staffing and any required studies, tests and additional consultants – are all paid by the applicant, Hudbay.

The MPO is our blueprint for Rosemont, and responding to mandated changes and mitigations that have arisen during the permitting process has helped make our project better. For example, guided by the process, we reduced the footprint of our mine site plant, which made our operation more efficient. We will also be using haul trucks with best-in-class diesel engines that meet the Tier 4 exhaust emission standards. While there is a notable upfront cost, we expect that Rosemont, as a long-life asset, will provide a dependable return on investment for many years.

Additionally, we will be pursuing a number of innovative approaches and usage agreements that will enable us to significantly reduce the amount of water that an operation like Rosemont would have consumed historically. These include using dry-stack tailings to manage our ore waste. Dry stack, in which dewatered tailings are piled to form very stable deposits, uses much less water than traditional tailings management approaches, and approximately 75% to 80% of the water that is used can be recycled. When fully operational, Rosemont will host the largest filtered tailings facility in North America.

While there is a notable upfront cost to some of these solutions, we expect that Rosemont, as a long-life asset, will provide a dependable return on investment for many years.

The permitting process delivers benefits that extend even beyond our operations. To gain our operating licence, we worked with consultants and manufacturers to develop innovative, LED-based lighting systems that meet Arizona’s Dark Sky commitments. When another mine faced a similar challenge, we were pleased to share what we had learned. Wide adoption helps lower costs on the technologies involved, expands the use of those technologies, and also reflects our desire to support sustainable, responsible mining throughout our industry.

Hudbay is in business to mine copper and other metals – efficiently, profitably and responsibly. Participating in a comprehensive, thoughtful permitting process, as we are at Rosemont, makes an essential contribution to achieving that goal.

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This initiative, OneHudbay, touches upon our values, our culture, our structure and our organizational approach. While comprehensive and wide ranging, it can be neatly captured in a single phrase: “How we work”.

Organizing for Growth:
Creating an Agile and Effective Organization

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Organizing for Growth: Creating an Agile and Effective Organization

Employees looking at detailed plans on a wall

Over the past decade, we have grown from a company anchored in northern Manitoba to become an international miner. Today, Hudbay is primarily a copper producer, focused on building and operating mines in the Americas, with operations and projects in Canada, Peru and the United States. Once our Rosemont project in Arizona comes online, it will be one of America’s largest copper producers. We also have an active exploration program. In short, driven by rising demand, we foresee a future of growth.

“We are working toward a common culture, a shared understanding of goals and strong guiding values that will empower our employees.”

To prepare for that growth, we recognized that we needed to look at how we functioned and how we were structured. While we have always had sound management systems in place, when we were a smaller organization, it was comparatively easy to identify and solve a range of problems as they arose. To meet the challenge of becoming a large, multinational company, we realized that we needed to revisit the systems and structures we had in place to ensure organizational effectiveness at any scale.

We call this initiative OneHudbay, and it touches upon our values, our culture, our structure and our organizational approach. While comprehensive and wide ranging, it can be neatly captured in a single phrase: “How we work”. OneHudbay is directed by our CEO and led by the Vice President, Organizational Effectiveness. In this newly created role, the VP, Organizational Effectiveness supports Hudbay’s growth by designing and implementing systems to maximize organizational effectiveness, and by leading projects, which consider both people and the technological aspects of the business, for transformational change.

OneHudbay is based in many respects on Requisite Organization (RO), a management theory that looks at organizations in terms of structures and systems. Through the RO lens, employees generally do not fail a company; more often, it is the other way around. To address this, RO mandates clear management accountability, defining employee responsibilities, establishing structures to support employees and their development, and carefully determining management layers.

While ensuring we maintain necessary management oversight, we are planning to put more emphasis on developing employees through coaching and talent development. Simply put, we want to make it easier for employees at all levels to understand what is expected of them, and then support them in achieving their goals.

We put a renewed emphasis on mission, strategy, values and culture. As OneHudbay, we choose not to impose uniformity. We are working toward a common culture, a shared understanding of goals and strong guiding values that will empower our employees – wherever they are located – to meet challenges, move swiftly, make decisions and help our company grow, today and tomorrow.

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