The Underground Press Newspaper-Snow Lake Manitoba

Issue 25 Volumne 15 - December 8 20/11 - Written by Editor Marc Jackson

Garofalo Speaks at Scotia Capital Mining Conference

When you hear HudBay’s President and CEO, David Garofalo speak, you not only get the impression that he has his finger on the pulse of the company, but also on the industry. He is articulate, extremely knowledgeable, and very precise in both what he covers, and how he presents it.

Such was the case with a recent speaking engagement at the Scotia Capital Mining Conference, held on Wednesday, November 30, 2011, at the Royal Le Meridien King Edward Hotel in Toronto, Ontario. Positioned between Southern Copper’s CFO, Raul Jacob, who had the 9:00 - 9:30 a.m. slot and Marie Inkster, CFO for Lundin Mining Corp. who had the period between 10:00 - 10:30 a.m., Garofalo had ample time to efficiently explain the company, their assets, and projects for his audience; he even had time to field a question!

After introductions, the CEO quickly explained how the company’s growth strategy, assets, production, and cost control belie their share price. "There is certainly nothing in the underlying business that would explain that other than the macro-economic environment," he said. "We have been steadily and systematically meeting our objectives in terms of growth. When I joined the company in July 2010, we set out some very clear objectives in terms of how we would grow, and quite frankly, I think we’re exactly where we wanted to be a year and a half later."

Garofalo noted that the company highlights were, very strong production growth over that term on copper, zinc and gold, primarily from their Constancia (in Peru) and Lalor Projects. As well as incremental growth from the Reed Project (joint venture property with VMS Ventures), which he said they expected to make an investment decision on shortly. He added that the company is very focused both geographically and geologically. "Every investment we’ve made at every stage of the pipeline has been subject to those stringent criterion," the CEO said.

Garofalo then laid out the company’s recent achievements on the various properties in their portfolio. Speaking of Lalor, he said "Our Lalor project, which was moose pasture a year and a half ago is now largely constructed." He also noted how the company had quickly come from one that was capital rich and project starved to having two large scale projects in construction (Constancia and Lalor), two coming up behind these in the feasibility stage (Reed and the Back Forty in Michigan), and a number of investments in Junior companies that provide as a farm system for future development. "Not only did I inherit a great balance sheet, I inherited a great operating culture, with a history of meeting production targets and generating great cash flow and earnings from existing business," he said.

Later filling in the blanks on the Northern Manitoba projects, Garofalo had much to say about Lalor and to a lesser extent, Reed. Speaking of the remarkable progress at Lalor, he said HudBay initially made a $560 million commitment to build that project, within three weeks of his joining the company. "We’ve since optimized this project, with the intention to construct a new concentrator," the CEO explained. "All the surface infrastructure has been constructed. The hoist house, the hoist assembly, everything has been enclosed, everything has been moved underground, so as the snow flies in Snow Lake in Northern Manitoba, all of our construction activity moves out of the winter conditions."

Garofalo also stated that the ramp over from Chisel North is now complete, on schedule, and on budget. The vent raise is about a third of the way down and when it reaches the 810 meter horizon in July of next year, HudBay will begin temporary production, bringing their first ore up the vent raise. While this is going on, a kilometre or so away, they will continue with the sinking of the main production shaft, which will be completed by the end of 2014. "For the first time, probably in December, but more likely in January, we will have our first underground drill set up," said Garofalo. "All of our drilling up to this point, and we’ve delineated 32 million tonnes of resource, containing 4 million ounces of gold, in addition to significant amounts of zinc and copper, has been from a surface platform." He said they need access to drill Lalor off from underground and they will finally get that access in the first quarter of next year. "We expect to have a prolonged period of exploration as we drift across the 835 meter horizon of this deposit," he continued. "It’s wide, open at depth and we are still encountering very significant high grade mineralization from surface drilling, well outside the normal resource envelope, particularly in the copper/gold and gold zones at depth. So there is still a lot of exploration upside here and a lot of potential to expand production over time."

Talking about the decision to build a new concentrator at the Lalor site, Garofalo said that they committed an incremental $144 million and what that delivered was an increase in the production rate from 3500 tonnes per day to 4500 tonnes per day. "Rather than shorten the mine life, it lengthened the mine life from 15 - 20 years," he said. "The reason that was, is because of economies of scale. We were able to bring our unit costs down by 35% from $80 per tonne to about $52 per tonne all in. That made a lot of that additional mineralization economic and allowed us to extend the mine life."

Expanding on other optimization opportunities, Garofalo noted that Lalor’s shaft is sized for 6000 tonnes per day and with the new concentrator, they now have a scalable facility on surface. "So as the mine matures, that spare capacity, that will be used for waste in the early years, is available for ore," he reasoned. "We’ll be able to look at amping up the production rates as we find more mineralization at depth." He said the another optimization opportunity is in a precious metals circuit. "Right now we have very conservatively assumed about

2/3 recovery in gold and about 60% on silver. Assuming that we recover all the gold and silver through copper floatation. We have not assumed a precious metals circuit yet. The opportunity here, as we complete the metallurgical testing over the next year, is that we add a precious metal circuit and look at much higher gold recovery rates for a small incremental capital investment."

Speaking about the Reed deposit, he told the gathering that it is relatively small copper deposit, about 3 million tonnes in size; however, very high grade (4.5%), and near surface. "It is right on the provincial highway, about 110 km away from our Flin Flon Concentrator," he noted. "With the shutdown of our Trout Lake Mine next year, we will have spare capacity at the concentrator in Flin Flon, so we will be bringing an investment recommendation forward to the board very shortly to build a project here. And this will be incremental copper production of at least 15,000 tonnes per annum, which has not been baked into our globe projections to date. It is very low capital intensity because we don’t have to build any surface infrastructure. We can just truck the ore down the highway to the Flin Flon Concentrator. It has been traced from 50 meters below surface, to about 450 meters. So respectively, it is a ramped deposit. It remains open at depth. It is a very steeply dipping deposit. We need to get that underground access to continue the drilling at depth. And a couple of kilometres away, we are encountering a potential satellite zone of very high grade copper mineralization on the other side of the highway just 2.5 km away. There are 7 - 9% grades in that zone and we are drilling it out currently. As that bog freezes over the course of the winter, we will be able to get additional drill rigs there as well."

On exploration, the CEO said they plan to spend in the neighbourhood of $68 million in 2011 and expect to do the same next year, mostly because of the many successes that they have had. He says that HudBay's discovery cost per pound on a copper equivalent basis over the last 21 years was calculated to be six cents per pound. "So the best tonne of copper mineralization to acquire is one you find yourself, and we’ve had considerable success in that regard," he said. Garofalo also stated that when the company does get access to drill their deposits out, they are able to extend mineralization quite dramatically. "That happened with the original Flin Flon deposit back in the 1920’s, once we did get underground access, we more than quadrupled the size of that deposit (turning it into a 60 year mine)," he marvelled. "By this measure, Lalor, when you take all the categories of mineralization, which is now 32 million tonnes, is the largest discovery made in this camp, pre-production in our 85 year history. And why? Because the geophysics technology has advanced dramatically in the last ten years. We can trace anomalies beyond a kilometre. We couldn’t do that ten years ago. And one of those deep anomalies was the discovery of Lalor."

Garofalo went on to discuss the Constancia project in Peru, Michigan’s Back Forty and the Jason and Tom properties in the Yukon. Prior to closing, he fielded a question on whether they were looking for development partners on the Constancia project, to which he basically answered no. All in all , an excellent presentation, by the man who is very obviously in charge! MJ-Written by Editor Marc Jackson-The Underground Press Newspaper, Snow Lake Manitoba Canada