HudBay Minerals Inc. - Exhibit 99.1 - Filed by newsfilecorp.com

EX-99.1 2 exhibit99-1.htm EXHIBIT 99.1 HudBay Minerals Inc. - Exhibit 99.1 - Filed by newsfilecorp.com

Unaudited Condensed Consolidated Interim Financial Statements
(In US dollars)

HUDBAY MINERALS INC.

For the three and nine months ended September 30, 2016 and 2015

HUDBAY MINERALS INC.

Condensed Consolidated Interim Balance Sheets

(Unaudited and in thousands of US dollars)

			Sep. 30,			Dec. 31,
	Note		2016			2015

Assets
Current assets
Cash and cash equivalents		$	118,258		$	53,852
Trade and other receivables	7		143,514			228,678
Inventories	8		118,905			120,186
Prepaid expenses	9		47,708			8,979
Other financial assets	10		3,267			16,512
Taxes receivable			25,632			6,971
			457,284			435,178
Receivables	7		29,588			26,223
Inventories	8		5,950			5,649
Other financial assets	10		33,690			72,730
Intangible assets - computer software			7,125			8,859
Property, plant and equipment	11		3,897,545			3,890,276
Deferred tax assets	16b		53,623			40,670
		$	4,484,805		$	4,479,585

Liabilities
Current liabilities
Trade and other payables		$	172,407		$	187,185
Taxes payable			3,411			4,393
Other liabilities	12		50,724			37,667
Other financial liabilities			11,019			10,195
Long-term debt	13		16,490			69,875
Deferred revenue	14		65,022			68,250
			319,073			377,565
Other financial liabilities			33,905			27,635
Long-term debt	13		1,206,937			1,205,005
Deferred revenue	14		490,729			529,010
Provisions	15		182,615			143,596
Pension obligations			39,673			34,260
Other employee benefits			100,442			80,695
Deferred tax liabilities	16b		313,961			294,529
			2,687,335			2,692,295

Equity
Share capital	17b		1,581,558			1,576,600
Reserves			(48,294	)		(45,003	)
Retained earnings			264,206			255,693
			1,797,470			1,787,290

		$	4,484,805		$	4,479,585
Capital commitments (note 20).

HUDBAY MINERALS INC.

Condensed Consolidated Interim Statements of Cash Flow

(Unaudited and in thousands of US dollars)

			Three months ended						Nine months ended
			September 30,						September 30,
			2016			2015			2016			2015
						Restated						Restated
						(note 4)						(note 4)
Cash generated from (used in) operating activities:
Profit (loss) for the period		$	33,571		$	(11,833	)	$	12,080		$	(75,960	)
Tax expense (recovery)	16a		8,430			(4,299	)		19,590			2,529
Items not affecting cash:
Depreciation and amortization			82,389			68,995			220,852			125,175
Share-based payment (recovery) expense	6b		(490	)		(5,270	)		4,089			(1,414	)
Net finance expense	6d		28,698			24,066			87,527			45,925
Change in fair value of derivatives	6d		(7,706	)		8,113			(6,594	)		855
Change in deferred revenue related to stream	14		(16,853	)		(15,935	)		(51,458	)		(38,691	)
Change in taxes receivable/payable, net	21a		1,524			(3,366	)		470			(10,310	)
Unrealized gain on warrants	6d		(2,829	)		(13,528	)		(1,991	)		(10,928	)
Pension past service costs			-			-			-			17,064
Loss (gain) on available-for-sale investments	6d		7			1,129			(1,136	)		3,995
Asset impairment	6e		-			34,546			-			54,462
Pension and other employee benefit payments, net of accruals			(2,623	)		(1,491	)		(8,193	)		(45	)
Other and foreign exchange			3,703			(2,721	)		788			2,829
Taxes (paid) recovered			(3,585	)		640			(10,413	)		(1,073	)
Operating cash flows before change in non-cash working capital			124,236			79,046			265,611			114,413
Change in non-cash working capital	21a		(28,358	)		25,104			69,338			484
			95,878			104,150			334,949			114,897
Cash generated from (used in) investing activities:
Acquisition of property, plant and equipment			(50,574	)		(130,505	)		(149,313	)		(392,748	)
Net cash received on disposal of subsidiaries			-			-			-			(11,756	)
Acquisition of investment			(600	)		-			(269	)		-
Release of (addition to) restricted cash			68,581			-			45,913			(22,811	)
Peruvian sales tax refunded on capital expenditures			-			32,845			-			35,596
Net interest received (paid)			233			127			483			(4,282	)
			17,640			(97,533	)		(103,186	)		(396,001	)
Cash generated from (used in) financing activities:
Long-term debt borrowing, net of transaction costs	13		-			48,617			59,326			317,589
Principal repayments	13		(80,123	)		(4,393	)		(108,368	)		(11,780	)
Interest paid on long-term debt			(49,533	)		(49,090	)		(103,476	)		(96,272	)
Proceeds from exercise of stock options			-			-			-			809
Financing costs			(4,767	)		366			(14,370	)		(1,521	)
Net proceeds from issuance of equity	17b		(10	)		-			4,958			13,199
Dividends paid	17b		(1,794	)		(1,762	)		(3,567	)		(3,604	)
Finance lease			(802	)		-			(2,116	)		-
			(137,029	)		(6,262	)		(167,613	)		218,420
Effect of movement in exchange rates on cash and cash equivalents			(134	)		(1,243	)		256			(2,016	)
Net (decrease) increase in cash and cash equivalents			(23,645	)		(888	)		64,406			(64,700	)
Cash and cash equivalents, beginning of period			141,903			114,856			53,852			178,668
Cash and cash equivalents, end of period		$	118,258		$	113,968		$	118,258		$	113,968

HUDBAY MINERALS INC.

Condensed Consolidated Interim Income Statements

(Unaudited and in thousands of US dollars, except share and per share amounts)

			Three months ended						Nine months ended
			September 30,						September 30,
	Note		2016			2015			2016			2015
Revenue	6a	$	311,424		$	269,808		$	812,024		$	549,410
Cost of sales
Mine operating costs			160,686			158,936			446,913			365,147
Depreciation and amortization			82,279			68,843			220,438			124,702
			242,965			227,779			667,351			489,849
Gross profit			68,459			42,029			144,673			59,561
Selling and administrative expenses			6,783			3,087			25,151			23,365
Exploration and evaluation			609			2,465			2,815			6,883
Other operating income and expenses	6c		466			2,240			6,618			7,351
Asset impairment	6e		-			34,546			-			54,462
Results from operating activities			60,601			(309	)		110,089			(32,500	)
Finance income	6d		(592	)		(2,269	)		(1,727	)		(2,968	)
Finance expenses	6d		29,290			26,335			89,254			48,893
Other finance gain	6d		(10,098	)		(8,243	)		(9,108	)		(4,994	)
Net finance expense			18,600			15,823			78,419			40,931

Profit (loss) before tax			42,001			(16,132	)		31,670			(73,431	)
Tax expense (recovery)	16a		8,430			(4,299	)		19,590			2,529

Profit (loss) for the period		$	33,571		$	(11,833	)	$	12,080		$	(75,960	)

Earnings (loss) per share
Basic and diluted		$	0.14		$	(0.05	)	$	0.05		$	(0.32	)

Weighted average number of common shares outstanding (note 18):
Basic			236,231,688			235,231,688			235,775,644			234,487,505
Diluted			236,231,688			235,231,688			235,775,644			234,487,505

HUDBAY MINERALS INC.

Condensed Consolidated Interim Statements of Comprehensive Income

(Unaudited and in thousands of US dollars)

		Three months ended						Nine months ended
		September 30,						September 30,
		2016			2015			2016			2015
Profit (loss) for the period	$	33,571		$	(11,833	)	$	12,080		$	(75,960	)

Other comprehensive (loss) income:
Items that will be reclassified subsequently to profit or loss:
Recognized directly in equity:
Net exchange (loss) gain on translation of foreign currency balances		(2,923	)		(20,669	)		14,035			(33,995	)
Change in fair value of available-for-sale financial assets		1,775			(3,078	)		5,748			(5,252	)
Net exchange (loss) gain on available-for-sale financial assets		(119	)		(894	)		411			(894	)
		(1,267	)		(24,641	)		20,194			(40,141	)

Items that will not be reclassified subsequently to profit or loss:
Recognized directly in equity:
Remeasurement - actuarial (loss) gain		(4,527	)		(3,903	)		(26,795	)		14,761
Tax effect		233			1,652			4,008			(2,310	)
		(4,294	)		(2,251	)		(22,787	)		12,451

Transferred to income statement:
Impairment of available-for-sale financial assets		113			1,129			339			4,020
Sale of investments		(106	)		-			(1,037	)		(25	)
Tax effect		-			-			-			7
		7			1,129			(698	)		4,002

Other comprehensive loss net of tax, for the period		(5,554	)		(25,763	)		(3,291	)		(23,688	)

Total comprehensive income (loss) for the period	$	28,017		$	(37,596	)	$	8,789		$	(99,648	)

HUDBAY MINERALS INC.
Condensed Consolidated Interim Statements of Changes in Equity
(Unaudited and in thousands of US dollars)

							Foreign
				Other			currency			Available-
		Share		capital			translation			for-sale			Remeasurement			Retained
		Capital		reserves			reserve			reserve			reserve			earnings			Total
Balance, January 1, 2015	$	1,562,249	$	25,900		$	46,751		$	2,898		$	(119,465	)	$	590,725		$	2,109,058
Loss		-		-			-			-			-			(75,960	)		(75,960	)
Other comprehensive (loss) income		-		-			(33,995	)		(2,144	)		12,451			-			(23,688	)
Total comprehensive (loss) income		-		-			(33,995	)		(2,144	)		12,451			(75,960	)		(99,648	)
Contributions by and distributions to owners:
Stock options exercised (note 17b)		1,152		(343	)		-			-			-			-			809
Equity issuance (note 17b)		13,199		-			-			-			-			-			13,199
Reclassification of Augusta warrants		-		3,280			-			-			-			-			3,280
Dividends (note 17b)		-		-			-			-			-			(3,604	)		(3,604	)
Total contributions by and distributions to owners		14,351		2,937			-			-			-			(3,604	)		13,684

Balance, September 30, 2015	$	1,576,600	$	28,837		$	12,756		$	754		$	(107,014	)	$	511,161		$	2,023,094
Loss		-		-			-			-			-			(255,468	)		(255,468	)
Other comprehensive (loss) income		-		-			(26,653	)		555			45,762			-			19,664
Total comprehensive (loss) income		-		-			(26,653	)		555			45,762			(255,468	)		(235,804	)

Balance, December 31, 2015	$	1,576,600	$	28,837		$	(13,897	)	$	1,309		$	(61,252	)	$	255,693		$	1,787,290

HUDBAY MINERALS INC.
Condensed Consolidated Interim Statements of Changes in Equity
(Unaudited and in thousands of US dollars)

		Attributable to owners of the Company

							Foreign
					Other		currency			Available-
					capital		translation			for-sale		Remeasurement			Retained			Total
		Share capital			reserves		reserve			reserve		reserve			earnings			equity

Balance, January 1, 2016	$	1,576,600		$	28,837	$	(13,897	)	$	1,309	$	(61,252	)	$	255,693		$	1,787,290
Profit		-			-		-			-		-			12,080			12,080
Other comprehensive income (loss)		-			-		14,035			5,461		(22,787	)		-			(3,291	)
Total comprehensive income (loss)		-			-		14,035			5,461		(22,787	)		12,080			8,789
Contributions by and distributions to owners:
Equity issuance (note 17b)		5,053			-		-			-		-			-			5,053
Share issue costs, net of tax (note 17b)		(95	)		-		-			-		-			-			(95	)
Dividends (note 17b)		-			-		-			-		-			(3,567	)		(3,567	)
Total contributions by and distributions to owners		4,958			-		-			-		-			(3,567	)		1,391

Balance, September 30, 2016	$	1,581,558		$	28,837	$	138		$	6,770	$	(84,039	)	$	264,206		$	1,797,470

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

1.	Reporting entity

	HudBay Minerals Inc. ("HMI", “Hudbay” or the "Company") was amalgamated under the Canada Business Corporations Act on August 15, 2011. The address of the Company's principal executive office is 25 York Street, Suite 800, Toronto, Ontario. The unaudited condensed consolidated interim financial statements (“interim financial statements”) of the Company for the three and nine months ended September 30, 2016 and 2015 represent the financial position and the financial performance of the Company and its subsidiaries (together referred to as the “Group” or “Hudbay” and individually as “Group entities”).

	Significant subsidiaries, as at September 30, 2016, include Hudson Bay Mining and Smelting Co., Limited (“HBMS”), Hudson Bay Exploration and Development Company Limited (“HBED”), HudBay Marketing & Sales Inc. (“HMS”), HudBay Peru Inc., HudBay Peru S.A.C. ("Hudbay Peru"), HudBay (BVI) Inc., HudBay Arizona Corporation (formerly Augusta Resource Corporation, “Augusta” or “Hudbay Arizona”) and Rosemont Copper Company (“Rosemont”).

	Hudbay is an integrated mining company producing copper concentrate (containing copper, gold and silver) and zinc metal. With assets in North and South America, the Group is focused on the discovery, production and marketing of base and precious metals. Through its subsidiaries, Hudbay owns four polymetallic mines, four ore concentrators and a zinc production facility in northern Manitoba and Saskatchewan (Canada) and Cusco (Peru) and a copper project in Arizona (United States). The Company is governed by the Canada Business Corporations Act and its shares are listed under the symbol "HBM" on the Toronto Stock Exchange, New York Stock Exchange and Bolsa de Valores de Lima. Hudbay also has warrants listed under the symbol “HBM.WT” on the Toronto Stock Exchange and “HBM/WS” on the New York Stock Exchange.

	Management does not consider the impact of seasonality on operations to be significant on the interim financial statements.

2.	Basis of preparation

	(a)	Statement of compliance:

		These interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting and do not include all of the information required for full annual financial statements by International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

		These interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2015 which includes information necessary or useful to understanding the Company’s business and financial statement presentation. In particular, the Company’s significant accounting policies are presented as note 2 in the audited consolidated financial statements for the year ended December 31, 2015, and have been consistently applied in the preparation of these interim financial statements.

		The Board of Directors approved these interim financial statements on November 2, 2016.

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

	(b)	Functional and presentation currency:

		The Group's interim financial statements are presented in US dollars, which is the Company’s and all material subsidiaries' functional currency, except for HBMS, HBED and HMS, which have a functional currency of Canadian dollars. All values are rounded to the nearest thousand ($000) except where otherwise indicated.

	(c)	Use of judgement:

		The preparation of the interim financial statements in conformity with IFRS requires the Group to make judgements, apart from those involving estimations, in applying accounting policies that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements, as well as reported amounts of revenue and expenses during the reporting period.

		The interim financial statements reflect the judgements outlined by the Group in its audited consolidated financial statements for the year ended December 31, 2015.

	(d)	Use of estimates and assumptions:

		The preparation of the interim financial statements in conformity with IFRS requires the Group to make estimates and assumptions that affect the application of accounting policies, reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements, as well as reported amounts of revenue and expenses during the reporting period. Actual results may differ from these estimates.

		The interim financial statements reflect the estimates outlined by the Group in its audited consolidated financial statements for the year ended December 31, 2015.

3.	Significant accounting policies

	These interim financial statements reflect the accounting policies applied by the Group in its audited consolidated financial statements for the year ended December 31, 2015 and comparative periods.

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

4.	Restatement of amounts within cash generated from operating activities

	Since the fourth quarter of 2015, the Group has significantly increased the number of copper fixed for floating swaps in order to manage the risk associated with provisional pricing terms in copper concentrate sales agreements. As a result, in the first quarter of 2016, the Group had restated the presentation of the cash generated from operating activities section of the statements of cash flow to present the changes in the respective receivable and payable balances associated with these items all within changes in non-cash working capital. In the past, the gains or losses for the swaps were presented as a change in fair value of derivatives and the associated mark-to-market adjustments were presented before changes in non-cash working capital. The impact of this restatement for the three and nine months ended September 30, 2015 is an increase and decrease in 'operating cash flows before change in non-cash working capital' of $621 and $1,377, respectively, with an associated change in 'change in non-cash working capital'.

5.	New standards

New standards and interpretations adopted

As required by the IASB, effective January 1, 2016 the Group adopted the following amendment to IFRS:

—

Amendments to IAS 16, Property, Plant and Equipment (“IAS 16”) and IAS 38, Intangible Assets (“IAS 38”) - the amendments to clarify that the use of revenue-based methods to calculate the depreciation of a tangible asset is not appropriate because revenue generated by an activity that includes the use of a tangible asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. The IASB has also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption for an intangible asset, however, can be rebutted in certain limited circumstances. The Group’s adoption of this amendment did not have any impact on its method of calculating depreciation or amortization.

New standards and interpretations not yet adopted

	—	IFRS 9, Financial Instruments (“IFRS 9”) - issued on July 24, 2014 is the IASB’s replacement of IAS 39, Financial Instruments: Recognition and Measurement. The standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The IASB completed its project to replace IAS 39 in phases, adding to the standard as it completed each phase. The version of IFRS 9 issued in 2014 supersedes all previous versions and is mandatorily effective for periods beginning on or after January 1, 2018 with early adoption permitted (subject to local endorsement requirements). IFRS 9 does not replace the requirements for portfolio fair value hedge accounting for interest rate risk (often referred to as the “macro hedge accounting” requirements) since this phase of the project was separated from the IFRS 9 project due to the longer term nature of the macro hedging project which is currently at the discussion paper phase of the due process. The Group has not yet determined the effect of adoption of IFRS 9 on its consolidated financial statements.

	—	IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) - in May 2014, the IASB issued this standard which is effective for periods beginning on or after January 1, 2018 and is to be applied retrospectively. IFRS 15 clarifies the principles for recognizing revenue from contracts with customers. IFRS 15 will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (i.e. service revenue and contract modifications) and improve guidance for multiple-element arrangements. The Group intends to adopt IFRS 15 in its financial statements for the annual period beginning January 1, 2018. The Group has not yet determined the effect of adoption of IFRS 15 on its consolidated financial statements.

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

—

IFRS 16, Leases (“IFRS 16”) - in January 2016, the IASB issued this standard which is effective for periods beginning on or after January 1, 2019, which replaces the current guidance in IAS 17, Leases (“IAS 17”), and is to be applied either retrospectively or a modified retrospective approach. Early adoption is permitted, but only in conjunction with IFRS 15, Revenue from Contracts with Customers. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to recognize a lease liability reflective of future lease payments and a “right-of-use asset” for virtually all lease contracts. The Group has not yet determined the effect of adoption of IFRS 16 on its consolidated financial statements.

6.	Revenue and expenses

	(a)	Revenue

		The Group’s revenue by significant product types:

		Three months ended						Nine months ended
		September 30,						September 30,
		2016			2015			2016			2015
Copper	$	234,825		$	189,200		$	604,762		$	402,648
Zinc		62,932			50,030			165,383			164,215
Gold		33,500			40,420			91,000			74,633
Silver		14,380			9,525			37,781			18,518
Other		752			803			2,079			2,803
		346,389			289,978			901,005			662,817
Treatment and refining charges		(34,965	)		(27,909	)		(88,981	)		(55,575	)
Pre-production revenue		-			7,739			-			(57,832	)

	$	311,424		$	269,808		$	812,024		$	549,410

Pre-production revenue in the three and nine months ended September 30, 2015 related to Constancia. Revenues related to inventory produced prior to commencement of commercial production are credited against capital costs rather than recognized as revenue in the condensed consolidated interim income statements.

Included in revenue for the three months ended September 30, 2016 are unrealized gains related to non-hedge derivative contracts of $3,783 (three months ended September 30, 2015 - unrealized gains of $621). Included in revenue for the nine months ended September 30, 2016 are unrealized losses related to non-hedge derivative contracts of $11,533 (nine months ended September 30, 2015 - unrealized losses of $1,377).

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

	(b)	Share-based payment (recoveries) expenses

		Share-based payment (recoveries) expenses are reflected in the condensed consolidated interim income statements as follows:

		Cash-settled						Total share-based
		RSUs			DSUs			payment expense
Three months ended September 30, 2016
Cost of sales	$	97		$	-		$	97
Selling and administrative		186			(280	)		(94	)
Other operating		(493	)		-			(493	)

	$	(210	)	$	(280	)	$	(490	)
Nine months ended September 30, 2016
Cost of sales	$	323		$	-		$	323
Selling and administrative		3,010			636			3,646
Other operating		120			-			120

	$	3,453		$	636		$	4,089
Three months ended September 30, 2015
Cost of sales	$	(480	)	$	-		$	(480	)
Selling and administrative		(1,956	)		(2,537	)		(4,493	)
Other operating		(297	)		-			(297	)

	$	(2,733	)	$	(2,537	)	$	(5,270	)
Nine months ended September 30, 2015
Cost of sales	$	10		$	-		$	10
Selling and administrative		596			(1,783	)		(1,187	)
Other operating		(237	)		-			(237	)

	$	369		$	(1,783	)	$	(1,414	)

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

(c)

Other operating income and expenses

		Three months ended					Nine months ended
		September 30,					September 30,
		2016			2015		2016		2015
Regional costs	$	1,129		$	1,146	$	3,284	$	3,384
Other (income) expense		(663	)		1,094		3,334		3,967

	$	466		$	2,240	$	6,618	$	7,351

(d)

Finance income and expenses

		Three months ended						Nine months ended
		September 30,						September 30,
		2016			2015			2016			2015
Finance income		(592	)		(2,269	)		(1,727	)		(2,968	)
Finance expense
Interest expense on long-term debt		27,860			26,217			82,420			74,985
Accretion on financial liabilities at amortized cost		323			336			992			918
Unwinding of discounts on provisions		619			726			1,947			2,147
Other finance expense		4,155			2,752			14,918			9,113
		32,957			30,031			100,277			87,163
Interest capitalized		(3,667	)		(3,696	)		(11,023	)		(38,270	)
		29,290			26,335			89,254			48,893
Other finance gains
Net foreign exchange losses (gains)		552			(3,975	)		736			1,069
Change in fair value of financial assets
and liabilities at fair value through profit loss:
Hudbay and Augusta warrants		(2,829	)		(13,528	)		(1,991	)		(10,928	)
Prepayment option embedded derivative/gold option		(7,706	)		8,113			(6,594	)		855
Investments classified as held-for-trading		(122	)		18			(123	)		15
Realized gain on disposal of available-for-sale investments		-			-			(438	)		-
Net gain reclassified from equity on disposal of available- for-sale investments		(106	)		-			(1,037	)		(25	)
Net loss reclassified from equity on impairment of available-for-sale investments		113			1,129			339			4,020
		(10,098	)		(8,243	)		(9,108	)		(4,994	)

Net finance expense	$	18,600		$	15,823		$	78,419		$	40,931

Interest expense related to long-term debt and accretion of financial liabilities at amortized cost has been capitalized to the Constancia project until May 1, 2015 and a portion continues to be capitalized to the Rosemont project.

During the three and nine months ended September 30, 2016, the Group recognized impairment losses on investments in listed shares and transferred pre-tax losses of $113 and $339, respectively, from the available-for-sale reserve within equity to the condensed consolidated interim income statements (three and nine months ended September 30, 2015 - $1,129 and $4,020, respectively).

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

	(e)	Impairment

		As a result of the acquisition of the New Britannia Mill, Hudbay no longer expects to construct a new concentrator at Lalor. During the nine months ended September 30, 2015, the Group recognized an impairment loss of $19,916 related to its concentrator assets at Lalor in Snow Lake, Manitoba. The impairment was determined based on the difference between carrying value and fair value less costs of disposal.

		As a result of the acquisition of Augusta Resource Corporation, Hudbay acquired equipment previously purchased or ordered by prior Augusta management. During the three months ended September 30, 2015 Hudbay completed a value engineering process which deemed that some of the equipment previously purchased or ordered by prior Augusta management is unsuitable to achieve the design objectives for Rosemont, and different equipment will better meet Rosemont’s objectives while observing permitting commitments. During the three months ended September 30, 2015, the Group recognized an impairment loss of $34,546 to reflect the orderly liquidation value of the purchased equipment and certain long lead deposits.

		On the condensed consolidated interim income statements, the impairment losses are presented in the asset impairment loss line item. The Group presented the impairment losses within the Manitoba and Arizona segments in note 22.

		The fair value measurements for the determination of impairment charges in their entirety are categorized as Level 3 based on the degree to which fair value inputs are observable and have a significant effect on the recorded fair value.

7.	Trade and other receivables

		Sep. 30, 2016		Dec. 31, 2015
Current
Trade receivables	$	47,990	$	85,373
Embedded derivatives - provisional pricing (note 19c)		4,440		(13,653	)
Statutory receivables		68,410		122,288
Receivable from joint venture partners		5,043		6,772
Other receivables		17,631		27,898
		143,514		228,678
Non-current
Statutory receivables - Peruvian sales tax		4,154		1,112
Receivable from joint venture partners		23,343		23,067
Other receivables		2,091		2,044
		29,588		26,223

	$	173,102	$	254,901

As at September 30, 2016, $67,473 (December 31, 2015 - $111,991) of the current statutory receivables relates to refundable sales taxes in Peru that Hudbay Peru has paid on capital expenditures and operating expenses. Management expects to receive the amount within one year.

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

	The receivable from joint venture partners are for the Group’s joint venture partners for the Reed mine in Manitoba and the Rosemont project in Arizona. As at September 30, 2016, the balances of these receivables were $10,295 and $18,091, respectively (December 31, 2015 - $14,275 and $15,564, respectively).

8.	Inventories

		Sep. 30, 2016		Dec. 31, 2015
Current
Stockpile	$	19,678	$	13,241
Work in progress		9,028		6,200
Finished goods		57,511		69,082
Materials and supplies		32,688		31,663
		118,905		120,186
Non-current
Materials and supplies		5,950		5,649

	$	124,855	$	125,835

	The cost of inventories recognized as an expense, including depreciation, and included in cost of sales amounted to $216,733 and $591,482 for the three and nine months ended September 30, 2016 (three and nine months ended September 30, 2015 - $198,597 and $406,092, respectively).

9.	Prepaid expenses

		Sep. 30, 2016		Dec. 31, 2015
Prepayments to suppliers related to operations	$	3,912	$	8,177
Prepaid interest related to long-term debt		43,700		-
Prepaid insurance and other		96		802

	$	47,708	$	8,979

10.

Other financial assets

		Sep. 30, 2016		Dec. 31, 2015
Current
Derivative assets	$	3,267	$	16,512

Non-current
Available-for-sale investments		15,999		9,206
Investments at fair value through profit or loss		202		59
Derivative assets		2		-
Restricted cash (note 19d)		17,487		63,465
		33,690		72,730

	$	36,957	$	89,242

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

11.

Property, plant and equipment

				Accumulated
				depreciation
				and			Carrying
Sep. 30, 2016		Cost		amortization			amount
Exploration and evaluation assets	$	15,349	$	-		$	15,349
Capital works in progress		833,781		-			833,781
Mining properties		1,768,067		(508,234	)		1,259,833
Plant and equipment		2,369,523		(580,941	)		1,788,582

	$	4,986,720	$	(1,089,175	)	$	3,897,545

				Accumulated
				depreciation
				and			Carrying
Dec. 31, 2015		Cost		amortization			amount
Exploration and evaluation assets	$	14,650	$	-		$	14,650
Capital works in progress		812,618		-			812,618
Mining properties		1,603,952		(394,098	)		1,209,854
Plant and equipment		2,289,556		(436,402	)		1,853,154

	$	4,720,776	$	(830,500	)	$	3,890,276

12.

Other liabilities

		Sep. 30, 2016		Dec. 31, 2015
Current
Provisions (note 15)	$	9,180	$	10,630
Pension liability		24,188		23,221
Other employee benefits		2,350		2,107
Unearned revenue		15,006		1,709

	$	50,724	$	37,667

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

13.	Long-term debt

	Long-term debt is comprised of the following:

		Sep. 30, 2016			Dec. 31, 2015
Senior unsecured notes (a)	$	910,455		$	917,329
Equipment finance facility (b)		54,079			66,521
Senior secured revolving credit facilities (c)		258,893			291,030
		1,223,427			1,274,880
Less: current portion		(16,490	)		(69,875	)

	$	1,206,937		$	1,205,005

(a)

Senior unsecured notes

Balance, January 1, 2015	$	915,846
Change in fair value of embedded derivative (prepayment option)		1,049
Accretion of transaction costs		434
Balance, December 31, 2015	$	917,329
Change in fair value of embedded derivative (prepayment option)		(7,241	)
Accretion of transaction costs and premiums		367

Balance, September 30, 2016	$	910,455

(b)

Equipment finance facility

Balance, January 1, 2015	$	71,221
Addition to Principal, net of transaction costs		10,092
Payments made		(15,902	)
Accretion of transaction costs		1,110
Balance, December 31, 2015	$	66,521
Transaction costs		(1,009	)
Payments made		(12,368	)
Accretion of transaction costs		935

Balance, September 30, 2016	$	54,079

The equipment finance facility is reflected in the condensed consolidated interim balance sheets as follows:

		Sep. 30, 2016		Dec. 31, 2015
Current	$	16,490	$	16,490
Non-current		37,589		50,031

	$	54,079	$	66,521

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

(c)

Senior secured revolving credit facilities

Balance, January 1, 2015	$	-
Addition to Principal, net of transaction costs		304,374
Payments made		(14,925	)
Accretion of transaction costs		1,581
Balance, December 31, 2015	$	291,030
Addition to Principal, net of transaction costs		60,335
Payments made		(96,000	)
Accretion of transaction costs		3,528

Balance, September 30, 2016	$	258,893

The senior secured credit facilities are reflected in the condensed consolidated interim balance sheets as follows:

		Sep. 30, 2016		Dec. 31, 2015
Current	$	-	$	53,385
Non-current		258,893		237,645

Balance, September 30, 2016	$	258,893	$	291,030

On March 30, 2016, the Group completed a restructuring of its two senior credit facilities and on June 17, 2016 a new accordion lender joined the syndicate which increased the maximum available amount under the Canadian facility by $30 million. The two facilities now share substantially similar terms and conditions, except that the $330 million Canada facility is secured by the Group’s Manitoba assets and the $200 million Peru facility is secured by the Group’s Peru assets. The facilities mature on March 31, 2019, and bear interest at LIBOR plus 4.50% .

14.	Deferred revenue

	The following table summarizes changes in deferred revenue:

Balance, January 1, 2015	$	688,125
Recognition of revenue		(51,860	)
Effects of changes in foreign exchange		(39,005	)
Balance, December 31, 2015	$	597,260
Recognition of revenue		(51,458	)
Effects of changes in foreign exchange		9,949

Balance, September 30, 2016	$	555,751

Deferred revenue is reflected in the condensed consolidated interim balance sheets as follows:

		Sep. 30, 2016		Dec. 31, 2015
Current	$	65,022	$	68,250
Non-current		490,729		529,010

	$	555,751	$	597,260

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

15.	Provisions

	Provisions are reflected in the condensed consolidated interim balance sheets as follows:

Decommis-

sioning,

restoration

and similar

Deferred

Restricted

Sep. 30, 2016

liabilities

share units

Other

Total

Current (note 12)

1,850

2,517

4,078

735

9,180

Non-current

179,152

2,661

802

182,615

181,002

2,517

6,739

1,537

191,795

		Decommis-
		sioning,
		restoration
		and similar		Deferred		Restricted
Dec. 31, 2015		liabilities		share units		share units		Other		Total
Current (note 12)	$	4,270	$	2,803	$	3,557	$	-	$	10,630
Non-current		142,765		-		831		-		143,596

	$	147,035	$	2,803	$	4,388	$	-	$	154,226

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

16.	Income and mining taxes

	(a)	Tax expense (recovery):

		The tax expense (recovery) is applicable as follows:

		Three months ended						Nine months ended
		September 30,						September 30,
		2016			2015			2016			2015
Current:
Taxable income	$	1,778		$	1,766		$	5,680		$	5,420
Taxable mining profits		282			187			4,263			4,644
Adjustments in respect of prior years		-			773			-			1,319
		2,060			2,726			9,943			11,383
Deferred:
Income taxes - origination and reversal of temporary difference		7,856			(7,061	)		8,800			(12,922	)
Mining taxes - origination and reversal of temporary difference		(1,366	)		648			878			3,677
Peruvian mining tax - origination and reversal of temporary difference		(120	)		(312	)		(297	)		(609	)
Adjustments in respect of prior years		-			(300	)		266			1,000
		6,370			(7,025	)		9,647			(8,854	)

	$	8,430		$	(4,299	)	$	19,590		$	2,529

(b)

Deferred tax assets and liabilities:

		Sep. 30, 2016			Dec. 31, 2015
Deferred income tax asset	$	53,623		$	40,670

Deferred income tax liability		(299,031	)		(280,432	)
Deferred mining tax liability - Canada		(1,906	)		(775	)
Deferred mining tax liability - Peru		(13,024	)		(13,322	)
		(313,961	)		(294,529	)

Net deferred tax liability balance	$	(260,338	)	$	(253,859	)

(c)

Changes in deferred tax assets and liabilities:

		Nine months ended			Year ended
		Sep. 30, 2016			Dec. 31, 2015
Net deferred tax liability balance, beginning of period	$	(253,859	)	$	(339,290	)
Deferred tax (expense)/recovery		(9,647	)		83,513
OCI transactions		4,008			(1,053	)
Foreign currency translation on the deferred tax liability		(840	)		2,971

Net deferred tax liability balance, end of period	$	(260,338	)	$	(253,859	)

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

17.	Share capital

	(a)	Preference shares:

		Authorized: Unlimited preference shares without par value

	(b)	Common shares:

		Authorized: Unlimited common shares without par value Issued and fully paid:

	Nine months ended				Year ended
	Sep. 30, 2016				Dec. 31, 2015
	Common				Common
	shares		Amount		shares		Amount
Balance, beginning of year	235,231,688	$	1,576,600		233,615,857	$	1,562,249
Exercise of stock options	-		-		258,831		1,152
Equity issuance	1,000,000		5,053		1,357,000		13,199
Share issue costs, net of tax	-		(95	)			-

Balance, end of period	236,231,688	$	1,581,558		235,231,688	$	1,576,600

During the nine months ended September 30, 2016, the Company issued 1,000,000 Hudbay common shares for net proceeds of $4,958 in connection with the vesting of restricted share units.

During the period, the Company declared two semi-annual dividends of C$0.01 per share each. The Company paid $1,773 and $1,794 on March 31, 2016 and September 30, 2016 to shareholders of record as of March 11, 2016 and September 9, 2016, respectively.

In 2015, the Company paid $1,842 and $1,762 on March 31, 2015 and September 30, 2015 to shareholders of record as of March 13, 2015 and September 11, 2015, respectively.

18.

Earnings (loss) per share data

	Three months ended		Nine months ended
	September 30,		September 30,
	2016	2015	2016	2015
Weighted average common shares outstanding
Basic	236,231,688	235,231,688	235,775,644	234,487,505
Plus net incremental shares from
Assumed conversion: stock options	-	-	-	64,706
Diluted weighted average common shares outstanding	236,231,688	235,231,688	235,775,644	234,552,211

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

The determination of the diluted weighted-average number of common shares excludes 3,361,396 and 4,638,162 shares, related to stock options that were anti-dilutive for the three and nine months ended September 30, 2016 (three and nine months ended September 30, 2015 - 2,696,760 and 1,773,834 shares, respectively). The calculation also excludes all 21,830,490 Hudbay warrants issued as consideration for the acquisition of Augusta as they are out of the money.

For periods where Hudbay records a loss, the Group calculates diluted loss per share using the basic weighted average number of shares. If the diluted weighted average number of share was used, the result would be a reduction in the loss, which would be anti-dilutive. Consequently, for the three and nine months ended September 30, 2015, the Group calculated diluted loss per share using 235,231,688 and 234,487,505 common shares, respectively.

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

19.	Financial instruments

	(a)	Fair value and carrying value of financial instruments:

		The following presents the fair value and carrying value of the Group's financial instruments and non- financial derivatives:

		Sep. 30, 2016						Dec. 31, 2015
		Fair			Carrying			Fair			Carrying
Recurring measurements		Value			value			Value			value
Loans and receivables
Cash and cash equivalents ¹	$	118,258		$	118,258		$	53,852		$	53,852
Restricted cash¹		17,487			17,487			63,465			63,465
Trade and other receivables^1,²		96,098			96,098			145,154			145,154
Fair value through profit or loss
Trade and other receivables - embedded derivatives³		4,440			4,440			(13,653	)		(13,653	)
Non-hedge derivative assets³		3,269			3,269			16,512			16,512
Prepayment option - embedded derivative⁷		7,241			7,241			-			-
Investments at FVTPL⁴		202			202			59			59
Available-for-sale investments⁴		15,999			15,999			9,206			9,206
Total financial assets		262,994			262,994			274,595			274,595
Financial liabilities at amortized cost
Trade and other payables^1,²		164,364			164,364			179,576			179,576
Finance leases		14,094			14,094			3,225			3,225
Other financial liabilities⁵		15,350			23,322			12,045			24,479
Senior unsecured notes⁶		924,839			917,696			639,400			917,329
Equipment finance facility⁸		54,079			54,079			66,521			66,521
Senior secured revolving credit facilities⁸		258,893			258,893			291,030			291,030
Fair value through profit or loss
Trade and other payables - embedded derivatives³		54			54			(118	)		(118	)
Warrant liabilities³		3,328			3,328			5,047			5,047
Option liabilities³		1,334			1,334			653			653
Non-hedge derivative liabilities³		2,845			2,845			4,426			4,426
Total financial liabilities		1,439,180			1,440,009			1,201,805			1,492,168
Net financial liability	$	(1,176,186	)	$	(1,177,015	)	$	(927,210	)	$	(1,217,573	)

	1	Cash and cash equivalents, restricted cash, trade and other receivables and trade and other payables are recorded at carrying value, which approximates fair value due to their short-term nature and generally negligible credit losses.
	2	Excludes embedded provisional pricing derivatives, as well as tax and other statutory amounts.
	3	Derivatives and embedded provisional pricing derivatives are carried at their fair value, which is determined based on internal valuation models that reflect observable forward market commodity prices, currency exchange rates, and discount factors based on market US dollar interest rates adjusted for credit risk. For the warrant and option liabilities, fair value is determined based on quoted market closing price or the Black-Scholes model.
	4	Available-for-sale investments are carried at their fair value, which is determined using quoted market bid prices in active markets for listed shares and determined using valuation models for shares of private companies. Investments at FVTPL consist of warrants to purchase listed shares, which are carried at fair value as determined using a Black-Scholes model.
	5	These financial liabilities relate to agreements with communities near the Constancia operation in Peru which allow Hudbay to extract minerals over the useful life of the Constancia operation, carry out exploration and evaluation activities in the area and provide Hudbay with community support to operate in the region. Fair values have been determined using a discounted cash flow analysis based on expected cash flows and a credit adjusted discount rate.
	6	Fair value of the senior unsecured notes (note 13) has been determined using the quoted market price at the period end.
	7	Fair value of the prepayment option embedded derivative related to the long-term debt has been determined using a binomial tree/lattice approach based on the Hull-White single factor interest rate term structure model.
	8	The carrying value of the facilities approximates the fair value as the facilities are based on floating interest rates.

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

Fair value hierarchy

The table below provides an analysis by valuation method of financial instruments that are measured at fair value subsequent to recognition. Levels 1 to 3 are defined based on the degree to which fair value inputs are observable and have a significant effect on the recorded fair value, as follows:

—	Level 1:	Quoted prices in active markets for identical assets or liabilities;
—	Level 2:	Valuation techniques use significant observable inputs, either directly or indirectly, or valuations are based on quoted prices for similar instruments; and
—	Level 3:	Valuation techniques use significant inputs that are not based on observable market data.

September 30, 2016		Level 1		Level 2		Level 3		Total
Financial assets measured at fair value
Financial assets at FVTPL:
Embedded derivatives	$	-	$	4,440	$	-	$	4,440
Non-hedge derivatives		-		3,269		-		3,269
Investments at FVTPL		-		202		-		202
Prepayment option embedded derivative		-		7,241		-		7,241
Available-for-sale investments		14,474		-		1,525		15,999

	$	14,474	$	15,152	$	1,525	$	31,151
Financial liabilities measured at fair value
Financial liabilities at FVTPL:
Embedded derivatives	$	-	$	54	$	-	$	54
Non-hedge derivatives		-		2,845		-		2,845
Option liability		-		1,334		-		1,334
Warrant liabilities		3,328		-		-		3,328

	$	3,328	$	4,233	$	-	$	7,561

December 31, 2015		Level 1		Level 2			Level 3		Total
Financial assets measured at fair value
Financial assets at FVTPL:
Embedded derivatives	$	-	$	(13,653	)	$	-	$	(13,653	)
Non-hedge derivatives		-		16,512			-		16,512
Investments at FVTPL		-		59			-		59
Available-for-sale investments		7,761		-			1,445		9,206

	$	7,761	$	2,918		$	1,445	$	12,124
Financial liabilities measured at fair value
Financial liabilities at FVTPL:
Embedded derivatives	$	-	$	(118	)	$	-	$	(118	)
Non-hedge derivatives		-		4,426			-		4,426
Option liability		-		653			-		653
Warrant liabilities		5,047		-			-		5,047

	$	5,047	$	4,961		$	-	$	10,008

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

		The Group's Level 3 investment relates to a minority investment in an unlisted junior mining company. As no observable inputs exist, the Group measures the Level 3 investment at the cost of the investment. The Group monitors business developments and the financial position of the investee to evaluate whether the fair value of the investment has changed significantly. Factors that could result in a significantly lower fair value measurement include poor exploration results or inadequate liquidity to continue as a going concern, among other factors. Factors that would result in a significantly higher fair value measurement include positive exploration results, among other factors.

		The Group’s policy is to recognize transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. During the nine months ended September 30, 2016, the Group did not make any transfers.

	(b)	Derivatives and hedging:

		Copper fixed for floating swaps

		Hudbay enters into copper fixed for floating swaps in order to manage the risk associated with provisional pricing terms in copper concentrate sales agreements. As at September 30, 2016, the Group had 45,000 tonnes of net copper swaps at an effective average price of $2.07/lb and settling across October 2016 to January 2017. At December 31, 2015, the Group had 77,111 tonnes of copper fixed for floating swaps outstanding at an average fixed receivable price $2.37/lb, settling across January 2016 through March 2016. The aggregate fair value of the transactions at September 30, 2016 was a liability position of $2,845 (December 31, 2015 - an asset position of $16,436).

		Non-hedge derivative gold and silver contracts

		From time to time, the Group enters into gold and silver forward sales contracts to hedge the commodity price risk associated with the future settlement of provisionally priced deliveries. At September 30, 2016, the Group held no gold or silver forward sales contracts. At December 31, 2015 the Group held 151,327 ounces of silver forward sales contracts and prices ranged from $14.17 to $15.21. The aggregate fair value of the transactions at December 31, 2015 was an asset position of $86.

		Non-hedge derivative zinc contracts

		Hudbay enters into fixed price sales contracts with zinc customers and, to ensure that the Group continues to receive a floating or unhedged realized zinc price, Hudbay enters into forward zinc purchase contracts that effectively offset the fixed price sales contracts. At September 30, 2016, the Group held contracts for forward zinc purchased of 6,278 tonnes (December 31, 2015 – 16,438 tonnes) that related to forward customer sales of zinc. Prices range from $1,514 to $2,330 per tonne (December 31, 2015 – $1,497 to $2,343) and settlement dates extended to November 2017. The aggregate fair value of the transactions at September 30, 2016 was a net asset position of $3,269 (December 31, 2015 – a net liability position of $4,386).

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

	(c)	Embedded derivatives

		Provisional pricing embedded derivatives

		The Group records embedded derivatives related to provisional pricing in concentrate purchase, concentrate sale and certain other sale contracts. Under the terms of these contracts, prices are subject to final adjustment at the end of a future period after title transfers based on quoted market prices during the quotation period specified in the contract. The period between provisional pricing and final pricing is typically up to three months.

		Provisional pricing embedded derivatives are presented in trade and other receivables when they relate to sales contracts and in trade and other payables when they relate to purchase contracts. At each reporting date, provisionally priced metals are marked to market based on the forward market price for the quotation period stipulated in the contract, with changes in fair value recognized in revenues for sales contracts and in cost of sales for purchase concentrate contracts. Cash flows related to provisional pricing embedded derivatives are classified in operating activities.

		At September 30, 2016, the Group’s net position consisted of contracts awaiting final pricing for sales of 40,633 tonnes of copper (December 31, 2015 – 79,033 tonnes). In addition, at September 30, 2016, the Group’s net position consisted of contracts awaiting final pricing for sales of 14,475 ounces of gold and 115,197 ounces of silver (December 31, 2015 – 10,506 ounces of gold and 66,131 ounces of silver).

		As at September 30, 2016, the Group’s provisionally priced copper, gold and silver sales subject to final settlement were recorded at average prices of $2.21/lb (December 31, 2015 – $2.14/lb), $1,315/oz (December 31, 2015 – $1,060/oz) and $19.18/oz (December 31, 2015 – $13.78/oz), respectively.

		The aggregate fair value of the embedded derivatives within the copper concentrate sales contracts at September 30, 2016, was an asset position of $4,440 (December 31, 2015 – a liability of $13,653). The aggregate fair value of other embedded derivatives at September 30, 2016, was a liability position of $54 (December 31, 2015 – an asset position of $118).

	(d)	Restricted cash

		Hudbay Peru has $68,581 in letters of credit issued to support its reclamation obligations; these letters of credit had previously been cash collateralized. During the three months ended September 30, 2016, Hudbay Peru reissued these letters of credit under the Peru facility and released the associated restricted cash, which in turn was utilized to repay indebtedness under the senior secured revolving credit facilities.

		The remaining restricted cash balance primarily relates to the Manitoba business unit which holds a cash- collateralized letter of credit to support its pension obligations. As at September 30, 2016, the letter of credit amount was $17,293 (December 31, 2015 - nil).

	(e)	Warrants and option liabilities

		A total of 21,830,490 warrants were issued which entitle the holder to acquire a common share of the Company at a price of C$15.00 per share on, but not prior to, July 20, 2018. The Company, may, at its option, upon written notice to the warrant holders, settle the exercise of warrants for the in-the-money value, in cash, shares or a combination thereof.

		The purchase price of the acquisition of New Britannia Mine and Mill contained an option (European) that pays the seller $5,000 if the price of gold is equal to or above $1,400/oz on May 4, 2018.

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

20.	Capital commitments

	As at September 30, 2016, the Group had outstanding capital commitments in Canada of approximately $766 primarily related to a committed mobile equipment purchase, of which approximately $186 cannot be terminated by the Group, approximately $2,997 in Peru related to sustaining capital costs, all of which can be terminated by the Group and approximately $163,230 in Arizona, primarily related to its Rosemont project, of which approximately $78,088 cannot be terminated by the Group.

21.	Supplementary cash flow information

(a)

Change in non-cash working capital:

		Three months ended						Nine months ended
		September 30,						September 30,
		2016			2015			2016			2015
Change in:
Trade and other receivables	$	(15,677	)	$	(17,672	)	$	74,461		$	(63,587	)
Other financial assets/liabilities		(3,783	)		(621	)		11,533			1,377
Inventories		5,269			(4,346	)		5,460			(45,042	)
Prepaid expenses		275			1,727			4,638			454
Trade and other payables		(1,041	)		41,748			(36,916	)		102,884
Change in taxes payable/receivable, net		(1,524	)		3,366			(470	)		10,310
Taxes - ITC		-			554			(1,841	)		(2,844	)
Provisions and other liabilities		(11,877	)		348			12,473			(3,068	)

	$	(28,358	)	$	25,104		$	69,338		$	484

	(b)	Non-cash transactions:

		During the nine months ended September 30, 2016, the Group entered into the following non-cash investing and financing activities which are not reflected in the condensed consolidated interim statements of cash flows:

	—	Remeasurements of the Group's decommissioning and restoration liabilities for the nine months ended September 30, 2016 led to a net increase in related property, plant and equipment assets of $26,864 mainly as a result of net declines in discount rates. For the nine months ended September 30, 2015, such remeasurements led to increases in property, plant and equipment assets of $16,458.

	—	Property, plant and equipment included an immaterial amount of additions which were not yet paid for as at September 30, 2016 (September 30, 2015 - $16,355). These purchases will be reflected in the condensed consolidated interim statements of cash flows in the periods payments are made. Property, plant and equipment also included $12,985 of additions related to capital additions under finance lease (September 30, 2015 - nil).

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

22.

Segmented information

Three months ended September 30, 2016

Corporate

and other

Manitoba

Peru

Arizona

activities

Total

Revenue from external customers

132,804

178,620

311,424

Cost of sales

Mine operating costs

78,325

82,361

160,686

Depreciation and amortization

30,559

51,720

82,279

Gross profit

23,920

44,539

68,459

Selling and administrative expenses

6,783

Exploration and evaluation

176

261

172

609

Other operating income and expenses

(220

)

481

195

466

Results from operating activities

23,964

43,797

(195

)

(6,965

)

60,601

Finance income

(592

)

Finance expenses

29,290

Other finance gains

(10,098

)

Profit before tax

42,001

Tax expense

8,430

Profit for the period

33,571

Three months ended September 30, 2015
										Corporate
										and other
		Manitoba			Peru		Arizona			activities			Total
Revenue from external customers	$	138,219		$	131,589	$	-		$	-		$	269,808

Cost of sales
Mine operating costs		101,529			57,407		-			-			158,936
Depreciation and amortization		31,974			36,869		-			-			68,843
Gross profit		4,716			37,313		-			-			42,029
Selling and administrative expenses		973			-		-			2,114			3,087
Exploration and evaluation		1,759			289		-			417			2,465
Other operating income and expenses		(19	)		1,011		405			843			2,240
Asset impairment		-			-		34,546			-			34,546
Results from operating activities	$	2,003		$	36,013	$	(34,951	)	$	(3,374	)	$	(309	)
Finance income													(2,269	)
Finance expenses													26,335
Other finance gains													(8,243	)
Loss before tax													(16,132	)
Tax recovery													(4,299	)
Loss for the period												$	(11,833	)

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

Nine months ended September 30, 2016

Corporate

and other

Manitoba

Peru

Arizona

activities

Total

Revenue from external customers

372,534

439,490

812,024

Cost of sales

Mine operating costs

236,827

210,086

446,913

Depreciation and amortization

91,186

129,252

220,438

Gross profit

44,521

100,152

144,673

Selling and administrative expenses

25,151

Exploration and evaluation

835

650

1,330

2,815

Other operating expenses and income

3,104

3,225

445

(156

)

6,618

Results from operating activities

40,582

96,277

(445

)

(26,325

)

110,089

Finance income

(1,727

)

Finance expenses

89,254

Other finance gains

(9,108

)

Profit before tax

31,670

Tax expense

19,590

Profit for the period

12,080

September 30, 2016

Corporate

and other

Manitoba

Peru

Arizona

activities

Total

Total assets

798,172

2,710,314

815,390

160,929

4,484,805

Total liabilities

539,888

875,826

157,352

1,114,269

2,687,335

Property, plant and equipment

631,725

2,466,957

792,766

6,097

3,897,545

HUDBAY MINERALS INC.

Notes to Unaudited Condensed Consolidated Interim Financial Statements

(in thousands of US dollars, except where otherwise noted)

For the three and nine months ended September 30, 2016 and 2015

Nine months ended September 30, 2015
										Corporate
										and other
		Manitoba			Peru		Arizona			activities			Total
Revenue from external customers	$	382,996		$	166,414	$	-		$	-		$	549,410
Cost of sales
Mine operating costs		286,025			79,122		-			-			365,147
Depreciation and amortization		78,543			46,159		-			-			124,702
Gross profit		18,428			41,133		-			-			59,561
Selling and administrative expenses		1,990			-		-			21,375			23,365
Exploration and evaluation		5,062			992		-			829			6,883
Other operating expenses		29			3,157		3,393			772			7,351
Asset Impairment		19,916			-		34,546			-			54,462
Results from operating activities	$	(8,569	)	$	36,984	$	(37,939	)	$	(22,976	)	$	(32,500	)
Finance income													(2,968	)
Finance expenses													48,893
Other finance gains													(4,994	)
Loss before tax													(73,431	)
Tax expense													2,529
Loss for the period												$	(75,960	)

December 31, 2015
								Corporate
								and other
		Manitoba		Peru		Arizona		activities		Total
Total assets	$	765,159	$	2,832,384	$	783,487	$	98,555	$	4,479,585
Total liabilities		509,875		919,950		154,277		1,108,193		2,692,295
Property, plant and equipment		623,980		2,498,350		762,193		5,753		3,890,276