HudBay Minerals Inc. 2010 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS
Recent Developments
Acquisition of Norsemont Mining Inc.
On January 10, 2011, we announced that we entered into an agreement to acquire all of the outstanding common shares of
Norsemont, together with the associated rights issued under Norsemont’s stockholder rights plan. Holders of Norsemont’s common
shares were given the ability to elect consideration per Norsemont common share, on an individual basis, of 0.2617 common shares
of HudBay and $0.001 in cash, $4.50 in cash, or a combination of cash (greater than $0.001 and not to exceed $4.50) and HudBay
common shares, subject to rounding and proration necessary to effect a maximum aggregate cash consideration of $130 million.
On March 1, 2011, we acquired 104,635,351 common shares of Norsemont through the issuance of approximately 20.5 million of
our common shares and the payment of $119 million in cash and we extended our take‐over bid to holders of Norsemont common
shares until March 15, 2011. As a result, we own approximately 91% of Norsemont’s issued and outstanding shares (calculated on
a fully‐diluted basis). We intend to proceed with a compulsory acquisition transaction to acquire the remaining common shares of
Norsemont that we do not already own or subsequently acquire before the expiry of our take‐over bid.
Norsemont’s principal asset is the Constancia copper project located in the Cuzco district of southern Peru. Norsemont recently
completed and filed an optimized technical report as of February 21, 2011 which outlined an increase in reserves utilizing new
long‐term metal pricing and increasing and sustaining production throughput in the processing plant in the later years of the project.
The feasibility study contemplates an open pit mine feeding a processing plant at up to 70,000 tonnes per day for the estimated
15 year mine life. The average yearly metal production in concentrate for the life of mine is expected to be 85,000 tonnes of
copper, 1,400 tonnes of molybdenum and 69 tonnes of silver. The initial project capital is estimated to be US$920 million with a
life of mine average copper cost of US$0.93/lb. We are currently reviewing the work required to make a construction decision to
optimize and advance the Constancia project. This review process is expected to be complete and a feasibility optimization and
exploration program and budget will be provided by the end of March 2011.
Constancia Project Mineral Reserve Estimate February 21, 2010 1
Tonnes
Category (millions) Au (g/t) Ag (g/t) Cu (%) Mo (g/t)
Proven 195 .04 3.5 0.42 120
Probable 177 .05 3.7 0.40 92
Total reserves 372 .05 3.6 0.43 105
1
The Mineral Reserve for the FSO study is based on Net Smelter Return (“NSR”) cut‐off since project revenue is derived from copper, molybdenum, silver
and gold. For NSR evaluation, metal prices assumed were Cu $2.25/lb, Mo $14.50/lb, Ag $14/oz and Au $1,000/oz while average metal recovery to
concentrates was Cu 89%, Mo 40%, Ag 80% to Cu concentrate and Au 60% to Cu concentrate.
Full Commitment to Development of Lalor Mine
On August 4, 2010, our board of directors made a full commitment to the development of our wholly owned Lalor project by
authorizing the expenditures necessary to put the project into full production. Initial production from the access ramp is scheduled
in the second quarter of 2012 and full production from the 985 meter production shaft is anticipated in late 2014. The project’s
estimated capital cost of approximately $560 million, which includes $59 million spent to December 31, 2010, is expected to fund
full project development, including access to the gold and copper‐gold zones. We intend to fully fund the project from our current
cash resources and future cash flows.
30 HudBay Minerals Inc. 2010 Annual Report