Hudbay 2016 Annual and CSR Report
2016 Annual and CSR Report

The Nature of Mining

2016 Annual and CSR Report

Commodities advance and commodities decline. Demand and prices were both low for much of 2016. That’s the nature of mining. As a company, Hudbay focuses on what we can control – efficiency, sustainability and productivity – so when the cycle turns, we’re positioned to capitalize on it. That’s the nature of Hudbay.

To succeed during a down cycle, Hudbay draws on internal resources, including experience, expertise and a company-wide commitment to controlling costs while getting the most out of every mine.

Dealing with the Inevitable: Managing Price Cyclicality

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To keep building strong community relations, we operate safely and sustainably while making sure that the communities near our operations participate in the benefits of a well-run mine.

A Foundation for Rewarding Community Relationships

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At every mine, in every jurisdiction, we make sustainability and responsibility just as important as production.

Managing Our Impact and Supporting Biodiversity

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Photo of underground mine work

Dealing with the Inevitable: Managing Price Cyclicality

The ebb and flow of demand – and the rise and fall of prices – have always been part of mining. This means that Hudbay has been successfully managing price cycles in the metals markets for close to 90 years. That history, combined with the experience of our leadership team, provided useful perspective and insight throughout the low copper price environment of the last few years.

When Hudbay incorporated in 1927, our operations were based in Manitoba and our primary market was North America. Today, our company is international and our market is global. Over the last 10 years, demand for copper was largely driven by economic and industrial growth in China. In recent years, China’s economy has slowed, and growth in the world’s other major markets has also been largely muted.

At the same time, as a result of investment earlier in the decade, a number of new sources of copper – including our Constancia mine – came on stream and global production grew. As a natural consequence of increased supply and slower demand growth, the price for copper dropped, hitting a multi-year low in January 2016.

We responded to these events by focusing our efforts where we could make a difference – on improving efficiencies, strengthening our balance sheet and managing costs at all of our operations.

As Alan Hair, Hudbay’s President and Chief Executive Officer, observed at the Company’s year-end town hall staff meeting: “We began January with copper at a multi-year low price, and the upside of 2016 is how the organization responded. We delivered cost reductions at our operations, while still meeting guidance. We also restructured our credit facilities, positioning the Company for an even tougher pricing environment than turned out to be the case. Most importantly, we showed we could weather the storm while still moving forward.”

Toward the end of the year, the copper price improved, and our focus on cost control and generating cash flow from operations meant we were able to begin devoting resources to plans for growth and exploration. Unlike many in the copper sector, Hudbay had maintained core exploration teams. Our capacity to respond effectively to near-term challenges, while continuing to build and plan for the long term, is the key to delivering positive performance.

Photo of Hudbay employee testing water

A Foundation for Rewarding Community Relationships

Mining is of tremendous importance to Peru. In 2015, it accounted for 17.6% of the country’s GDP and roughly half of its exports. Mining brings tax revenue, jobs, investment, infrastructure and other important benefits. Understandably, it can also prompt questions and concern from local communities.

In 2016, our Constancia mine saw a protest march, a roadblock and a brief occupation. For safety reasons, the occupation led to a temporary suspension of operations. The occupiers were from communities that had all signed co-operation and development agreements with Hudbay and with local and national governments. For various reasons, they were dissatisfied with the scope of the agreements and the pace of their implementation – and they voiced their concerns through protests such as these, which are commonly employed tactics in rural and outlying districts of Peru.

With forbearance and discipline from all sides, both legitimate protest and civil disobedience can be resolved peacefully, as were the three actions around Constancia. However, we know it doesn’t always happen this way in Peru and we work very hard to maintain good relationships with our neighbours and mitigate potential issues. We do so with the understanding that points of difference arise even in the best relationships. The key to maintaining those relationships is regular and open communication, and, on both sides, a willingness to consider other points of view.

Our Constancia operations have more than 17 people who focus on engaging with communities and supporting development. They keep our neighbours informed about what we’re doing, and why, while making sure we understand and acknowledge their concerns. They also work with local communities on projects to improve infrastructure, upgrade health facilities and build capacity for sustainable economic development and growth.

Photo of Hudbay employees running a test

Managing Our Impact and Supporting Biodiversity

Nothing better defines the nature of modern mining than the commitment to operating in accordance with the principles of environmental responsibility and sustainability. An example of this commitment can be seen every day in the hands-on, practical steps Hudbay takes to foster biodiversity.

In many cases, our steps are framed out in protocols established by organizations like the Mining Association of Canada (MAC), the International Standards Organization (ISO) and the International Finance Corporation (IFC). While the guidelines and standards set by these outside organizations play a key part in helping us be a responsible operator, the drive to meet them comes from inside our organization.

People who don’t know the industry might be surprised to discover the extensive effort companies and employees make to ensure our activities are compatible with surrounding ecosystems. In addition to miners and engineers, we employ and partner with biologists, botanists, ecologists and environmental scientists. They understand industry’s part in society’s overall impact on the environment, but they also recognize that sustainable mining can contribute to enhancing the quality of life around the world and they are dedicated to making sure that Hudbay meets high standards for environmental performance.

In our approach to conserving biodiversity, we’re guided by the “mitigation hierarchy”, a series of defined steps, taken throughout the life of a project, that help limit the adverse impacts of a development on biodiversity, and can potentially lead to a net gain. Here are a few examples:

Biodiversity conservation is integral to modern mining, and one of the cornerstones of our approach to building a business that is sustainable and successful.

Photo of Hudbay employee in a hard hat and wearing ear protection

Human Rights Primer for Mining Personnel

Hudbay was a significant supporter of a human rights video developed by the Canadian Centre for Excellence in Corporate Social Responsibility for the Extractive Sector. The video introduces mining employees to the Universal Declaration of Human Rights and what they and their companies should do to respect and protect human rights. Produced with support from Global Affairs Canada, Natural Resources Canada and the Mining Association of Canada and its members, the video is publicly available on YouTube.

Photo collage of Mining Association of Canada advertisements

Post-Verification Review Drives Improvement

As a member of the Mining Association of Canada (MAC), Hudbay participates in the Towards Sustainable Mining (TSM) initiative, which requires mining companies to annually assess their facilities’ performance across six important areas:

The results are freely available to the public and externally verified every three years.

Every year, two or three companies that have recently undergone external verification are asked to participate in a Post-Verification Review (PVR). Led by a multi-stakeholder Community of Interest (COI) Advisory Panel, the PVR helps the panel analyze activities that contribute to TSM results and promote continuous improvement in the environmental and social practices of the mining industry. We were pleased to participate in a PVR in 2016 as a way of improving our own performance and helping raise industry standards.

As part of the PVR, we submitted background information about Hudbay’s sustainability and TSM performance, presented to the COI Advisory Panel via webinar and then participated in a face-to-face dialogue in Ottawa. The Panel’s summary of findings are published on the MAC website.

Photo of two Hudbay employees reading on site

Safety Accountability Starts at the Top

Recognizing the importance of leadership in creating a positive safety culture, we introduced a company-wide Visible Felt Leadership (VFL) program for all levels of management including the CEO. VFL guides leaders to conduct regular safety-focused workplace visits and to engage constructively with employees at all levels of operations. It’s a way of demonstrating to employees the importance we place on their safety and well-being, and to engage positively around safety issues.

As part of the corporate VFL procedure, senior leaders complete a form each time they conduct a workplace visit. They document who they talked with and all safe acts and at-risk behaviours or conditions they observed. They also establish responsibilities and timelines for follow-up on safety concerns. Each business unit has implemented its own VFL procedure tailored to its workplace and used by its business unit leaders.

“Employee conversations are an essential part of the program,” says Ian Cooper, Manager, Health and Safety. “They provide an opportunity for employees and leaders to have meaningful one-on-one or small group discussions about safety performance and concerns in their workplace, which leads to a greater sense of personal accountability for safe work practices and ultimately to better results.”

Photo of two Hudbay employees going over notes

Building Leaders from Within

Over the next three years, we’ll be rolling out a global leadership initiative aimed at building sustainable leadership bench strength throughout Hudbay. An important part of it will be training courses offered at introductory, intermediate and advanced levels. Introductory level courses will be held locally, while intermediate courses will bring people from different business units together at rotating locations, and advanced courses will be customized to individual needs.

As a starting point, we created a leadership model with business input that articulates what we consider to be Hudbay’s core leadership competencies. The competencies fall into three main categories: growing people, growing the Company and growing oneself.

According to Amanda Abballe, Human Resources Manager: “Growing people is important because experienced and talented people are the basis for our company’s success and we are responsible for developing a skilled workforce. Growing Hudbay is important for being an adaptable and focused organization positioned to succeed in an ever-changing environment. Growing oneself builds confidence in one’s abilities and a desire to continuously improve, which are building blocks for personal success.”

Course content will be finalized in 2017 and we expect to begin delivering the program to the first cohort before year-end.

Photo of an Aboriginal demonstration

Benchmarking Hudbay’s Efforts in Aboriginal Inclusion

Hudbay achieved a Bronze level standing in the Progressive Aboriginal Relations (PAR) program of the Canadian Council for Aboriginal Business (CCAB) in 2016. The PAR program supports improvement in corporate performance in Aboriginal relations in Canada through benchmarking against a broad set of criteria in the areas of employment, business development, community investment, community engagement and company strategy. The certification process confirms performance through an extensive questionnaire that is assessed by an independent third-party verifier who reviews the responses and meets with Aboriginal stakeholders and company personnel to validate the responses. Final determination at the Bronze, Silver or Gold level is by a jury comprised of Aboriginal business people.

In each of the past three years, Hudbay completed the PAR questionnaire for our Canadian operations, and each year the verifier’s report provided guidance to improve our program. In 2016, the report was then reviewed by a jury of Aboriginal business leaders who determined that Hudbay met the requirements for Bronze level in the PAR program.

Thirty-one of the 123 CCAB member companies are PAR certified, and six of these companies are at the Bronze level. For Hudbay, achieving Bronze level represents important progress in our efforts to include Aboriginal communities in our business. “It’s important to us as a company that we deliver on this commitment with Aboriginal communities. This achievement shows that we’re on the right track,” said Pam Marsden, Aboriginal Liaison Officer, Manitoba Business Unit.

Photo of livestock

From Peru to Ontario – An Organic Opportunity

As part of our development-focused relationship with the regional government, Hudbay Peru sponsored the construction of a modern dairy plant in the Chumbivilcas region. The Cullahuata dairy currently processes 4,000 litres of milk per day and expects to increase production to 12,000 litres in the near future. It also produces several varieties of cheese, yogurt and butter.

The long-term goal is to establish a “dairy corridor” in the region. In 2016, Harmony Organic dairy in Kincardine, Ontario, stepped up to help, establishing a mentoring relationship with the Cullahuata dairy. Harmony Organic came to know the dairy through one of the Global Indigenous Development Trust trips that Hudbay had sponsored.

Harmony Organic’s CEO visited the Cullahuata dairy and is helping it become certified as organic. As part of that effort, two farmers from Chumbivilcas were invited to Kincardine to work at Harmony for a term and learn by doing. Two more will go in 2017. The knowledge they bring back – about farming, animal management and dairy operation – will be important in establishing the region’s first certified organic dairy.

In August 2016, at the third annual Community Relations International Conference in Peru, Hudbay was honoured to receive a community relations award for its work in the construction and management of the Cullahuata dairy plant.

Photo of a green post-closure scene

Awarded for Reclamation

Hudbay Peru received an SNMPE (National Society of Mining, Petroleum and Energy) Sustainable Development Award in the environmental management category for its progressive reclamation practices.

In keeping with environmental best practices, we try to return land to its original state as soon as it’s no longer required as part of production. At Constancia, we implemented a program that paid community members for collecting native grass seed for reclamation purposes and helping plant the seeds and erect erosion control structures.

The response to the program by the local communities of Chilloroya, Uchucarco, Casa Blanca, Collana Alta and Huaylla Huaylla was overwhelmingly positive, with 2.2 tonnes of native seeds collected, and over 26 hectares of land revegetated in less than a year.

Six community members work with us on an ongoing basis, managing our tree nursery and doing reclamation work. We’re planning to conduct a larger-scale forestation program in 2017 and will hire additional workers for that.

Photo of cacti in silhouette against a starry night sky

Maintaining Dark Skies

Maintaining dark skies is important to scientific astronomy in Arizona, but must be aligned with the need to meet employee safety requirements of the Mine Safety and Health Administration (MSHA). To achieve both goals, the Rosemont project will implement a groundbreaking, technologically advanced lighting system.

We updated our lighting plan in 2016 in consultation with an International Dark Sky Association board member. Features include the use of filtered LED fixtures, colour rendering to avoid blue-spectrum lights (which are among the most harmful to dark skies), and shielding/beam control on non-fixed lights to reduce direct uplight. All of these measures will minimize the effects artificial lighting can have on the night sky. In addition, we plan to implement a variety of dust control measures that will aid in reducing potential light dispersion.

The impact of these new measures will be significant – reducing output from 21,815,355 lumens in the original engineering plans to 6,529,184 lumens.

Our other commitments include annual funding to the Smithsonian Institution at the Whipple Observatory to measure light and light effects and implement additional ground-based monitoring sites. During operations, light emissions will continue to be monitored by STEM Labs, a non-profit organization dedicated to understanding the effects of maintaining dark skies for astronomy and environmental impacts.

Once Rosemont’s permits are received, a Sky Brightness Monitoring Plan Oversight Committee will be created to monitor all pertinent data from the operations. Should any impacts exceed expectations, the Committee will make recommendations for corrective action. The committee will be comprised of experts from the astronomy community and the lighting industry and representatives from both the Forest Service and Rosemont.

Photo of an orchid

Studies in Orchids

We’ve done a lot in the interest of the Coleman’s coralroot (Hexalectris colmaneii), a rare orchid found growing in southwestern New Mexico and southern Arizona, in part near the site of the proposed Rosemont mine.

Rosemont is contributing to the science and understanding of the plant.

Extensive surveys conducted by Rosemont have expanded the known distribution of the species to over 15 locations in seven distinct mountain ranges in southeastern Arizona.

Originally the Coleman’s coralroot orchid was thought to have a very specialized habitat, occurring only in the bottoms of shaded canyons with dense oaks and then only in a few canyons in three mountain ranges in southeastern Arizona.

Rosemont has redesigned the mine plant site to avoid one location where large numbers of Coleman’s coralroot spikes have consistently been observed.  The area will be fenced to limit potential impacts from disturbance.  The dry stack tailings position has also been realigned to avoid a second population known to occur in the vicinity of the project. Consequently, the project will directly impact small numbers of Coleman’s coralroot.

Overall, our surveys since 2010 have greatly increased the understanding of the habitat, range and relative abundance of orchid spikes known to exist. These surveys have also greatly expanded understanding of what is habitat for Coleman’s coralroot by documenting the orchid in areas that are strikingly different from the large drainages originally thought to be a requirement for the species. Surveys commissioned by Rosemont have also documented several locations of a similar species, Hexalectris arizonica, that had not been known previously, as well as a species of orchid, Hexalectris parviflora, that was not previously known to occur in the US.

Rosemont continues to survey areas in the vicinity of the Rosemont Copper Project to document the persistence of known locations of Hexalectris species and search for additional locations. Rosemont has also continued to monitor three locations where large numbers of orchid spikes are consistently found in order to provide long-term data to look for trends in orchid numbers and correlations with climate and habitat variables.