HudBay Minerals Inc. 2010 Annual Report

MANAGEMENT’S DISCUSSION AND ANALYSIS
Fenix Project
On March 31, 2010, we announced a new NI 43‐101 compliant mineral resource estimate for our Fenix project in eastern
Guatemala. As part of the completion of an updated feasibility study at the end of 2010, we prepared a revised reserve estimate
for Fenix. Refer to “Estimated Mineral Reserves” on page 61 for details of the estimated mineral reserve.
In parallel with the work that took place in 2010 updating the Fenix feasibility study and mineral reserve estimate:
• We completed 7,000 meters of diamond drilling at the Fenix project in the second quarter and we incorporated the results into
the new reserve estimate;
• We are evaluating other exploration opportunities in the project vicinity that would enhance the economics of Fenix;
• We are utilizing the updated feasibility study to assist in evaluating options for advancing the Fenix project; and
• The revised feasibility study incorporates a new power strategy for Fenix based on the generation of power from coal or
petroleum coke at an on‐site power plant, while retaining the option to consider supplemental power supply from the Central
American power grid.
VMS Ventures Inc. (“VMS”)
On July 6, 2010, HBMS entered into a joint venture agreement and four option agreements with VMS respecting our Reed Lake
property and a series of adjacent mineral properties held by VMS in Manitoba’s Flin Flon Greenstone Belt. Pursuant to the joint
venture agreement, we have a 70% interest and VMS has a 30% interest in a joint venture respecting the Reed Lake property
and the two claims immediately to the south. We are the operator of the joint venture with authority and discretion as to the
exploration and potential development of the property and have exclusive rights to purchase and market the ore produced from
the property. We will also provide full financing of VMS’s proportionate share of the costs to develop the property, which will be
repayable solely from VMS’s share of cash flow generated from the project.
The option agreements grant us the right to earn a 70% interest in four adjacent claim parcels held by VMS. Upon making certain
cash payments and meeting work commitments over two to three years, we will earn a 70% interest in the applicable property
and a new joint venture will be formed between HudBay and VMS, which will have substantially the same terms as the Reed joint
venture. Any failure to make the required cash payments and work commitments with respect to a certain property will cause that
property to revert to VMS but will not affect our option over the other properties. Two drills are currently drilling at the Reed Lake
deposit: one drill is collecting metallurgical samples, and the other is scheduled to step out and test near deposit extensions and
geophysical anomalies as part of the VMS joint venture. We intend to complete an NI 43‐101 compliant resource estimate for the
Reed Lake property in the first quarter of 2011.
Exploration
We continue to invest in exploration. In addition to the drilling activity referred to previously at the Lalor and Back Forty projects,
one drill is operating in the vicinity of Flin Flon, Manitoba, testing near mine geophysical targets and trends, and we are carrying
out a continual underground exploration program out at the 777 mine. Another drill is testing regional geophysical anomalies
south of Flin Flon.
One drill has completed work on the Lost property, which we optioned from Halo Resources Ltd. and we are compiling and
interpreting the results.
34 HudBay Minerals Inc. 2010 Annual Report