Sam Crittenden 00:06
Welcome to Innovators and Ideas, an audio series from RBC Capital Markets, where we engage with visionary leaders shaping the future. I'm your host. Sam Crittenden, Research Analyst at RBC Capital Markets. Today, we're coming to you from RBC’s Global Mining and Materials Conference in New York City, speaking to Peter Kukielski President and CEO of HudBay, focused on the discovery, production and marketing of base and precious metals.
Sam Crittenden 00:33
Peter, thanks a lot for doing this and joining us here on this podcast. So, Peter, since stepping in as CEO, you've led HudBay through a meaningful evolution. How would you describe HudBay 's identity today and what principles have shaped your leadership during your transition?
Peter Kukielski 00:48
Well, first, thanks very much for the opportunity to sit with you today, Sam. So, as I reflect on HudBay today, it's a very different HudBay to the HudBay in 2019 when I joined. In 2019, the company was coming off a proxy battle, was handicapped by a rogue court decision in Arizona reversing our Rosemont permit. And this was really a detrimental event, because the company had anchored its entire future on Rosemont. The company had effectively anchored itself to a single plan. In Manitoba we had a depleting asset base, we had outsized exposure to Peru, excessive debt leverage and an unbalanced investor base with limited liquidity. So fast forward to today, and HudBay is today a transformed, resilient company with a diversified operating platform and one of the strongest balance sheets amongst our peers. We've replaced the depleted triple seven mine with a long-life, low-cost copper mine in British Columbia. We have optimized Rosemont into the fully permitted Copper World project, and we've transformed our operating base in Manitoba into what I'd call a golden umbrella in Snow Lake that provides investors with diversified free cash flows, especially at today's gold prices. Now, the principle that shaped my leadership during this period was pretty simple. It was all about building resilience in every aspect of our business, from diversifying our operating base, de-risking Copper World, and focusing on people and culture. And then we got creative. We pivoted to low-risk, low-capital intensity growth in Peru, and in Manitoba, while addressing the underlying issues with our permits and our balance sheets, we got on with the new Britannia project. So, we developed the high grade Pampacancha in Peru, we implemented a phased Snow Lake gold strategy. And the Snow Lake gold strategy may not seem bold in retrospect, however, at the time, we were constantly being challenged by investors, as you might remember about having a gold asset in a copper company. So, with Pampacancha and New Britannia in operation, we took the next bold step, and we acquired the Copper Mountain Mine in BC. And then we unleashed our people, and we built conviction among investors, and with broader asset base and improved liquidity and equity base, we were then able to issue some equity, and that transformed the balance sheet. The larger operating base drives higher valuations. It attracts people, and we empower them. As a result, we have what I believe one of the best positioned copper companies in the sector.
Sam Crittenden 03:33
Copper has been pretty volatile to start this year. There's been a lot of ups and downs, along with the broader market, of course, given some of the trade war headwinds. Gold prices, though, are quite strong still. So how does HudBay navigate those dynamics? How do you make business decisions across your portfolio given these volatile times?
Peter Kukielski 03:52
That's a really interesting question. First and foremost, we believe in copper because it has the best supply and demand fundamentals in the mining space. And it may feel like to your point that copper markets have been volatile, but we still have pretty strong prices for copper, despite U.S. tariffs affecting views on the global economy in the short-term. Our feeling is that long-term, with the lack of new copper supply and chronic under investment in the space, we believe that supply will be unable to meet demand for copper, especially with the growing demand from electrification initiatives and powering data centers. I read recently that Wood McKenzie is talking about the current surplus eroding. And, that's something given their optimistic view of development timelines. Now, meanwhile, we are enjoying our diversification. Last quarter, as you know, gold accounted for 38% of our revenue, and gold provides a natural hedge to the volatility that we're experiencing, which is what we've been asserting for some time now. But what really is remarkable is how the teams have seized the opportunity. The gold recoveries in Manitoba have gone through the roof, and great dilution is through the floor. So, not only are gold prices robust, but equally robust are production efficiencies and costs. And so, as a result, Snow Lake has become the lowest cost gold mine in Canada. We further exploit the diversified portfolio by investing in the drill bit. In Peru, we're focused on advancing exploration at our highly prospective satellite properties. And in Snow Lake, our largest exploration effort in our history of the camp is underway. So really, the navigation is not losing sight of the fact that we are a copper company, but at the same time, throwing all of the capability that our Manitoba and other teams are able to master to maximize in gold production.
Sam Crittenden 05:53
So, just thinking about some of the headwinds you're facing. Mining is a tough business, cost inflation, permitting time frames, relations with local communities. What sort of top of mind in terms of key risks or headwinds you're seeing at the moment?
Peter Kukielski 06:07
Permits have always been top of mind for us. Even though today's geopolitical environment is more constructive for miners, it remains to be seen how this translates into actual near-term developments, and that's why we're so excited about Copper World in Arizona, because the tortuous permitting journey is over, and we have a fully permitted project that's approaching shovel readiness. In the mining space, the biggest challenge is the long permitting and investment cycle before you realize cash flows. And once again, this is one of the reasons why we have such strong conviction in the long-term copper price. With a lack of investment over the last several years and given that it takes around 15 years to bring a new copper mine into production, there's severely limited new supply. Then there's the social side. Community engagement continues to be a key dynamic. It's typically intertwined with the permitting theme, but because social license and regulatory license both matter equally, HudBay has 100-year history of successfully operating in Manitoba with strong social license, and we've bought that track record to Peru with the development and operation of Constantia for more than a decade. So, what you're seeing today is the biggest opportunities for innovation in HudBay’s operation, ever, I think, whether through technology processes or process improvement or organizational change. Cost and efficiencies have always been top of mind for us. We all know that as mines get deeper, costs rise. Increasingly, we're turning to technology to support our efforts, and visitors to our Constantia Mill are always puzzled by the absence of people on the floor, and the reason for that is because the teams there work smart, and they deploy automated systems to do their work. In Manitoba, I'm talking about developments in technology and things that create value. But in Manitoba, reprocessing of tailings and extracting acid generating materials while producing saleable gold is a huge opportunity for us. And we think that it has the potential to move towards a more circular approach in mining, and also in Manitoba, we're looking at using low cost, narrow vein, mechanized, continuous mining equipment at satellite deposits as we start developing them. So, things like Talbot, those are satellite deposits. And then, of course, I have no doubt that artificial intelligence presents a massive opportunity. In these days of people scarcity in our industry maybe AI can be deployed to bridge generational transition ahead of us, perhaps it can be used to accelerate learnings to offset our reliance on highly experienced personnel to make judgments and decisions, by finding ways to teach new entrants into the space. That remains to be seen but I wouldn't be surprised to see that coming pretty soon.
Sam Crittenden 09:12
Yeah, that's an interesting idea. So, HudBay has been pretty measured around growth opportunities and keeping the balance sheet in focus, and the balance sheets can improve pretty dramatically over the last couple of years. So, what is your philosophy in terms of capital allocation, whether you're reinvesting, deleveraging and looking at potential M&A?
Peter Kukielski 09:32
Great question. Look, my years of developing mines and in the operating business, as well as my time in private equity, have taught me one thing, and that's how precious capital is. When I took over as CEO of HudBay, the pivot away from Rosemont to reinvest in high return brownfield projects was essential to reposition the company. The next thing I did was to appoint a CFO with a mandate to refocus and reduce spending, to increase free cash flows, and basically to permanently deliver the balance sheet. We also put together a prudent funding plan to unlock our growth pipeline. So, as a result, today, we have one of the lowest leverage balance sheets of our peers, and we've positioned our balance sheet to prudently unlock our pipeline, and accretive M&A plays a strong role in helping us to deliver this, as you saw in the case of Copper Mountain. So, in building out this business, we have a holistic capital allocation approach to build a business to deliver meaningful long-term return to shareholders.
Sam Crittenden 10:41
So, Canadian assets play a pretty key role in HudBay’s future. What's your message to investors on the long-term role of Canada within your portfolio?
Peter Kukielski 10:50
Canada does play a key role in our portfolio. I mean, Canada is where the company was founded, almost 100 years ago. We're on the verge of unlocking significant value in BC, with our optimization plans, reinforcing our position as the second largest copper producer in Canada. And in Manitoba, where we have one of the best gold mines in the country, we're investing heavily in exploration to explore our newly acquired land package, which will drive the next 100 years of mines in Canada. So, Canada is important, but equally important is the United States, because that's where the majority of our future copper growth is located. We're building a meaningful business in the U.S. around our portfolio there, which includes the third and the fourth largest copper project in the United States.
Sam Crittenden 11:36
So, as you alluded to you do have this pretty significant project in Arizona. You've also got a mix of brownfield and greenfield opportunities around your existing mines. What's your decision framework towards approving and sanctioning projects? What things need to be in place, and what gets that first dollar of capital?
Peter Kukielski 11:53
It's all about balanced capital allocation and highest risk adjusted returns. Our brownfields projects at New Britannia and at Pampacancha generated 30 plus percent returns. The acquisition of Copper Mountain was completed at a fraction of the cost it would take to build a new mine. And our next project at Copper World is the highest grade, lowest capital intensity copper project around. And while we're building Copper World, we're ensuring that we maintain a strong balance sheet to ensure that we have capital available to reinvest in other brownfield investments that would be complementary to the greenfield properties.
Sam Crittenden 12:30
You've managed this company through several cycles, operational turnarounds and now expansion. What's been your biggest leadership learning over the past five years, and how are you building internal alignment for what comes next?
Peter Kukielski 12:42
What I've learned is that in this cyclical business, one needs to surround one selves by highly competent, ambitious people offering the flexibility to lead, and empowering them to succeed and to occasionally fail, because if you empower them to fail, they'll typically fail forwards. Learn from it, move on and do the next thing right. I've also learned that you need to make short-term decisions that serve the long-term. We invested in shorter-term opportunities such as Pampacancha and New Britannia, which better positioned us for the long-term. The HudBay team is 100% aligned with our growth objectives, but we also recognize that Murphy's Law is very real. We don't know what comes next, which is why we build strategies based on scenario planning, considering multiple outcomes, unpredictability and rapidly changing markets, this leads to no regrets, short-term decisions that position us for success.
Sam Crittenden 13:50
That's a really thoughtful answer. Thanks for that, Peter. So, just last question, looking ahead, what sort of milestones and key strategic signals should investors be focusing on for HudBay's next phase of value creation?
Peter Kukielski 14:03
I don't look at milestones. This is a journey, and there will be several milestones along the way. The signals will be value creation and share price appreciation. We also aim to continue to attract top talent and make HudBay the employer of choice. And lastly, investors should be looking at our social impact and the positive change we continue to bring to our communities, then at short-term catalytic milestones.
Sam Crittenden 14:30
Thanks very much for joining us today, Peter. That was great.
Peter Kukielski 14:33
Thanks very much. Sam, it was a real pleasure.
Sam Crittenden 14:35
Thanks again for listening to Innovators and Ideas, brought to you by RBC Capital Markets. This episode was recorded on June 12, 2025. Subscribe now to get insights delivered straight to your inbox on the economy, markets and industry trends at rbccm.com/insights.
Disclaimer 14:56
This content is based on information available at the time it was recorded and is for informational purposes only. It is not an offer to buy or sell or a solicitation, and no recommendations are implied. It is outside the scope of this communication to consider whether it is suitable for you and your financial objectives.