Construction Of Constancia Copper Mine Begins Transaction

TORONTO, ON - HudBay Minerals Inc. board of directors has approved a US$1.5 billion investment to fund the development and construction of its Constancia copper mine in Peru. In addition, Hudbay announced it has entered into a precious metals stream transaction with Silver Wheaton Corp. providing for upfront deposit payments of US$750 million.

Based on the project's capital cost estimate of US$1.5 billion, the Constancia mine is estimated to generate an unlevered internal rate of return of 14.5% and a net present value of US$571 million, assuming a discount rate of 8.0% and long-term copper prices of US$2.75/lb.

Hudbay is also arranging a new US$600 million credit facility from a syndicate of Canadian and international banks. With approximately US$2 billion of capital spending remaining on the Constancia, Lalor and Reed projects, Hudbay expects to fund this requirement with a combination of US$710 million in cash on hand as at June 30, 2012, operating cash flow, and the funds received under the stream transaction and credit facility.

"The decision today to proceed with the development of the Constancia project is a significant milestone for Hudbay as we pursue our goal of becoming a leading mid-tier diversified metals producer with long-life, low-cost operations in investment-grade countries," said David Garofalo, Hudbay's president and chief executive officer.

Hudbay has entered into a precious metals stream transaction with Silver Wheaton whereby the company will receive aggregate upfront deposit payments of US$750 million against delivery of 100% of payable gold and silver from Hudbay's 777 mine until the later of the end of 2016 and satisfaction of a completion test at Constancia, and delivery of 50% of payable gold and 100% of payable silver for the remainder of the 777 mine life. The stream transaction also includes delivery of 100% of payable silver from the Constancia project. US$500 million of the upfront payments will be paid on closing, which is subject to customary conditions and is expected to occur in the third quarter of 2012. The remaining US$250 million will be due in two equal installments once US$500 million and US$1.0 billion, respectively, in capital expenditures have been incurred at Constancia. The stream transaction does not include gold production at Constancia, precious metals production from the company's Lalor project or the company's land package in Peru outside of the Constancia and Pampacancha deposits. Along with the upfront payments, for gold and silver delivered to Silver Wheaton, Hudbay will receive the lesser of the market price and US$400 per ounce (for gold) and US$5.90 per ounce (for silver), subject to 1% annual escalation after three years.

"The precious metals stream transaction is a non-dilutive source of capital and reflects attractive valuations relative to conventional base metal valuations of Hudbay's gold and silver reserves," said Mr. Garofalo. "The transaction also preserves full precious metal upside potential at Lalor, where we continue to delineate a copper-gold zone which remains open at depth, as well as full gold upside potential at Constancia and its satellite deposits."