Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Candace Brûlé - Director, Investor Relations

David Garofalo - President and Chief Executive Officer

David Bryson - Senior Vice President and Chief Financial Officer

Alan Hair - Senior Vice President and Chief Operating Officer

Cashel Meagher - Vice President, South America Business Unit

Brad Lantz - Vice President, Manitoba Business Unit

Analysts

Brett Levy - Jefferies

David Charles - Dundee Capital Markets

Alex Terentiew - Raymond James

Alec Kodatsky - CIBC

John Tumazos - John Tumazos Very Independent Research

Stefan Ioannou - Haywood Securities

Shane Nagle - National Bank Financial

Gary Lampard - Canaccord Genuity

Matt Murphy - UBS

Sachin Shah - Albert Fried

Hudbay Minerals Inc Ordinary Sh (HBM) Q4 2013 Earnings Conference Call February 20, 2014 10:00 AM ET

Operator

Good morning, ladies and gentlemen. Welcome to the Hudbay's fourth quarter 2013 conference call. (Operator Instructions) I will now turn the conference over to Candace Brûlé, Director of Investor Relations. Please go ahead.

Candace Brûlé

Thank you, Operator. Good morning and welcome to Hudbay's 2013 fourth quarter results conference call. Hudbay's financial results were issued yesterday and are available on our website, at www.hudbayminerals.com. A corresponding PowerPoint presentation is also available and we encourage you to refer to it during this call.

Our presenter today is David Garofalo, Hudbay's President and Chief Executive Officer. Accompanying David for the Q&A portion of the call will be David Bryson, our Senior Vice President and Chief Financial Officer; Alan Hair, our Senior Vice President and Chief Operating Officer; Cashel Meagher, our Vice President of the South American Business Unit; and Brad Lantz, our Vice President of the Manitoba Business Unit.

Please note that comments made on today's call may contain forward-looking information, and 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 and EDGAR. These documents are also available on our website.

We will also be referencing the company's offer to acquire Augusta Resource Corporation and we suggest that you read the offer documents that were filed on February 10 and 11, 2014, which include the offer and circular on SEDAR and its scheduled PO and Form F-10 on EDGAR. All of the company's SEDAR and EDGAR filings are also available on our website. For the purposes of this presentation, we have assumed a U.S. to Canadian dollar conversion ratio of 1:1.

And now, I'll pass the call over to David Garofalo. Dave?

David Garofalo

Thanks, Candace. Good morning, everyone. 2013 represented the year of significant transition for Hudbay, as we made substantial progress on our Sector-Leading Production Growth program, all while managing our existing operations and the closure of two older mines.

While the transformation of this scope and scale inevitably leads to challenges, we believe we manage those well. While our shaft sinking was completed during the fourth quarter of 2013 on schedule and on budget, and we also commenced initial production at Reed in September 2013 on time and on budget.

At Constancia, we substantially completed all detailed engineering and procurement during 2013 and advanced construction on schedule with over 56% project completion by yearend. We achieved our zinc and precious metals production targets in 2013. We also raised over $500 million in non-dilutive financing through the Constancia gold stream transaction with Silver Wheaton to follow on issuances of our senior unsecured notes and a mobile equipment financing facility.

We also built upon our well-established safety track record. In 2013, we reported our lost time accident frequency of 0.4 per 200,000 hours, a rate that is well below the average for the mining sector. This is even as our man-hours increased company-wide by 74% over 17 million.

However, the progress we made in 2013 did not come without its challenges. As announced last November, results from the completion of revised capital cost estimate at Constancia indicated an increase in construction cost of approximately $160 million. As you may recall, the most significant contributor to this well-documented cost escalation related to heavy civil works.

We have since made excellent progress in this critical area and other key construction milestones, and are on track to achieve project completion on the revised budget and are on schedule to commence production in the fourth quarter of 2014 and achieve commercial production in the second quarter of 2015.

Also as reported in the company's news release at January 8, 2014, copper production was below expectations in the fourth quarter of 2013. Grades mined at 777 were affected by the deferral of higher grade zones from the 2013 mine plant to future years, as a result of temporary limitations and pace back availability and requirements for ground support in the higher grade zones.

While rehabilitation work will continue in 2014, we remain on track to achieve our full year 2014 metals production and cost guidance, as the rehabilitation work was already factored in to our 2014 production and cost estimates. We expect 2014 to be an active year for Hudbay's. We look towards achieving production growth milestones in all three of our new mines.

We continue to advance Constancia towards initial production late this year. We anticipate doubling the production rate from Lalor in the second half of the year, as the main production shaft is commissioned and the refurbishment of the Snow Lake concentrator is completed. And we anticipate declaring commercial production at the Reed project during the second quarter of this year.

We also have a $20 million brownfield exploration program planned for 2014, which includes the development of an exploration direct at the Lalor mine, where we expect to conduct underground exploration for the first time, starting in late 2014. In addition, we will restart exploration drilling at Constancia to test anomalies identified during a recent airborne geophysical program.

Finally, we anticipate releasing our annual corporate mineral reserve statement later this quarter, which is expected to include a substantial increase in copper equivalent reserves in Constancia, as we complete geotechnical work on a proposed tailings facility expansion.

As we are near completion of our three new mines, we are already looking for ways to further grow the reserves, which we believe in time will afford us opportunities for low-risk, low-capital intensity brownfield expansion. However, we are also looking for additional low-cost long-life greenfield projects that will contribute to the next phase of growth for Hudbay, particularly as our project teams at Lalor, Reed and Constancia progressively free up over the course of 2014. That led us to our proposed acquisition of Augusta Resource Corporation and its Rosemont copper project in Arizona.

On February 9, 2014, we announced our intention to commence and offer to acquire all of the issued and outstanding common shares of Augusta, now currently held by Hudbay. Under the terms of the offer, Augusta shareholders are entitled to receive 0.315 of Hudbay common share for each Augusta common share held.

Based on Hudbay's closing price on February 7, 2014, last trading day prior to announcement, the offer represents approximately $2.96 per Augusta common share, which values Augusta at an enterprise value of approximately $540 million. The offer represents a 62% premium based on the 20-day volume weighted average prices of both companies.

The acquisition of Rosemont meets all of our stated acquisition criteria. Arizona aligns well with our geographic focus, maintaining a low political risk profile, while Rosemont supports a geological focus, given its similarities to Constancia.

We look for opportunities, where we can leverage our core strengths as builders and operators to generate value for all stakeholders. This acquisition will also satisfy our criteria of accretion on a per share basis, including net asset value, reserves and resources, and long-term production, cash flow and earnings.

Lalor's and Reed's ramp ups and Constancia's construction well-advanced, we expect strong growth and near-term cash flow in production. These increasing cash flows together with our current strong balance sheet will position Hudbay to internally fund the construction of Rosemont and realize the full value potential of the combined project pipeline.

In addition to the substantial upfront premium, the share exchange offer provides Augusta shareholders an exposure to a leading low-cost intermediate base metal producer. Our offer also provides ongoing participation in Rosemont's future value enhancement, as Hudbay continues to advance the project, without the single-asset risk to which they are currently exposed.

Once Constancia comes online, even without Rosemont, our copper production is anticipated to grow by 570% between 2013 and 2015. Dovetailing with the completion of Constancia, Rosemont will further enhance our scale and provide additional low-cost production to underpin the next stage of growth. Supporting this increase in scale will be a robust reserve and resource base with the addition of Rosemont, our proven and probable copper reserves would double going from 2 million tons to 4.1 million tons.

All of our strategic objectives for 2014 related to the completion of construction at our three new mines and the proposed acquisition of Rosemont support our goal of enhancing our position as a leading intermediate base metals company with world-class copper production growth. As we look to the future, we expect to have the scale to join the ranks of major copper producers, while positioning Hudbay as a bottom quartile cash-cost producer.

At our 100% owned Constancia project in Peru, we've invested, committed over $1.3 billion until December 31, 2013, of the construction budget of $1.7 billion. Detailed engineering and procurement were substantially completed during 2013, with only minor process controls and final contracts outstanding. The project was over 56% complete at yearend.

We are rapidly advancing construction on the power transmission line from Tintaya to Constancia, with a 100% of the rights of way agreements in place. The power line was 61% complete as at January 31, 2014. We are currently commissioning mining equipment and training operators and expect to begin pre-stripping later this quarter.

On the social side, replacement homes have been delivered to 29 of the 36 families that were on the project site. Definitive agreements have now been signed with 32 of the 36 families, and none of the remaining four families are located in areas that are critical to the project's completion or commencement of operations.

SAG and ball mill shells and heads are a 100% assembled, with trunnion installation and pinion and girth gear assembly upcoming, followed by liner installation and electromechanical tasks. Installation and assembly of the float cells is complete with work ongoing in structural steel and electromechanical equipment.

Steel erection is being conducted at the plant site and productivity is good. Water capture for operations began in December 2013. Dam construction on the east tailings facility is well underway and on schedule. Bog removal in the east tailings facility is near completion and geomembrane liner installation continues with excellent progress.

We have received approval for all our required construction permits. In the third quarter of 2013, we received approval of our ESIA Modification 1. In December 2013, we submitted an application for a second amendment at the ESIA in respect to the final project configuration and to permit the incorporation of Pampacancha into the mine plan.

We've received the first round of observations from the Ministry on ESIA Modification 2 and are addressing them with no critical items noted. All permitting remains on schedule.

We've also obtained approval for the early refund of value-added tax on purchases and have received two refunds from the tax authorities worth a total of US$56 million to date in 2014. We've also entered into a 15-year tax and fiscal stability agreement with the Government of Peru, this past December.

At our 100% owned Lalor mine in northern Manitoba, we've invested and committed over $410 million of the overall $441 million mine construction budget to December 31, 2013. The Lalor mine remains on schedule and on budget, as it approaches the completion of the underground portion of the project.

Underground project development is continuing and we have completed the excavation of the production shaft to the final 985 meter level. We've also completed the steel guide installation to the 516 meter level and are planning to complete the installation in the second quarter of 2014.

Underground construction on the ore and waste handling systems and main dewatering is proceeding on schedule. We completed the final engineering for the surface exhaust fan installation, which will be built after the main ventilation shaft hoist is dismantled. We have completed the final planning for the office/changehouse and final site layout, and we expect to receive the Environmental Act License, which permits mining from production shaft in the ordinary course.

At Lalor, we plan to develop an underground exploration ramp starting from the 955 meter level. This development will allow for the resumption of the exploration drilling on the copper-gold zone in the fourth quarter of 2014.

There are 4,500 meters of exploration core drilling planned for late 2014 to test the continuity of the copper-gold zone. This will be the first underground drill program focused on the copper-gold zone approximately one year ahead of previous expectations.

At our 70% owned Reed mine in Manitoba, we've invested and committed approximately $67 million of our $72 million capital construction budget to December 31, 2013. Project development has advanced 2,100 meters with an additional 720 meters of pre-production development for a total 2,820 meters of advancement. The project is on budget and on schedule and is expected to reach commercial production during the second quarter of 2014.

We have total available liquidity of approximately $1.4 billion, including $631 million in cash and cash equivalents, $260 million in amounts due from Silver Wheaton, $164 million in net proceeds from our January 2014 equity financing, together with amounts available under our credit facilities and cash tax refunds, the majority of which has already been received in early 2014.

With the cash flow from our current operations, we expect to have ample liquidity to internally fund the remaining capital expenditures at Constancia, Lalor and Reed, and fully execute our development plans. We are also arranging a $150 million standby debt financing related to copper concentrate off-take from Constancia, which would further bolster our liquidity position.

We believe we will be in an excellent position to internally fund the development of the Rosemont project due to our current strong balance sheet, coupled with the growing cash flow once Constancia, Lalor and Reed are fully operational. In addition, the expected capital contributions from Rosemont's strategic financial partners will further add to our strong financial capacity.

In closing, we are on track to achieve our 2014 strategic objectives. In the first half of the year, Reed commercial production is expected to begin and in the second half of the year we expect to commence production for the main Lalor shaft, and complete the refurbishment of the Snow Lake concentrator. In 2014, we expect initial production at Constancia followed by commercial production in the second quarter of 2015.

Throughout our history, our employees have worked safely, in respect to the communities where we operate and the environment. Thank you to our almost 8,000 strong employees and contractors for their efforts.

With that, operator we're pleased to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Brett Levy from Jefferies.

Brett Levy - Jefferies

With respect to Augusta, I mean is it going to be 100% equity financed or is it going to be some aspect of it that may have some flexibility around it from a capital standpoint?

David Garofalo

We believe we have the flexibility to fund this entirely from cash on hand and cash flow from operations. Of course, we're always looking for opportunities that optimize our capital structure. We do have debt outstanding. The only debt we have outstanding is our 2020 notes, $750 million, but they are callable in 2016. And if we see opportunities as the company gets related to lower our cost of capital, than we'll take those opportunities.

Brett Levy - Jefferies

And then you guys have said on the previous call that the amount of capital commitments associated with the transaction before Constancia gets going is like in the 10s of millions and not the 100s of millions. Can you like better define that? I mean is it $30 million, $70 million, I mean can you put a more narrow band around that.

David Garofalo

Again, it wouldn't be a $100 million, so it's in the tens of millions to complete the detailed engineering, do some limited procurement in the early parts of the projects design in engineering. And of course, Augusta has about $100 million-odd of debt outstanding with the metals trader that would have to be dealt with shortly after the acquisition.

Brett Levy - Jefferies

And then in terms of Constancia, I mean you mentioned something about the reserves. Can you talk more specifically about kind of where the reserves are and maybe going forward?

David Garofalo

Alan, do you want to talk to that a little bit?

Alan Hair

Okay. Well, the current number is sort of 250 million tons. And we anticipate that if we can complete the engineering work successfully, we'll increase that reserve by around another 120 million tons.

Operator

Our next question comes from David Charles from Dundee Capital Markets.

David Charles - Dundee Capital Markets

Could you maybe, David, talk or Alan please talk a little bit about productivity at Constancia and how the rainy season went this year. I mean it sounds to me based on your comments in the MD&A that productivity is up and that the rainy season had less of an impact than you may have previously expected?

Alan Hair

That's a fair comment, David. I think we characterized it before, on the heavy civil works, we're up and grounding that, and obviously a lot more experienced with dealing with the conditions. So in general terms, the heavy civil works productivity has been very good. And then we get no schedule concerns at all, and that we've been completing all the key items on track. The main sediment pond was actually commissioned slightly ahead of schedule, as the first stage in the water harvest is suspected and we anticipate everything else, all the other key milestones been met on time.

David Charles - Dundee Capital Markets

And when you say there is no concerns obviously on the heavy civil works, is there any areas of the project where you might still have concerns?

Alan Hair

I think the critical path very much lies now with the process plant and just the simple issue of constructing. Lots of construction activity in the same time, in the same space. There's no specific issues, it's just to try to erect steel, string pipe and pull cable all in the same place just requires a lot of management of work fronts and making sure that we optimize peak loading of manpower and counter availability and things. So it's all relatively mundane project execution stuff that we're dealing with now, all the big risk items that reallocation, the power line, everything is behind us.

David Charles - Dundee Capital Markets

And is it safe to say that there was maybe less rain this year or you just handled it better?

Alan Hair

A combination of both, I don't know the January numbers, but I know Cashel told me that December was slightly wetter than normal, but not as wet as last year. And you're right, I think we're just in the position that at the stage of the project that we're just being told, just there's less impact in productivity.

David Charles - Dundee Capital Markets

If I could ask another question, please. I'm just wondering you've gave a good update on Lalor as well, when do you expect to start to underground development at Lalor? I mean it sounds like you're doing a lot of work closely into the shaft, I'm just wondering when you will start to work on other areas of the mine?

David Garofalo

Well, we've been obviously doing the underground development at Lalor for quite some time now since we've accessed it some time ago. So really the underground component of the Lalor project is very well advanced. It's really ahead of schedule. So what is dictating the timeline is simply sitting over the shaft and doing the switchover to the main hoist.

David Charles - Dundee Capital Markets

And is the underground development sufficient to increase the throughput later in the year when the shaft is ready?

David Garofalo

It's all based around being able to optimize the capacity of the expanded Snow Lake concentrate which should also be ready by the middle of the year.

Operator

Our next question comes from Alex Terentiew from Raymond James.

Alex Terentiew - Raymond James

Just a couple of questions. I'll start with Constancia. Pampacancha, I know you won't be mining there first, so you have some time before you get into that deposit, but can you give us an idea of when you expect or need the negotiations with locals to be completed? And also tell us an idea of how many families you're dealing with there?

David Garofalo

In terms of timelines, we obviously want to wrap up the negotiations that are currently underway. All the key negotiations are done, but I think there is about another four families that we want to deal with in the next few months and then start negotiations with the community on the Pampacancha later in the year. We do want to begin in there some time likely, gain an access in 2016 to allow mining in 2017. So we really need to get it wrapped up by some time next year.

Alex Terentiew - Raymond James

And in terms of number of families, is it similar? I imagine and believe it's less than what you had to deal with so far?

Alan Hair

I don't know the exact number, but it's a lot less. It's a less productive sort of area. So there is fewer families and there is also a significantly smaller area than we required for the main Constancia project.

Alex Terentiew - Raymond James

Second question. On Snow Lake, the concentrator unit cost there came in at $35 a ton for the year. And your original guidance for the year was $25 to $30. I know you noted higher reagent and grinding media utilization and stocking challenges. Now should we expect costs to come down there? Or should we assume your cost to stay high?

And if they're not going to stay high, what do you expect the cost for that concentrator to be in the long-term? I know not long-term, I mean eventually, you'll build the Lalor concentrator to replace that, but I guess over the next couple of year, where should we expect the cost to be?

Alan Hair

Obviously, when we commissioned the Lalor shaft in the middle of this year that the tonnage is going to increase significantly, which will obviously positively impact unit cost, just from a throughput basis. Maybe Brad could add some color on some of the other aspects?

Brad Lantz

I think as Alan mentioned, we are refurbishing stalls, so we are going to be commissioning in July, which times out pretty close to the Lalor production shaft. So as we increase throughput, you're actually going to see those unit costs come down. And again, we have that issues with contract labors. We replaced our contract labor with our own employees. We also expect that to come down.

Alex Terentiew - Raymond James

So I mean, is the lower-end $25 a ton something reasonable to assume going forward?

David Bryson

It's David Bryson. In our 2014 guidance we talked about combined guidance for the Lalor mine and the Snow Lake concentrator. And we realized combined unit cost of that $137 in 2013, and our guidance for 2014 is in the range of $102 to $124, and that drop reflects some of the efficiencies that Alan and Brad have been talking about.

Operator

Our next question comes from Alec Kodatsky from CIBC.

Alec Kodatsky - CIBC

Just a couple of quick questions. It seems like Q4 of this year looked remarkably like Q4 last year, with the grades 777 dropping and seasonal cost coming up. Should we expect basically the same profile as what we saw in 2013, where things stabilized, slightly improve in Q1 and then you start to see more meaningful pickups in grades 777 towards Q2 or Q3?

Alan Hair

So I think that would fair. We are anticipating that that production is going to be down slightly in Q1 at 777, as we complete the rehab work that we've had underway. But then after that it will pickup and take us back on track to meet the guidance numbers that we published last month.

Alec Kodatsky - CIBC

And I guess just the last question would be is there any sort of estimated time on when the first drill hole might be put into the copper-gold zone at Lalor?

Alan Hair

Well, we'll start the exploration drift once we have completed these, shaft bottom work on Lalor main shaft. So that's going to take a few months to complete that exploration drift and we should be drilling by Q4 of this year, as I think David indicated in his earlier script.

Operator

And our next question comes from John Tumazos from John Tumazos Very Independent Research.

John Tumazos - John Tumazos Very Independent Research

Congratulations as Constancia, Lalor, Reed Lake draw to close. And I noticed that dividend is a little lower than it was, around $0.01 every half year as opposed to $0.10. Could you talk about the timetable to restore or increase the prior dividend as the CapEx diminishes?

David Garofalo

Actually, we cut that dividend back in the pre-semi-annual declaration back in September. And it was done as we were going to the most intense part of our capital spend at the three new mines that you mentioned. Our intention, and I actually had this discussion with a number of our board members yesterday, is to look at increasing the dividend in 2015, as our cash flow ramps up.

And we're discussing possibilities of actually making it formulate based on free cash flow from the existing business. And it's probably a bit premature and a bit academic to talk about what that formula look like, but it's something we're actively considering. And we put it on our agenda to discuss with the board more fully when we have our annual strategy session this summer.

Operator

Our next question comes from Stefan Ioannou from Haywood Securities.

Stefan Ioannou - Haywood Securities

Most of my questions have been answered, but just wondering what the planned $150 million Constancia copper-related off-take. Can you just maybe provide a bit of guidance, what's anticipated timing on getting that formally locked away?

David Bryson

Sure. We've been working that for a while and was originally focused on having the right off-take partner to work with us on that transaction. We selected that partner few months ago. We've recently mandated to large banks that's specialized in this type of financing and are now working with them on definitive documentation and finalizing the detailed due diligence on the projects. So our expectation at this point is that we should have final credit approvals in place towards the end of this quarter and look to closing the transaction early in the second quarter.

Stefan Ioannou - Haywood Securities

And just with regard to Constancia, I mean you -- production startup late this year. So you're kind of coming in terms of time, you're coming down to the cruncher. Do you think you'd actually go through and do another formal sort of review of where the CapEx is at, at some point during this year or do you think you're just going to run out until its in production and then sort of add up all the numbers then?

Alan Hair

We don't anticipate needing to do another review of the CapEx. A good line of sight now on cost between now and commissioning, so we think we're on track, as previously disclosed.

Operator

Our next question comes from Shane Nagle from National Bank Financial.

Shane Nagle - National Bank Financial

Most of my questions have been answered as well, guys. But David Bryson maybe just with the off-take financing coming in, the $750 million that you have in the CAD facility. You had gone through with me before just kind of at a different I guess levels or tranches that you had available to you in terms of debt financing. I mean if you acquire -- and if acquiring Augusta you'd have to bring on another $100 million of revolving debt. Could you just maybe walk through kind of the additional financing you would have available to you, should you acquire Augusta? And what funds you'd available to help build that project over that time, in addition to operating cash flow?

David Bryson

When we announce the Augusta bid we indicated that we had arranged an incremental $100 million in credit lines, specifically tied to any requirement that might arise to refinance the existing indebtedness at Augusta. We have arranged the CAD facility and have started to draw down in that facility and expect to have most of that drawn down in the first quarter. The off-take linked facility is something that we see as a standby funding and we don't see a need in our current financing plans to have to draw down on it. But I want to ensure that we've got ample liquidity available in the event of any surprises.

But from the perspective of our covenants and incurrence limitations, particularly into the high yield indenture, we have ample capacity to accommodate all of that indebtedness. So I'd say we wouldn't plan to incur all of that except there was something unanticipated that rose. But even if we did incur all of that based on our existing baskets in high yield indenture, we'd still likely have another $100 million or $200 million in incremental incurrence capacity. So we think we've got plenty of room from a strict limitation perspective.

Operator

Our next question comes from Gary Lampard from Canaccord Genuity.

Gary Lampard - Canaccord Genuity

A couple of questions, first up on your sources of liquidity. The $250 million from Silver Wheaton, when do you expect to receive that? And the $100 million of income tax refunds, can we assume that that's a number, because clearly you're continuing to higher the VAT as you go this year as well as you're being reimbursed for previous payments?

David Bryson

On VAT, yes, the balance in current statutory receivables at December 31 was $116 million, and so that $100 million it's a bit of an estimate and we also have some Canadian tax refunds coming. So I think it's a conservative estimate. As Dave mentioned during the script, we've already received $56 million of that since December 31 and two VAT refunds that came in January and actually just yesterday. So that's tracking well with respect to the Silver Wheaton payments.

We're anticipating that the first $125 million will probably be late Q1, maybe early Q2, just depending on the sequencing of spending at Constancia and how the accounts payable flows. And then the second tranche, the final tranche of $135 million should be mid-to-late Q2.

Gary Lampard - Canaccord Genuity

But that $100 million that is a fair estimate of the net?

David Bryson

Yes. I'll just say that it takes into account the cycling of working capital once we've drawn down the backlog of IGV.

Gary Lampard - Canaccord Genuity

The $120 million reserve or potential reserve increase from Constancia, would you be able to maintain the current reserve copper grade with that higher reserve?

Alan Hair

We anticipate the similar reserve grade, don't we?

Brad Lantz

Obviously, it's an increase in metal price, you'd be lowering the overall reserve grade for the life of mine. Adding in reserve life to the end of the mine, the sequencing then changes and what would happen is, there in the beginning it wouldn't effect the first few years of production through the supergene phase and the high grade phase, but post the Pampacancha phase you would see slightly lower head grades going out in the future.

Gary Lampard - Canaccord Genuity

And on Lalor Lake I think you'll recall that you were doing work on a new mine plant, but I'm not certainly up-to-date on this, is there a new mine plant coming for Lalor Lake any time this year that will be published?

Brad Lantz

Yes, we have done some work on the new mine plant and it's still going to be part in partial of how we're going to process the ore. But I guess really in summary, we do have a good luck at the five-year plant. It looked like we could increase overall capacity at the mine by one year, where we were up the capacity tonnage in 2018. We moved it forward a year, but again it really ties in with the overall processing plant. So that possibly can come out later this year.

Gary Lampard - Canaccord Genuity

And just a last question. Can you discuss briefly what the nature of the agreements you have with the three families that without an agreement would be impacting your initial operations at Constancia?

Alan Hair

I think you must have not picked up. All the critical families are now signed up. So 32 of the total of 36 families have actually got agreements in place. And the terms of agreements didn't really change from agreement one to agreement 32. And the four remaining agreements are in non-critical areas. So we're just really haven't been focusing on them. So now the community relations people just start to get them tied up as well. So all the agreements are in place and of the three physical ones that we indicated to you, I think one is already moved.

Operator

Our next question comes from Matt Murphy from UBS.

Matt Murphy - UBS

I just had one on 777. I thought the backfill availability issue have been remedied. Just wondering if you can shed some light on, is it that you're needing more material than you thought or there are there still issues in supply there?

Alan Hair

The pastel issues we reference was a problem that we had in the middle of the year, which obviously has caused a bit of a backlog. It also should be noted that overall mill tonnage was the lowest in 2013, because it wasn't been augmented by satellite monitored territories, as the case now is with Reed. So paste was a bit hand-to-mouth in 2013 and combined with the problem of losing both pastels for a period that just led to bit of a backlog of pace. But not that we've got Reed tonnage gone into the mill and the paste system is fully up and running, we're in good shape going forward.

Matt Murphy- UBS

And I guess with some of the stability issues faced last year, do those seem to be isolated incidents or is this something that you think you'll be dealing with more frequently as the mine continues to mature?

Alan Hair

This has really basically led to a recasting the approach in terms of the mining plan. Maybe Brad can add some color.

Brad Lantz

Sure. Really what we have looked at really the extraction method as mentioned to some of the guys. We're going to remove some of the silt pillars by a Chevron method, which is really a retreat paste backfill method. So I think it has made us a little cognizant of moving forward. Some of the higher grade sections obviously weren't as easy to mine. We do have a good handle on the rehab. We had put it in our 2014 plan that we would be rehabbing for the first three months in the first quarter here.

That is actually coming to a close here very shortly, so I think ground conditions at the operations, again as we know the mines now over 10 years old, it's something that again we certainly have to be cognizant of and there will be pockets of minor rehab all throughout 2014, but I think again, our large push will be over here, shortly in a couple of weeks actually

Matt Murphy- UBS

And then maybe just a quick follow-up on Augusta. I had noted on the call you had mentioned you're using $3 a pound long-term copper price. Did you say what your long-term assumption is?

David Garofalo

We are struggling to remember here.

David Bryson

I think the number is $12 on that.

Operator

Our next question comes from Sachin Shah from Albert Fried.

Sachin Shah - Albert Fried

So on Augusta, I just wanted to clarify, I did see the circular filing, what I want to specifically ask you about is there was some discussions that they wanted to have back in December about a possible deal and talking to management further. And there was essential radio silence since then, I guess early December until you made your unsolicited offer. So I was just kind of curious, based on the circulars, description of what happened, why that was the case rather than pursuing to offer as you have not talking to them, because it seemed like they wanted to talk to you guys.

David Garofalo

I really have no other color to add there, I think the background is self-explanatory.

Sachin Shah - Albert Fried

As far as going forward, is there any additional comment on what you plan on doing aside from what was already filed in the circular?

David Garofalo

The circular is a self-contained document. I think it has everything you need in there.

Sachin Shah - Albert Fried

Any comments on some of the regulatory approvals, if you're plotting on making those filings et cetera.

David Garofalo

It will be done in the normal course.

Operator

There are no further questions at this time, please continue.

David Garofalo

Thank you, operator, and thank you everybody for attending. If you have any other questions, please feel free to contact us directly.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Hudbay Minerals' CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts