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Article Excerpt
OPERATOR: Welcome to the HudBay Minerals Inc. fourth quarter and 2008 year end conference call. (Operator Instructions) Following the presentation, we will conduct a question-and-answer session. I would like to remind everyone that this conference call is being recorded on Thursday, March 5, 2009 at 10 a.m. Eastern Time.
I will now turn the conference over Ms. Annemarie Brissenden, Manager, Investor Relations. Please go ahead.
ANNEMARIE BRISSENDEN, MANAGER, IR, HUDBAY MINERALS INC: Thank you, M.J. Good morning and welcome to HudBay's year end results conference call. The Company's financial results were issued yesterday by press release and are available on HudBay's Website. Our presenters today are Allen Palmiere, HudBay's Chief Executive Officer; Michael Winship, HudBay's President and Chief Operating Officer; and David Bryson, the Company's Vice President and CFO.
Please note that comments made on today's call may contain forward-looking information. This information, by its nature, is subject to risks and uncertainties and as such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the Company's relevant filings on SEDAR. These documents are also available on our Website at hudbayminerals.com.
Lastly, please be reminded that currency amounts discussed on today's call are in Canadian dollars, unless we indicate otherwise. And now, I'd like to pass the call over to Allen.
ALLEN PALMIERE, CEO, HUDBAY MINERALS INC: Thanks, Annemarie. And good morning, everyone. Clearly, 2008 was a remarkable year for HudBay. When I was appointed CEO a year ago, HudBay had a number of operational and financial strengths but with significant untapped potential. We set out several key strategies designed to enhance shareholder value and grow HudBay into a leading Canadian-based metals mining Company. We'll speak generally on those strategies and our progress in obtaining those goals, first. After which, we will counter some of the charges made by SRM in its recent circular.
Our first strategy is to continue to optimize our strong operations in Manitoba. I'm pleased with our 2008 operating results, which Michael will speak to in a moment. Our metal production was on target, notwithstanding the closure of our Balmat Mine mid year. The decision to close a mine is never easy but this was a necessary course, given declining metal prices and Balmat's inability to live up to the previous management's optimistic assumptions that brought the mine into production. We have pursued other initiatives in response to the dramatic changes in our environment, including the suspension of construction at the Fenix project in Guatemala and the suspension of production at the Chisel North Mine. We have also reviewed all of our operating and capital costs to ensure that HudBay is well positioned to weather the storm.
Our second strategy is to pursue organic growth. We significantly this advance this strategy with ongoing development of our Lalor project near Snow Lake, Manitoba. In addition to announcing a National Instrument 43-101Technical Report in August, that shows an attractive zinc resource, further drilling has identified areas of gold mineralization that show significant promise, particularly given currently market conditions.
Our third strategy, growth by acquisition, has been, as you all know, the subject of considerable attention. First, we acquired Skye Resources in August 2008 for its world-class Fenix nickel project, which Skye was bringing into production. Given the changes in the economic environment subsequent to closing the transaction, we recognized that we would jeopardize our balance sheet strength if we proceeded with construction. So, we decided to slow down the project to protect the Company from that risk.
In addition, we announced the acquisition of Lundin Mining in November of 2008. After we carefully evaluated the transaction and followed what we believed to be high standards of corporate governance, we concluded that the acquisition would have been a strong contributor to long-term shareholder value. However, we listened to shareholders and when the OSC decision overrode our contractual commitment to Lundin to proceed without a shareholder vote, we elected to terminate the acquisition on terms favorable to HudBay.
We continue to believe these are the right strategies for HudBay. The Company is better positioned now to create shareholder value than it was at the beginning of 2008 and we look forward to advancing HudBay's strategy in 2009. Michael Winship will now provide some additional insight into our 2008 operating results and 2009 outlook.
MICHAEL WINSHIP, PRESIDENT AND COO, HUDBAY MINERALS INC: Thanks, Allen. 2008 was another strong year of production from our assets in northern Manitoba. We set a new record for production from the 777 Mine, with production that was 3% higher than 2007. Ore grades were somewhat lower than the high grades enjoyed in 2007 and more consistent with the overall reserve grade of the mine. The [Pillmate] Mine's production met the mine plan, reflecting more challenging mining, as orders brought from the deeper parts of the mine and higher-grade areas are depleted.
Operating costs at our mines were somewhat higher in 2008, mainly as a result of higher consumable costs, like fuel oil. Our processing facilities also performed very well in 2008. Recoveries from our concentrators were in line with 2007 performance. Costs were somewhat higher, generally again, as a result of higher consumable costs. The exception was the copper smelter, where unit costs increased significantly, as a result of reduced throughput of purchased concentrates and higher energy costs.
We've also released our mineral reserves estimates as of January 1, 2009. Reserves declined over the course of 2008, with depletion from production for the 777 and Tout Lake Mines. For Chisel North Mine, reserves declined, both as a result of depletion, as well as the review of mine planning assumptions and the likely recovery from certain zones. We have also reclassified Balmat's reserves to resources. And there's no change to the reserves identified at the Fenix project in Guatemala.
The continued success of diamond drilling at Lalor was the year's exploration highlight. In addition our ongoing delineation of the zinc resources, we encountered significant golds intersections and defined several discrete areas of gold mineralization. We have initiated engineering and metallurgical work on the project and believe this could well be HudBay's next major mine in the Snow Lake area.
And now, we'd look to look forward to our outlook for 2009. As disclosed in yesterday's press release, we expect zinc production from HudBay sources to be between 75,000 to 90,000 tons. And domestic copper production to be between 45,000 to 55,000 tons. Obviously, the suspension of the Balmat and Chisel North Mines are the principal factor in our decline of zinc production. And we do not be able to identify enough purchasing concentrate to keep our zinc plan in Flin Flon running at full capacity during...
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