CORRESP 1 filename1.htm

 

 

January 10, 2014

 

Tia L. Jenkins

Senior Assistant Chief Accountant

Office of Beverages, Apparel, and Mining

United States Securities and Exchange Commission

Washington D.C. 20549

 

Re: HudBay Minerals Inc. (“the Company”); File No. 001-34244

 

Further to the Company’s letters dated December 5 and December 20, 2013 and its other correspondence with staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) with respect to the Staff’s comment letter (the “Comment Letter”) dated November 20, 2013, the Company submits this letter in further response to the Comment Letter.

 

In Schedule “A” to the Company’s letter dated December 5, 2013, the Company provided Staff with an example of the disclosure it expected to include in its future filings when presenting the non-IFRS measure cash cost per pound of copper sold, to address comments raised by Staff in the Comment Letter.

 

In response to comments raised by Staff in subsequent correspondence, the Company agreed to provide Staff with a revised example of the disclosure it expected to include in its future filings when presenting the non-IFRS measure cash cost per pound of copper sold. A revised example of that disclosure is attached as Schedule “A” to this letter.

 

Item 1 in Schedule “A” to this letter provides an example of a description of the significance of the cash cost measures; Item 2 in Schedule “A” provides an example of the reconciliation of cash cost per pound of copper sold to IFRS; and Item 3 in Schedule “A” provides an example of the reconciliation of realized sales prices to revenues.

 

The Company confirms for Staff that, beginning with its Form 40-F for the year ended December 31, 2013, it will include this revised disclosure when presenting the non-IFRS measure cash cost per pound of copper sold.

 

In addition, the Company acknowledges that:

 

·                  the Company is responsible for the adequacy and accuracy of the disclosure in the filing;

 

·                  Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and

 

·                  the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

 


 

Yours very truly,

 

 

 

/s/ David Bryson

 

David Bryson

 

Senior Vice President and

 

Chief Financial Officer

 

 

cc.

Audit Committee, HudBay Minerals Inc.

 

Susan Bennett, Deloitte LLP

 


 

Schedule “A”

 

NON-IFRS FINANCIAL PERFORMANCE MEASURES (excerpt)

 

[Item 1]

 

Cash cost per pound of copper sold

 

Cash cost per pound of copper sold (“cash cost”) is a non-IFRS measure that management uses as a key performance indicator to assess the performance of our operations. Our calculation designates copper as our primary metal of production as it is currently, and is expected to be, the largest component of revenues. The calculation is presented in two manners:

 

a)             Cash cost per pound of copper sold, before by-product credits - This measure is gross of by-product revenues and is a function of the efforts and costs incurred to mine and process all ore mined. However, the measure divides this aggregate cost over only pounds of copper sold, our primary metal of production. This measure is generally less volatile from period to period, as it is not affected by changes in the price received for by-product metals. It is, however, significantly affected by the relative mix of metal sales, and an increase in production of a by-product metal will tend to result in an increase in cash costs under this measure, regardless of the profitability of the increased by-product metal production.

 

b)             Cash cost per pound of copper sold, net of by-product credits - In order to calculate the cost to produce and sell copper, the net of by-product credits measure subtracts the revenues realized from the sale of the metals other than copper. The by-product revenues from zinc, gold and silver are significant and are integral to the economics of our Company. The economics that support our decision to produce and sell copper would be different if our Company did not receive revenues from the other significant metals being extracted and processed. This measure provides management and investors with an indication of the minimum copper price consistent with positive operating cash flows and operating margins, assuming by-product metal prices are consistent with those prevailing during the reporting period. It also serves as an important operating statistic that management and investors utilize to measure our operating performance versus that of our competitors. However, it is important to understand that if by-product metal prices decline alongside copper prices, the cash cost net of by-product credits would increase, requiring a higher copper price than that reported to maintain positive cash flows and operating margins.

 

The following table presents our calculation of gross cash cost per pound of copper sold and cash cost per pound of copper sold, net of by-product credits for the three months and year ended December 31, 2012 and 2011.

 


 

[Item 2]

 

 

 

Three Months Ended

 

Year Ended

 

 

 

Dec. 31

 

Dec. 31

 

Dec. 31

 

Dec. 31

 

 

 

2012

 

2011

 

2012

 

2011

 

By-product credits1

 

 

 

 

 

 

 

 

 

(C$ 000s)

 

 

 

 

 

 

 

 

 

Zinc

 

(62,688

)

(52,874

)

(222,570

)

(170,091

)

Gold

 

(36,070

)

(53,080

)

(131,770

)

(149,321

)

Silver

 

(6,311

)

(7,455

)

(20,979

)

(26,349

)

Other

 

(1,517

)

(7,898

)

(6,364

)

(99,486

)

Total by-product credits

 

(106,586

)

(121,307

)

(381,683

)

(445,247

)

 

 

 

 

 

 

 

 

 

 

By-product credits, per copper pound sold

 

 

 

 

 

 

 

 

 

(C$/pound)

 

 

 

 

 

 

 

 

 

Zinc

 

(2.66

)

(1.31

)

(2.32

)

(1.35

)

Gold

 

(1.53

)

(1.31

)

(1.38

)

(1.18

)

Silver

 

(0.27

)

(0.18

)

(0.22

)

(0.21

)

Other

 

(0.07

)

(0.20

)

(0.06

)

(0.78

)

Total by-product credits

 

(4.53

)

(3.00

)

(3.98

)

(3.52

)

 

 

 

 

 

 

 

 

 

 

(C$ 000s)

 

 

 

 

 

 

 

 

 

Cash cost, before by-product credits

 

154,946

 

143,189

 

484,545

 

502,779

 

By-product credits1

 

(106,586

)

(121,307

)

(381,683

)

(445,247

)

Cash cost, net of by-product credits

 

48,360

 

21,882

 

102,862

 

57,532

 

 

 

 

 

 

 

 

 

 

 

Divided by copper pounds sold

 

23,553

 

40,425

 

95,821

 

126,461

 

Cash cost, before by-product credits

 

$

6.58

 

$

3.54

 

$

5.05

 

$

3.97

 

By-product credits

 

(4.53

)

(3.00

)

(3.98

)

(3.52

)

Cash cost, net of by-product credits

 

$

2.05

 

$

0.54

 

$

1.07

 

$

0.45

 

 

 

 

 

 

 

 

 

 

 

Reconciliation to IFRS

 

 

 

 

 

 

 

 

 

(C$ 000s)

 

 

 

 

 

 

 

 

 

Cash cost, net of by-product credits

 

48,360

 

21,882

 

102,862

 

57,532

 

By-product credits1

 

106,586

 

121,307

 

381,683

 

445,247

 

Change in deferred revenues1

 

(29,322

)

—

 

(29,322

)

—

 

Treatment and refining charges1

 

(5,529

)

(10,166

)

(22,709

)

(35,408

)

Share based payments2

 

505

 

254

 

1,377

 

501

 

Adjustments related to zinc inventory write-downs (reversals)2

 

(2,290

)

69

 

(5,420

)

5,420

 

Demolition and rehabilitation2

 

555

 

1,550

 

684

 

3,329

 

Cost of sales — mine operating costs (excluding depreciation & impairment losses)

 

118,865

 

134,896

 

429,155

 

476,621

 

 

1         Included in Revenues.

2         Indirect costs included in cost of sales - mine operating costs.

 


 

[Item 3]

 

Realized sale prices

 

This measure is intended to enable management and investors to understand the average realized price of metals sold to third parties in each reporting period. The average realized price per unit sold does not have any standardized meaning prescribed by IFRS, is unlikely to be comparable to similar measures presented by other issuers, and should not be considered in isolation or a substitute for measures of performance prepared in accordance with IFRS.

 

The following table provides a reconciliation of average realized price per unit sold, by metal, to revenues as per the consolidated interim financial statements.

 

 

 

Three months ended December 31, 2012

 

Three months ended December 31, 2011

 

($000s)

 

Revenue

 

Derivative
mark-to
market
and other

 

Zinc sold to
subsidiary

 

Payable
metal sold
in
concentrate2
(000s units)

 

Realized
Price3
(C$/unit)

 

Revenue

 

Derivative
mark-to
market
and other

 

Zinc sold
to
subsidiary

 

Payable
metal sold
in
concentrate2
(000s units)

 

Realized
Price3
(C$/unit)

 

Copper

 

80,052

 

—

 

—

 

23,553

 

3.40

 

143,170

 

—

 

—

 

40,425

 

3.54

 

Zinc

 

62,688

 

554

 

—

 

66,992

 

0.94

 

52,874

 

(1,050

)

5,296

 

59,500

 

0.96

 

Gold

 

36,070

 

 

 

—

 

27

 

1,331

 

53,080

 

—

 

—

 

31

 

1,690

 

Silver

 

6,311

 

23

 

—

 

292

 

21.66

 

7,455

 

—

 

—

 

248

 

30.11

 

Zinc oxide

 

—

 

—

 

—

 

 

 

—

 

6,806

 

—

 

(5,296

)

 

 

 

 

Other

 

1,517

 

—

 

—

 

 

 

—

 

1,092

 

—

 

—

 

 

 

 

 

Total

 

186,638

 

577

 

—

 

 

 

 

 

264,477

 

(1,050

)

—

 

 

 

 

 

 

 

 

Year ended 2012

 

Year ended 2011

 

($000s)

 

Revenue1

 

Derivative
mark-to
market
and other

 

Zinc sold to
subsidiary

 

Payable
metal sold
in
concentrate2
(000s units)

 

Realized
Price3
(C$/unit)

 

Revenue1

 

Derivative
mark-to
market
and other

 

Zinc sold
to
subsidiary

 

Payable
metal sold
in
concentrate2
(000s units)

 

Realized
Price3
(C$/unit)

 

Copper

 

343,691

 

—

 

—

 

95,821

 

3.59

 

480,978

 

—

 

—

 

126,461

 

3.80

 

Zinc

 

222,570

 

3,190

 

—

 

228,040

 

0.99

 

170,091

 

3,805

 

56,245

 

222,524

 

1.03

 

Gold

 

131,770

 

 

 

—

 

85

 

1,553

 

149,321

 

—

 

—

 

94

 

1,594

 

Silver

 

20,979

 

24

 

—

 

769

 

27.32

 

26,349

 

—

 

—

 

765

 

34.45

 

Zinc oxide

 

—

 

—

 

—

 

 

 

 

 

75,698

 

—

 

(56,245

)

 

 

 

 

Other

 

6,364

 

—

 

—

 

 

 

 

 

23,788

 

—

 

—

 

 

 

 

 

Total

 

725,374

 

3,214

 

—

 

 

 

 

 

926,225

 

3,805

 

—

 

—

 

—

 

 

1         As reported in Note 7(a) of the consolidated interim financial statements.

2         As reported on page 6 of this MD&A; note that payable metal sold in concentrate for copper and zinc are expressed in pounds in this reconciliation.

3     As reported on page 27 of this MD&A.