Hudbay cuts cost outlook as Copper Mountain improves

Hudbay Minerals (TSX, NYSE: HBM) reduced its annual cost forecast again as Copper Mountain generated positive quarterly free cash flow for the first time since the company acquired the British Columbia mine in 2023.

Hudbay now expects annual copper cash costs, after credits for other metals, of negative 55¢ to negative 35¢ per lb., down from negative 45¢ to negative 25¢, according to a statement Thursday. The negative figure means by-product revenue more than covers the costs included in that measure. Adjusted third-quarter profit rose 11-fold to 34¢ per share, Hudbay also said, short of the 36¢ average of analyst forecasts.

The operating gains come as Hudbay prepares to help finance its Copper World project in Arizona. Gold by-product credits support the lower annual cost forecast, although working capital absorbed cash in the quarter and left free cash flow below BMO Capital Markets’ expectations, analyst Matthew Murphy said.

“Despite ongoing inflationary pressures across the mining sector, particularly from fuel and consumable costs, Hudbay stands out as the first company in our coverage to lower its 2026 cost guidance twice,” Jefferies mining analyst Fahad Tariq wrote in a note. “At a time when many producers continue to grapple with cost inflation, the revision highlights Hudbay’s ability to offset industry-wide pressures and further strengthens its position as a low-cost copper producer.”

Revenue doubles

Third-quarter revenue more than doubled to a record $765.9 million (C$1.07 billion), the company said. Copper production rose 25% from a year earlier to 30,152 tonnes and gold output increased 30% to 69,513 ounces.

Hudbay also lowered its sustaining cash cost forecast to $1.40–$1.80 per lb. from $1.70–$2.10. Annual production guidance remains 110,000–138,000 tonnes of copper and 217,000–272,000 oz. of gold.

Sustaining capital spending is expected to finish $35 million below Hudbay’s $435-million budget. That reflects lower capitalized stripping, capital deferrals and efficiencies.

Gold offsets costs

Gold output exceeded BMO’s 59,000-oz. forecast and the 62,000-oz. analyst consensus, helped by higher throughput, grades and recoveries in Manitoba. Copper Mountain’s mill processed 43,500 tonnes a day in September and remains on track for 50,000 tonnes a day by year-end.

“Importantly, Copper Mountain generated positive free cash flow for the first time under Hudbay’s ownership,” TD Securities analyst Craig Hutchison wrote Thursday. “We see growing evidence that recent operational investments are beginning to pay off.”

Hudbay acquired Copper Mountain in June 2023. The B.C. operation’s turnaround plan included more waste stripping to improve access to ore and work to lift mill performance. However, quarterly copper cash costs of $3.09 per lb. exceeded the company’s $1.50–$2.50 annual guidance range, with full-year costs expected near the upper end.

Cash flow

Hudbay reported $201.9 million in quarterly free cash flow, calculated as $313.9 million in operating cash flow before working-capital changes less $112 million in adjusted sustaining capital. The company’s measure excludes growth capital spending.

BMO calculated a roughly $2-million deficit, using $215 million in operating cash flow after a $99-million working-capital build and deducting $217 million in capital spending. That fell short of the banks $58-million forecast and the $88-million analyst consensus. The different definitions explain why the company’s positive figure and BMO’s cash-flow miss coexist.

Hudbay and Mitsubishi approved construction of Copper World on Oct. 21. The project, about 50 km southeast of Tucson, has initial growth capital of $2.1 billion. Hudbay is targeting first production in the second half of 2029.

Hudbay expects its own capital contribution to the project to total about $500 million, starting in 2028. Mitsubishi’s investment, a precious-metals stream and planned project debt would cover much of the remaining requirement, the partners said when approving construction.

Hudbay shares dropped 1.3% to C$30.84 Thursday morning in Toronto, valuing the company at about C$13.7 billion ($9.8 billion). The stock has traded between C$20.26 and C$44.48.