Executive Summary / Key Takeaways

• Hudbay Minerals Inc. ($HBM) is transforming into a low-cost, diversified copper and gold producer, leveraging strategic asset optimization and the derisking of its world-class Copper World project for significant long-term growth in critical minerals.
• The company has achieved robust financial performance, marked by record free cash flow generation and a fortified balance sheet, with net debt reduced to $434 million and a leverage ratio of 0.4x as of Q2 2025, its lowest in over a decade.
• A pivotal joint venture with Mitsubishi Corporation (MSBHY) for the Copper World project significantly derisks its development, reducing Hudbay's remaining funding to approximately $200 million and deferring its first capital contribution to 2028 at the earliest, while boosting Hudbay's levered project IRR to approximately 90%.
• Operational excellence and technological enhancements across its Constancia (Peru), Snow Lake (Manitoba), and Copper Mountain (British Columbia) assets are driving efficiency and production growth, positioning Hudbay as a low-cost producer in both copper and gold.
• The company's strategic focus on "Made in America" copper production from Copper World, coupled with an aggressive exploration pipeline and brownfield expansions, underpins a projected annual copper production growth of over 50% from current levels once Copper World is online.

The Foundation: Diversified Assets and Strategic Evolution

Hudbay Minerals Inc. is a diversified mining company with a rich history spanning nearly a century, rooted in operations like those in Flin Flon, Manitoba. Over the decades, Hudbay has strategically evolved, transforming its portfolio to focus on critical minerals—primarily copper and gold—across Tier-1 mining jurisdictions in North and South America. This strategic shift has positioned Hudbay as a significant player, currently ranking as the fourth-largest copper company listed on the New York Stock Exchange. The company's overarching strategy centers on maximizing value through operational excellence, disciplined capital allocation, and a robust pipeline of high-return growth projects.

The global mining landscape is currently shaped by powerful macroeconomic forces, notably the accelerating demand for copper driven by the global energy transition, electrification initiatives, and the burgeoning needs of AI-driven data centers. This trend suggests a long-term supply deficit, creating a highly favorable environment for copper producers. Hudbay's diversified exposure to both copper and gold provides a resilient cash flow profile, offering a hedge against commodity price volatility while capitalizing on the strong fundamentals of both metals. This diversification is a key differentiator, enhancing the company's financial stability compared to more single-commodity-focused peers.

Technological Edge and Operational Prowess

Hudbay's operational strength is deeply intertwined with its commitment to technological differentiation and continuous improvement across its asset base. These innovations are not merely incremental; they are foundational to the company's low-cost positioning and future growth.

At the Constancia mine in Peru, the mill has consistently outperformed its original 2014 design capacity of 76,000 tonnes per day, averaging approximately 90,000 tonnes per day in Q1 2025 and 88,000 tonnes per day in Q3 2024. This 15% increase above nameplate capacity is a testament to ongoing optimization. The company is further advancing engineering studies for a pebble crusher, with construction commencing in late 2025. This initiative is expected to increase throughput levels starting in the second half of 2026 and enhance grades by rejecting lower-grade pebbles (around 0.13% copper), thereby improving overall efficiency and metal recovery. This strategic move helps Constancia maintain its position as the lowest-cost open-pit copper mine in South America.

In Manitoba, the New Britannia mill, acquired in 2015 and refurbished in 2021 for $115 million, has been a standout performer. Its refurbishment boosted gold recoveries to approximately 90%, a significant improvement from previous levels. The mill consistently exceeds its 1,500 tonnes per day nameplate capacity, achieving record monthly production levels exceeding 2,300 tonnes per day in April 2025. The estimated internal rate of return (IRR) for this project has remarkably increased from an initial 19% to 36%, demonstrating the power of disciplined brownfield investment. Hudbay has also secured a permit to increase New Britannia's production rate to 2,500 tonnes per day, further maximizing gold production and cash flows from the Lalor mine. The Snow Lake operations, with sustaining cash costs of $868 per ounce in 2024, are recognized as the lowest-cost gold mine in Canada, achieving margins of roughly 70% at current gold prices.

At the Copper Mountain mine in British Columbia, Hudbay is executing a significant SAG mill conversion project. The initial phase was successfully completed on time and on budget in July 2025. This project, which involves converting the third ball mill to a second SAG mill, is anticipated to ramp up mill throughput and increase nominal plant capacity to its permitted level of 50,000 tonnes per day in 2026. This enhancement is crucial for processing higher-grade ore from the ongoing three-year accelerated stripping program, which aims to bring more valuable material into the mine plan.

Looking ahead, the Copper World project in Arizona incorporates the Albion Process as part of its pre-feasibility study, with plans to integrate it into operations post-construction. This technology is key to producing "Made in America" copper cathode from concentrate, a strategic differentiator that aligns with U.S. critical mineral supply chain objectives and national security interests. Management is actively studying the possibility of accelerating the Albion Process integration during the definitive feasibility study to further enhance this domestic production capability. Hudbay's ongoing exploration efforts, including the largest geophysics program in Snow Lake's history, utilize advanced electromagnetic and airborne surveys to identify new anchor deposits, ensuring a long-term resource pipeline. Furthermore, tailings reprocessing studies in Flin Flon are exploring a technically viable alternative to recover critical minerals and precious metals, showcasing an innovative approach to resource recovery and environmental stewardship.

Financial Strength and Performance Trajectory

Hudbay's financial performance in recent periods underscores its operational effectiveness and strategic execution. The company has demonstrated consistent free cash flow generation, with $88 million in Q2 2025 and over $400 million generated over the last 12 months. This robust cash flow, combined with proceeds from a successful equity offering, enabled a significant transformation of its balance sheet.

As of Q2 2025, Hudbay's net debt was reduced to $434 million, and its leverage ratio improved to 0.4x, marking its lowest level in over a decade. This strong financial position is a direct result of disciplined capital allocation, including the repurchase and retirement of $50 million of senior unsecured notes in Q2 2025, and total debt repayments and gold prepayment liability reductions of approximately $295 million since the beginning of 2024. The proactive extension of its revolving credit facilities to November 2028 further enhances financial flexibility.

For the second quarter of 2025, Hudbay reported adjusted EBITDA of $245 million, contributing to a record annual trailing 12-month adjusted EBITDA of $996 million as of June 30. Consolidated copper production was 30,000 tonnes, while gold production reached 56,000 ounces. Notably, the company achieved industry-leading cost performance with consolidated cash costs of negative $0.02 per pound and sustaining cash costs of $1.65 per pound, both well below the low end of its guidance ranges. This exceptional cost control, coupled with diversified revenue streams (gold represented 36% of total revenues in Q2 2025), provides strong margins and cash flow resiliency.

Strategic Growth and Future Outlook

Hudbay's future is anchored by its strategic growth initiatives, particularly the Copper World project in Arizona. The recent minority joint venture agreement with Mitsubishi Corporation is a game-changer, significantly derisking the project's development. Mitsubishi will acquire a 30% equity interest for an initial $600 million contribution ($420 million cash at closing, $180 million within 18 months), plus its pro rata share of future capital. This highly attractive valuation implies a significant premium to consensus net asset value for Copper World and boosts Hudbay's levered project IRR to approximately 90%. This partnership reduces Hudbay's estimated remaining capital contribution to approximately $200 million, with its first capital contribution deferred to 2028 at the earliest.

Copper World Phase 1, fully permitted and located on private land, is expected to produce 85,000 tonnes of copper per year over an initial 20-year mine life, with an average of 92,000 tonnes per year over the first 10 years. Definitive feasibility studies are on track for completion by mid-2026, targeting a sanction decision in 2026. This project is poised to increase Hudbay's annual copper production by over 50% from current levels, reinforcing its position as a leading Americas-focused copper producer with a balanced portfolio weighted approximately one-third in Canada, the United States, and Peru.

For 2025, Hudbay has reaffirmed its full-year consolidated production guidance for all metals and improved its consolidated cost guidance range to $0.65 to $0.85 per pound of copper. In Peru, despite the anticipated depletion of Pampacancha in Q1 2026, the company expects to maintain steady copper production through increased mill throughput from Constancia and the planned pebble crusher. Manitoba's gold production guidance for 2025 has been increased to 200,000 ounces (midpoint), an 8% rise from previous guidance, reflecting continued strong operational performance. British Columbia is expected to see a 31% increase in copper production in 2025 (midpoint) to 35,000 tonnes, driven by the SAG mill conversion and higher grades in the second half of the year, ramping up to 50,000 tonnes per day in 2026. Total capital expenditures for 2025 are projected at $485 million, including $110 million for Copper World growth capital and $40 million for exploration.

Competitive Landscape and Strategic Positioning

Hudbay operates in a competitive global mining industry, vying with larger diversified miners and specialized copper producers. Its competitive advantages stem from its low-cost operations, diversified asset base, and strategic project development. Constancia's position as the lowest-cost open-pit copper mine in South America and Snow Lake's status as the lowest-cost gold mine in Canada provide significant operational leverage. This cost efficiency allows Hudbay to maintain strong margins even in volatile commodity price environments.

Compared to larger diversified players like Teck Resources (TECK), Hudbay may have a smaller operational scale, but its geographic diversification across North and South America offers resilience against regional disruptions. Against base metals-focused companies like Lundin Mining (LUN), Hudbay's polymetallic production provides a broader revenue base, mitigating single-commodity risks. While First Quantum Minerals (FQVLF) emphasizes large copper assets, Hudbay's "Made in America" copper cathode production from Copper World offers a unique value proposition, aligning with domestic supply chain needs where permitted conversion facilities are scarce. Southern Copper (SCCO), a dominant copper producer, benefits from cost leadership, but Hudbay's diversified portfolio provides greater flexibility in commodity cycles.

Hudbay's strategic partnerships, such as the Mitsubishi Corporation joint venture, validate its asset quality and provide access to capital and expertise, enhancing its competitive standing. Mitsubishi's involvement, with investments in five of the top 20 copper mines globally, brings significant industry validation and a long-term strategic alliance. The company's focus on fully permitted projects on private land, like Copper World Phase 1, also reduces regulatory risk compared to projects on federal lands, offering a more streamlined development path.

Risks and Considerations

While Hudbay's outlook is strong, investors should consider several risks. Operational disruptions, such as the unprecedented wildfires in Manitoba in Q2 2025, can temporarily impact production and increase costs, though Hudbay demonstrated resilience and no structural damage. Geopolitical risks, including protests in Peru, can affect transportation and mine sequencing, as seen in early Q3 2025. Inflationary pressures could lead to modest capital expenditure increases for projects like Copper World, though management anticipates these will be offset by higher copper prices and a bullish long-term market outlook.

The depletion of the high-grade Pampacancha deposit in Peru by Q1 2026 will lead to lower grades, but this is being proactively managed through mill throughput enhancements and exploration of satellite deposits like Maria Reyna and Caballito. Permitting processes for these exploration targets, while progressing, are government-run and can experience delays. While the Copper World JV significantly derisks funding, the project's ultimate success depends on timely execution of the definitive feasibility study and construction.

Conclusion

Hudbay Minerals is executing a compelling investment thesis, transforming into a financially robust, low-cost, and diversified producer of critical minerals. Its strategic focus on optimizing existing assets through technological enhancements, coupled with the derisking and advancement of the world-class Copper World project, positions the company for substantial long-term growth. The recent Mitsubishi joint venture is a testament to Copper World's value and significantly strengthens Hudbay's financial flexibility, enabling a projected 50% increase in copper production.

With industry-leading cost performance, a fortified balance sheet, and a clear roadmap for expanding its copper and gold output in Tier-1 jurisdictions, Hudbay is well-equipped to capitalize on the robust demand fundamentals for copper driven by global decarbonization and technological advancements. The company's commitment to "Made in America" copper production further enhances its strategic relevance. Investors looking for exposure to a resilient and growing critical minerals producer with a strong operational foundation and a clear growth trajectory should find Hudbay Minerals a compelling opportunity.