Exhibit 3

|
|

|
|

|
|

HudBay Minerals Inc.

Management Discussion and Analysis of
Results of Operations and Financial Condition

Fourth Quarter and Year Ended December 31, 2005

|
|

|
|

|
|

|
|

|
|

|
|

March 21, 2006

---





MANAGEMENT'S DISCUSSION AND ANALYSIS  OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Unless the context otherwise suggests, references to "we", "us", "our" and similar terms, as well as references to "HudBay" or the
"Company", refer to HudBay Minerals Inc. and its subsidiaries.

This
Management's Discussion and Analysis ("MD&A") dated March 21, 2006 and should be read in conjunction with the Company's 2005 Annual Information Form ("AIF") and audited
annual consolidated financial statements for the year ended December 31, 2005, and related notes thereto and auditors report thereon, which have been prepared in accordance with Canadian
Generally Accepted Accounting Principles ("GAAP"). Additional information regarding the Company is available on SEDAR at www.sedar.com. All figures are in Canadian dollars
unless otherwise noted.

HudBay's
results for the year ended December 31, 2005 are significantly different from its results for the year ended December 31, 2004 because of its acquisition of HBMS.
Therefore, a comparison of the quarter ended December 31, 2005 and September 30, 2005 is included. A comparison of HBMS' results for the twelve month periods ended December 31,
2005 and 2004 is contained in Note 25 to the Company's audited consolidated financial statements for the year ended December 31, 2005.

Our Business

On December 21, 2004, HudBay acquired indirectly all of the outstanding shares of Hudson Bay Mining and Smelting Co., Limited ("HBMS"). The Company
is now an integrated mining and metals processing company that operates mines and concentrators in northern Manitoba and Saskatchewan, Canada, is re-opening a mine in New York
State, and operates a copper and zinc metal production complex in Flin Flon, Manitoba, exercised an option to purchase a copper refinery in Michigan state, and a zinc oxide production facility in
Brampton, Ontario.

|                                                   |  | Page
|-------------------------------------------------- |  | ----
|Summarized Financial Results                       |  | 3   
|Health, Safety, Environment and Product Quality    |  | 4   
|Operations Overview                                |  | 5   
|Commodity Markets                                  |  | 14  
|Sensitivity Analysis                               |  | 16  
|Mineral Reserves and Inferred Mineral Resources    |  | 17  
|Financial Review                                   |  | 18  
|Cash Cost per Pound of Zinc Sold                   |  | 22  
|Operating Costs                                    |  | 24  
|Cash Flows, Liquidity, and Capital Resources       |  | 25  
|Financial Condition                                |  | 27  
|Risk Management                                    |  | 28  
|Closure and Environmental Reclamation Provisions   |  | 28  
|Contractual Obligations and Commitments            |  | 29  
|Critical Accounting Estimates                      |  | 32  
|Disclosure Controls                                |  | 34  
|2006 Outlook                                       |  | 34  
|Appendix  HBMS Production, Fourth Quarter Results |  | 38  

2

---



SUMMARIZED FINANCIAL RESULTS

The following table sets out summary consolidated financial information for the Company as at and for the three-month periods ("quarters") ended
December 31 and September 30, 2005 and December 31, 2004, as well as for the year ended December 31, 2005, and 2004.

|                                         |         | Quarter
Ended
Dec 31,
2005 |         | Quarter
Ended
Sept 30,
2005 |  | Quarter
Ended
Dec 31,
2004(1)(4) |      | Year
Ended
Dec 31,
2005 |        | Year
Ended
Dec 31,
2004(1)(4) |  
|---------------------------------------- | ------- | -------------------------- | ------- | --------------------------- |  | -------------------------------- | ---- | ----------------------- | ------ | ----------------------------- | -
|
|Revenue                                  |         |                            | 173,051 |                             |  | 169,264                          |      |                         | 13,308 |                               |  
|Earnings (loss)                          |         |                            | 43,941  |                             |  | 23,405                           |      |                         | (2,858 | )                             |  
|Operating cash flow(2)                   |         |                            | 57,154  |                             |  | 21,814                           |      |                         | (2,629 | )                             |  
|Earnings (loss) per common share(3):     |         |                            |         |                             |  |                                  |      |                         |        |                               |  
|                                         | Basic   |                            | $       | 0.52                        |  | $                                | 0.28 |                         | $      | (0.18                         | )
|                                         | Diluted |                            | $       | 0.34                        |  | $                                | 0.28 |                         | $      | (0.18                         | )
|Operating cash flow per common share(3): |         |                            |         |                             |  |                                  |      |                         |        |                               |  
|                                         | Basic   |                            | $       | 0.68                        |  | $                                | 0.26 |                         | $      | (0.16                         | )
|                                         | Diluted |                            | $       | 0.44                        |  | $                                | 0.26 |                         | $      | (0.16                         | )

|
|

|                     |        |  |          | Quarter
Ended
Dec 31,
2005 |         | Quarter
Ended
Sept 30,
2005 |         | Quarter
Ended
Dec 31,
2004 |         | Year
Ended
Dec 31,
2005 |           | Year
Ended
Dec 31,
2004
|-------------------- | ------ |  | -------- | -------------------------- | ------- | --------------------------- | ------- | -------------------------- | ------- | ----------------------- | --------- | -----------------------
|Total Metal Produced |        |  |          |                            |         |                             |         |                            |         |                         |           |                        
|                     | Zinc   |  | tonnes   |                            | 30,520  |                             | 25,775  |                            | 28,348  |                         | 114,687   |                        
|                     | Copper |  | tonnes   |                            | 23,807  |                             | 20,720  |                            | 21,908  |                         | 86,285    |                        
|                     | Gold   |  | troy oz. |                            | 25,860  |                             | 23,200  |                            | 26,632  |                         | 102,371   |                        
|                     | Silver |  | troy oz. |                            | 401,385 |                             | 331,829 |                            | 376,427 |                         | 1,410,512 |                        

|
|

|                               |                           | Year Ended
Dec 31, 2005 |         | Year Ended
Dec 31, 2004(1) |        
|------------------------------ | ------------------------- | ----------------------- | ------- | -------------------------- | -------
|
|Selected Financial Information |                           |                         |         |                            |        
|                               | Cash and cash equivalents |                         | 141,660 |                            | 64,553 
|                               | Working capital           |                         | 209,117 |                            | 146,952
|                               | Free cash flow(5)         |                         | 73,938  |                            | (12,408
|                               | Net debt(6)               |                         | 66,669  |                            | 176,033
|                               | Total assets              |                         | 728,753 |                            | 642,697
|                               | Shareholders' equity      |                         | 261,226 |                            | 152,766

---

3

---



HEALTH, SAFETY, ENVIRONMENT AND PRODUCT QUALITY

Our HBMS facilities maintained their certification in the OHSAS 18001 occupational health and safety management system in 2005. HBMS' Lost Time Accident
(LTA) frequency rate per 200,000 hours worked dropped from 0.88 in 2004 to 0.62 in 2005 the best performance in the 76 year history of HBMS. Injury severity also dropped
from 37 per 200,000 hours worked in 2004 to 21 in 2005. All safety statistics include HBMS employees and HBMS contractors. Total accidents were reduced from 740 in 2004 to
691 in 2005.

GRAPHIC

HBMS'
operations also maintain registration to the ISO 14001 environmental management system standard and the production and supply of its final products are registered to the
ISO 9001 quality standard.

The
St. Lawrence Zinc Company, LLC operations at Balmat, previously on care and maintenance since 2001, moved to operations re-commissioning during the fourth quarter
of 2005. There were no LTAs at Balmat in 2005. The Balmat operations have commenced work on obtaining certification to both OHSAS 18001 and ISO 14001, with registration targeted for first
quarter 2007.

A
Sustainability Report is published annually that summarizes Environmental, Health and Safety performance for the Company.

4

---



OPERATIONS OVERVIEW

In 2005, our operations consisted of four operating mines, two concentrators, a copper smelter, a zinc plant and a zinc oxide production division.

Mines and Concentrators

777 Mine

GRAPHIC

The
777 mine is located immediately adjacent to the Company's principal concentrator and metallurgical plant in Flin Flon, Manitoba. In 1999 HBMS commenced development of the
777 mine as part of the $435 million 777 Project and commercial production commenced in January 2004 at a capacity of 1.0 million tonnes, per annum. At
January 2006 the mine production is expected to be approximately 1.35 million tonnes per annum.

Ore
production at the 777 mine, for the quarter ended December 31, 2005, increased by 10%compared to the previous quarter, consistent with
plans to ramp up production to 1.35 million tonnes per annum by January 1, 2006. Zinc grades improved considerably due to the ability to access higher grade ore. Operating costs in the
last quarter increased substantially due to higher operating development and propane costs; however, year-to-year operating costs increased slightly due to increased consumable
prices.

Overall
on a year-to-year basis, ore production increased by 12% while zinc grades were similar in 2005 compared to 2004; however, copper grades reduced by 23%
due to mining areas of lower copper as per the overall mine plan. Gold and silver grades mined in 2005 were similar to 2004.

A
total of $25 million in capital expenditures is planned for 2006, compared to $28 million in expenditures for 2005. Production, grades and unit costs, for 2006, within
normal fluctuations, expect to be similar to 2005.

|                |  |         |  | Year
Ended
Dec 31,
2004 |  | Quarter
Ended
Mar 31,
2005 |  | Quarter
Ended
June 30,
2005 |  | Quarter
Ended
Sep 30,
2005 |  | Quarter
Ended
Dec 31,
2005 |  | Year
Ended
Dec 31,
2005
|--------------- |  | ------- |  | ----------------------- |  | -------------------------- |  | --------------------------- |  | -------------------------- |  | -------------------------- |  | -----------------------
|Production      |  | tonnes  |  | 975,895                 |  | 243,248                    |  | 263,078                     |  | 279,258                    |  | 308,099                    |  | 1,093,683              
|Copper          |  | %       |  | 2.89                    |  | 2.23                       |  | 2.16                        |  | 2.28                       |  | 2.28                       |  | 2.24                   
|Zinc            |  | %       |  | 4.50                    |  | 3.75                       |  | 4.54                        |  | 4.34                       |  | 5.10                       |  | 4.47                   
|Gold            |  | g/tonne |  | 2.26                    |  | 1.88                       |  | 2.29                        |  | 2.18                       |  | 2.06                       |  | 2.09                   
|Silver          |  | g/tonne |  | 23.14                   |  | 20.57                      |  | 25.93                       |  | 23.93                      |  | 24.56                      |  | 23.83                  
|Operating costs |  | $/tonne |  | 37.14                   |  | 42.20                      |  | 36.07                       |  | 32.33                      |  | 40.46                      |  | 37.60                  

5

---



Trout Lake Mine

GRAPHIC

The
Trout Lake mine is located approximately six kilometres from the Company's principal ore concentrator and metallurgical plant in Flin Flon. Commercial production commenced at the
Trout Lake mine in 1982. The mine is accessed by a shaft and ramp both from surface and ore from the mine is truck hauled to the Flin Flon concentrator.

Ore
production at the Trout Lake mine for the quarter ended December 31, 2005 increased by 2% compared to the previous quarter, copper grade improved and zinc grade decreased
consistent with the mining plan. Gold and silver grades also reduced consistent with the mining plan. Operating costs increased in the fourth quarter due to a small increase in operating development
due to increased long hole drilling requirements for production and use of propane for the last quarter for heating of mine ventilation.

In
2005, zinc grade improved while copper grade decreased slightly compared with 2004. Gold and silver grades were similar to the prior year. The production grades were consistent with
the mine plan. Production tonnage in 2005 was less than 2004 due to the planned reduction in the mining areas available.

A
total of $16 million in capital expenditures are planned for 2006 compared to $25 million in capital expenditures in 2005. Production, grades and unit costs, for 2006,
within normal fluctuations, expect to be similar to 2005.

|                |  |         |  | Year
Ended
Dec 31,
2004 |  | Quarter
Ended
Mar 31,
2005 |  | Quarter
Ended
June 30,
2005 |  | Quarter
Ended
Sep 30,
2005 |  | Quarter
Ended
Dec 31,
2005 |  | Year
Ended
Dec 31,
2005
|--------------- |  | ------- |  | ----------------------- |  | -------------------------- |  | --------------------------- |  | -------------------------- |  | -------------------------- |  | -----------------------
|Production      |  | tonnes  |  | 916,097                 |  | 213,055                    |  | 219,913                     |  | 210,802                    |  | 214,981                    |  | 858,751                
|Copper          |  | %       |  | 1.46                    |  | 1.28                       |  | 1.19                        |  | 1.29                       |  | 1.79                       |  | 1.39                   
|Zinc            |  | %       |  | 5.32                    |  | 6.37                       |  | 6.51                        |  | 5.70                       |  | 3.86                       |  | 5.61                   
|Gold            |  | g/tonne |  | 1.47                    |  | 1.55                       |  | 1.43                        |  | 1.57                       |  | 1.32                       |  | 1.47                   
|Silver          |  | g/tonne |  | 13.58                   |  | 15.96                      |  | 14.46                       |  | 14.63                      |  | 13.35                      |  | 14.61                  
|Operating costs |  | $/tonne |  | 31.21                   |  | 36.39                      |  | 31.49                       |  | 34.81                      |  | 39.11                      |  | 35.43                  

6

---



Chisel North  Mine

GRAPHIC

The
Chisel North mine is approximately 10 kilometres west of the Company's Snow Lake ore concentrator, which is approximately 215 kilometres from Flin Flon. Commercial
production commenced at the mine in June 2000. The mine is accessed by ramp and ore from the mine is trucked to the Snow Lake concentrator and concentrate produced is trucked to the
metallurgical zinc plant in Flin Flon.

Ore
production at the mine for the quarter ended December 31, 2005 decreased by 7% compared to the previous quarter. Production decreased due to less ore being available from
mining by long hole stoping. Zinc grade increased slightly consistent with the mine plan. Operating costs also increased slightly due to the usage of propane in winter months and lower production in
the fourth quarter.

Ore
production increased by 3%, for the year ended December 31, 2005 compared to the prior year, due to availability of production from long hole stopes. Zinc grade declined by
10% consistent with the mine plan. Ore unit costs for 2005 compared to 2004 improved by 8% due to greater availability of ore from long hole stopes.

A
total of $6 million in capital expenditures are planned for 2006 compared to capital expenditures of $7 million in 2005. Production, grades and unit costs, for 2006,
within normal fluctuations, expect to be similar to 2005.

|                |  |         |  | Year
Ended
Dec 31,
2004 |  | Quarter
Ended
Mar 31,
2005 |  | Quarter
Ended
June 30,
2005 |  | Quarter
Ended
Sep 30,
2005 |  | Quarter
Ended
Dec 31,
2005 |  | Year
Ended
Dec 31,
2005
|--------------- |  | ------- |  | ----------------------- |  | -------------------------- |  | --------------------------- |  | -------------------------- |  | -------------------------- |  | -----------------------
|Production      |  | tonnes  |  | 327,853                 |  | 86,545                     |  | 82,100                      |  | 87,090                     |  | 80,996                     |  | 336,731                
|Zinc(1)         |  | %       |  | 9.99                    |  | 9.64                       |  | 9.08                        |  | 8.31                       |  | 8.97                       |  | 9.00                   
|Operating costs |  | $/tonne |  | 45.99                   |  | 36.28                      |  | 37.56                       |  | 47.62                      |  | 48.23                      |  | 42.40                  

---

7

---



Konuto Lake Mine

GRAPHIC

The
Konuto Lake mine is located in Saskatchewan, approximately 24 kilometres from the Company's principal ore concentrator and metallurgical plant in Flin Flon. The Konuto Lake
mine was discovered in 1994 and production began in 1999. The mine is accessed by ramp and ore is truck hauled over a dedicated road to the Flin Flon concentrator.

Production
at the Konuto mine for the quarter ended December 31, 2005 decreased by 37% compared to the previous quarter. During the quarter, Konuto Lake Mine was closed, as
planned, due to the depletion of mineral reserves. The ore grades during the quarter reflect the best grade available from the ore mined. Higher operating costs, in the quarter, are a reflection of
lower tonnage mined at the end of the mine life.

Ore
grade mined in 2005 was less than in 2004 due to lower grade ore being available to mine towards the end of the mine life. Capital expenditures were minimal however operating costs
were higher year-on-year due to lower productivity and higher operating development to access areas necessary to be mined toward the end of the mine life.

The
Konuto Lake mine was an excellent source of copper and to a lesser extent zinc, gold and silver for HudBay. The ore tonnage shortfall from the closure of this mine is expected to be
substantially supplemented by the planned increase in ore production at the 777 mine in 2006. Konuto was an extremely successful operation with an excellent safety record.

|                |  |         |  | Year
Ended
Dec 31,
2004 |  | Quarter
Ended
Mar 31,
2005 |  | Quarter
Ended
June 30,
2005 |  | Quarter
Ended
Sep 30,
2005 |  | Quarter
Ended
Dec 31,
2005 |  | Year
Ended
Dec 31,
2005
|--------------- |  | ------- |  | ----------------------- |  | -------------------------- |  | --------------------------- |  | -------------------------- |  | -------------------------- |  | -----------------------
|Production      |  | tonnes  |  | 327,231                 |  | 87,062                     |  | 89,986                      |  | 82,895                     |  | 52,522                     |  | 312,465                
|Copper          |  | %       |  | 4.07                    |  | 4.19                       |  | 4.47                        |  | 3.35                       |  | 3.30                       |  | 3.90                   
|Zinc            |  | %       |  | 2.08                    |  | 1.39                       |  | 1.66                        |  | 2.07                       |  | 2.36                       |  | 1.81                   
|Gold            |  | g/tonne |  | 1.92                    |  | 1.73                       |  | 1.84                        |  | 1.33                       |  | 1.73                       |  | 1.65                   
|Silver          |  | g/tonne |  | 9.60                    |  | 8.48                       |  | 9.28                        |  | 8.32                       |  | 11.46                      |  | 9.15                   
|Operating costs |  | $/tonne |  | 33.12                   |  | 40.32                      |  | 34.81                       |  | 31.94                      |  | 39.80                      |  | 36.42                  

8

---



Flin Flon Concentrator

GRAPHIC

The
Flin Flon concentrator, produces zinc and copper concentrates from ore mined at the 777, Trout Lake and Konuto Lake mines. As part of the $435 million 777 Project, the
capacity of the Flin Flon concentrator was increased to 2.18 million tonnes of ore per annum. The concentrator receives ore from each mine separately and blends the ore prior to grinding.

For
the fourth quarter of 2005, the Flin Flon concentrator throughput decreased slightly, compared to the historically higher level in the prior quarter. Copper head grade improved 5% in
the fourth quarter while zinc head grade decreased 3% principally as a result of changes in the Trout Lake mine ore grades. The lower zinc head grade and the higher copper head grade resulted in a
decrease in zinc recovery. Gold and silver recoveries increased slightly. Unit cost of ore processing increased marginally in the fourth quarter as a result of higher maintenance and propane costs for
heating requirements.

In
2005, processed ore increased by 5% while mine supplied copper head grade was 13% lower and zinc head grade was 1% higher than 2004. Gold recovery improved by 8% as a result of
optimization work done on the circuit and zinc recovery improved by 4% due to circuit changes during the year. Operating costs improved slightly due to increased processed ore.

A
total of $4 million in capital expenditures are planned for 2006 compared to capital expenditures of $2 million in 2005.

|                         |  |         |  | Year
Ended
Dec 31,
2004 |  | Quarter
Ended
Mar 31,
2005 |  | Quarter
Ended
June 30,
2005 |  | Quarter
Ended
Sep 30,
2005 |  | Quarter
Ended
Dec 31,
2005 |  | Year
Ended
Dec 31,
2005
|------------------------ |  | ------- |  | ----------------------- |  | -------------------------- |  | --------------------------- |  | -------------------------- |  | -------------------------- |  | -----------------------
|Ore processed            |  | tonnes  |  | 2,156,051               |  | 552,829                    |  | 558,919                     |  | 584,362                    |  | 566,445                    |  | 2,262,555              
|Copper ore               |  | %       |  | 2.46                    |  | 2.10                       |  | 2.10                        |  | 2.13                       |  | 2.23                       |  | 2.14                   
|Zinc ore                 |  | %       |  | 4.50                    |  | 4.52                       |  | 4.85                        |  | 4.44                       |  | 4.32                       |  | 4.53                   
|Gold                     |  | g/tonne |  | 1.89                    |  | 1.71                       |  | 1.87                        |  | 1.85                       |  | 1.75                       |  | 1.78                   
|Silver                   |  | g/tonne |  | 17.31                   |  | 16.95                      |  | 18.42                       |  | 18.19                      |  | 19.01                      |  | 18.14                  
|Copper concentrate       |  | tonnes  |  | 208,961                 |  | 45,666                     |  | 44,957                      |  | 48,763                     |  | 49,465                     |  | 188,851                
|Concentrate grade        |  | Cu %    |  | 23.60                   |  | 23.06                      |  | 24.27                       |  | 23.94                      |  | 23.99                      |  | 23.82                  
|Zinc concentrate         |  | tonnes  |  | 152,453                 |  | 39,448                     |  | 44,366                      |  | 42,488                     |  | 38,115                     |  | 164,417                
|Zinc grade               |  | Zn %    |  | 50.42                   |  | 50.34                      |  | 52,10                       |  | 51.40                      |  | 52.15                      |  | 51.51                  
|Copper recov. to Cu conc |  | %       |  | 93.0                    |  | 90.8                       |  | 92.9                        |  | 93.7                       |  | 93.7                       |  | 92.8                   
|Gold recov. to Cu conc   |  | %       |  | 69.6                    |  | 77.3                       |  | 78.3                        |  | 71.8                       |  | 72.5                       |  | 74.9                   
|Silver recov. to Cu conc |  | %       |  | 68.1                    |  | 68.1                       |  | 66.6                        |  | 64.6                       |  | 66.1                       |  | 66.3                   
|Zinc recovery to Zn conc |  | %       |  | 79.2                    |  | 79.4                       |  | 85.3                        |  | 84.1                       |  | 81.2                       |  | 82.6                   
|Operating costs          |  | $/tonne |  | 8.29                    |  | 8.21                       |  | 7.68                        |  | 7.88                       |  | 7.95                       |  | 7.93                   

9

---



Snow Lake Concentrator

GRAPHIC

The
Snow Lake concentrator is approximately 215 kilometres from the Flin Flon metallurgical plants. The facility processes only the Chisel North mine zinc ore and produces zinc
concentrate that is trucked to Flin Flon for metallurgical treatment. The concentrator has an ore capacity of approximately 1.2 million tonnes per annum.

For
the fourth quarter of 2005, the Snow Lake concentrator's processed ore decreased to match mine production from the Chisel North mine compared to the prior quarter. Zinc recovery
increased marginally as a result of a higher zinc head grade from the mine. Unit cost per tonne of ore increased by approximately 25% in the fourth quarter of 2005 as compared to the third quarter,
due to minor structural steel repairs of the concentrator building as well as higher costs of reagents

In
2005, processed ore increased by 1% consistent with ore supply from the Chisel North mine. Ore head grade was 10% lower while metal recovery to concentrate was similar. Operating unit
ore processing costs were only 4% higher despite increases in steel, fuel and other commodities.

A
total of $0.3 million in capital expenditures are planned for 2006 compared to an expenditure of $0.2 million in 2005.

|                       |  |         |  | Year
Ended
Dec 31,
2004 |  | Quarter
Ended
Mar 31,
2005 |  | Quarter
Ended
June 30,
2005 |  | Quarter
Ended
Sep 30,
2005 |  | Quarter
Ended
Dec 31,
2005 |  | Year
Ended
Dec 31,
2005
|---------------------- |  | ------- |  | ----------------------- |  | -------------------------- |  | --------------------------- |  | -------------------------- |  | -------------------------- |  | -----------------------
|Ore processed          |  | tonnes  |  | 327,853                 |  | 85,632                     |  | 79,496                      |  | 83,570                     |  | 82,729                     |  | 331,427                
|Zinc ore               |  | %       |  | 9.99                    |  | 9.64                       |  | 9.09                        |  | 8.26                       |  | 9.00                       |  | 9.00                   
|Zinc concentrate       |  | tonnes  |  | 61,825                  |  | 15,827                     |  | 13,643                      |  | 13,058                     |  | 14,118                     |  | 56,646                 
|Concentrate grade      |  | Zn %    |  | 51.52                   |  | 50.91                      |  | 51.68                       |  | 51.25                      |  | 51.21                      |  | 51.25                  
|Zn recovery to Zn conc |  | %       |  | 97.3                    |  | 97.6                       |  | 97.5                        |  | 96.9                       |  | 97.1                       |  | 97.3                   
|Operating costs(2)     |  | $/tonne |  | 16.69                   |  | 16.51                      |  | 17.30                       |  | 15.82                      |  | 19.80                      |  | 17.35                  

---

10

---



Metallurgical Plants

Copper Smelter

GRAPHIC

The
copper smelter treats copper concentrate and produces copper anodes, which are railed to the White Pine copper refinery, where they are electro-refined into market standard cathode
copper.

Both
domestic produced copper concentrate and purchased copper concentrate are treated at the smelter. Approximately 35% of the concentrate tonnage treated at the copper smelter was
purchased concentrate during 2005. Our Company has long term contracts with both Highland Valley Copper mines and Montana Resources, Butte Mine for the purchase of adequate copper concentrate
requirements.

The
copper smelter facilities include off-loading of rail cars, concentrate storage sheds, roasters, a reverberatory furnace, three converter furnaces and two anode furnaces
and an anode casting wheel together with gas handling systems, electrostatic precipitators and a stack.

Copper
anode production for the fourth quarter of 2005 increased by 15% compared to the third quarter, resulting in a new quarterly record for smelter production. On a unit cost basis,
operating costs were 5% lower in the fourth quarter of 2005 as compared to the third quarter.

Comparing
2005 with 2004 concentrate treated increased by 12% while copper produced also increased by 12%. Gold production, in copper increased 12% and silver by 26% reflecting the
precious metal content in concentrate treated. Operating costs per pound of copper produced was the same as 2004 despite considerable carbon based fuel cost pressures.

The
smelter plans to proceed with the previously announced 28 day temporary maintenance shutdown during the second quarter of 2006. The maintenance shutdown is primarily to
rebuild the reverberatory furnace, which is used to smelt copper and is rebuilt regularly. Management of copper anode inventory between the copper smelter and the White Pine copper refinery will in
part, mitigate the impact on annual sales. HBMS mines and concentrators will continue to operate.

A
total of $10 million in capital expenditures are planned for 2006, compared to $2 million in 2005, mainly comprising expenditures related to the shutdown.

|                   |  |          |  | Year
Ended
Dec 31,
2004 |  | Quarter
Ended
Mar 31,
2005 |  | Quarter
Ended
June 30,
2005 |  | Quarter
Ended
Sep 30,
2005 |  | Quarter
Ended
Dec 31,
2005 |  | Year
Ended
Dec 31,
2005
|------------------ |  | -------- |  | ----------------------- |  | -------------------------- |  | --------------------------- |  | -------------------------- |  | -------------------------- |  | -----------------------
|Domestic sourced   |  | tonnes   |  | 185,352                 |  | 48,352                     |  | 53,038                      |  | 49,780                     |  | 55,172                     |  | 206,342                
|Purchased sourced  |  | tonnes   |  | 98,748                  |  | 28,839                     |  | 26,057                      |  | 28,212                     |  | 28,828                     |  | 111,936                
|Total              |  | tonnes   |  | 284,100                 |  | 77,191                     |  | 79,095                      |  | 77,992                     |  | 84,000                     |  | 318,278                
|Operating costs(1) |  | $/tonne  |  | 147.28                  |  | 13952                      |  | 141.93                      |  | 153.48                     |  | 154.87                     |  | 147.59                 
|Copper produced    |  | tonnes   |  | 76,894                  |  | 20,698                     |  | 21,060                      |  | 20,720                     |  | 23,807                     |  | 86,285                 
|Gold               |  | troy oz. |  | 79,020                  |  | 25,774                     |  | 27,540                      |  | 23,200                     |  | 25,860                     |  | 102,374                
|Silver             |  | troy oz. |  | 1,114,570               |  | 338,295                    |  | 338,998                     |  | 331,829                    |  | 401,385                    |  | 1,410,507              
|Operating costs    |  | ¢/lb. Cu |  | 24.7                    |  | 23.6                       |  | 24.2                        |  | 26.2                       |  | 24.8                       |  | 24.7                   

---

11

---



Zinc Plant

GRAPHIC

The
Flin Flon zinc plant facility utilizes leading edge technology and includes a two-stage pressure leach plant, oxygen plant, four steps of solution purification, a new
electrolysis plant and a casting plant. An oxygen plant supplies oxygen to the pressure leach process. The facility produces special high grade zinc as the final product.

For
the fourth quarter of 2005, operating costs in the zinc plant, on a unit cost of zinc metal produced basis, decreased by 6% compared to the third quarter as zinc production increased
by approximately 4,700 tonnes (or 18%), the difference reflecting the lower production and maintenance activities that were carried out in the third quarter. In the fourth quarter, the
zinc plant achieved a quarterly record for zinc cathode metal production.

In
2005, zinc concentrate treated increased by 2% and zinc produced increased by 4% resulting from higher concentrate zinc grade treated and improved metal recovery. Unit operating cost
per pound of metal produced was similar to the prior year.

During
the second quarter of 2006 and similar to 2005, a routine ten-day annual maintenance shutdown is planned for the oxygen plant, autoclave, thickener and cellhouse
maintenance. No impact on annualized zinc metal production as a result of the maintenance shutdown is expected. HBMS' mines, concentrators and other process plants will continue to operate.

A
total of $5 million in capital expenditures are planned for 2006, compared to $3 million in 2005.

|                   |  |          |  | Year
Ended
Dec 31,
2004 |  | Quarter
Ended
Mar 31,
2005 |  | Quarter
Ended
June 30,
2005 |  | Quarter
Ended
Sep 30,
2005 |  | Quarter
Ended
Dec 31,
2005 |  | Year
Ended
Dec 31,
2005
|------------------ |  | -------- |  | ----------------------- |  | -------------------------- |  | --------------------------- |  | -------------------------- |  | -------------------------- |  | -----------------------
|Domestic           |  | tonnes   |  | 219,561                 |  | 58,809                     |  | 58,105                      |  | 51,339                     |  | 59,856                     |  | 228,109                
|Purchased          |  | tonnes   |  | 3,488                   |  |                           |  |                            |  |                           |  |                           |  |                       
|Total              |  | tonnes   |  | 223,049                 |  | 58,809                     |  | 58,105                      |  | 51,339                     |  | 59,856                     |  | 228,109                
|Operating costs(1) |  | $/tonne  |  | 278.69                  |  | 272.32                     |  | 275.45                      |  | 304.76                     |  | 290.98                     |  | 285.31                 
|Zn produced        |  | tonnes   |  | 110,219                 |  | 29,204                     |  | 29,188                      |  | 25,775                     |  | 30,520                     |  | 114,687                
|Operating costs    |  | ¢/lb. Zn |  | 25.6                    |  | 24.9                       |  | 24.9                        |  | 27.5                       |  | 25.9                       |  | 25.7                   

---

12

---



Zinc Oxide Facility  Zochem

GRAPHIC

Zochem
is the zinc oxide production facility of HBMS, located in Brampton, Ontario. Zochem is a stand-alone operation that off-takes between 32,000 tonnes and
41,000 tonnes of our Flin Flon zinc plant zinc metal production per annum.

In
2005, Zochem was the third largest producer of zinc oxide in North America, accounting for approximately 20% of the North American market.

The
Zochem facilities have a total capacity of 45,000 tonnes per annum of zinc oxide. In 2005, Zochem consumed approximately 35,000 tonnes of the zinc of which
31,760 tonnes was from HBMS, and sold 43,230 tonnes of zinc oxide.

A
total of $2 million in capital expenditures is planned for 2006, compared to $0.3 million in 2005. The increased expenditure is related to productivity improvement by the
installation auto palletizing machines, to bag zinc oxide.

13

---



COMMODITY MARKETS

The following market analysis is provided by HudBay and is obtained from various information sources, which reflects the views of HudBay
management.

Zinc

Of the five products the Company produces, earnings are most sensitive to fluctuations in the price of zinc (see Sensitivity Analysis). In 2005, the LME
price of zinc averaged US $0.63 a pound, increasing over the year to US $0.87 a pound at year end. In early 2006, zinc continued its upward trend and reached a high of $1.12.

Zinc
inventories on the London Metal Exchange (LME) fell by 235,300 tonnes or almost 40% during the year as zinc consumption exceeded production capacity.

The
tight supply of zinc in 2005 and early 2006 is evidenced by the increase in the associated premiums received for the direct sale of zinc metal.

LME Zinc Cash Settlement Price Monthly Average
January 2004 to December 2005

GRAPHIC

The
outlook for zinc price remains positive with world zinc metal demand expected to continue to exceed supply.

Copper

Global copper consumption was largely unchanged in 2005. The LME price of copper averaged US $1.67 a pound in 2005, increasing over the year to US $2.08 a pound
at year end.

Copper
inventories in warehouses increased by 32,000 tonnes in 2005, but remain below what may be considered a critical level throughout the world.

The
higher price has allowed the re-start of mine production that was closed or cut back in prior years due to poor economics, and this added an estimated half million tonnes
to supply in 2005. However, a capacity imbalance was created as this increased mine supply exceeded smelter capacity.

LME Copper Cash Settlement Price Monthly Average
January 2004 to December 2005

GRAPHIC

This
capacity imbalance is expected to moderate in 2006 and combined with higher metal inventories could moderate copper prices in the near term.

14

---



Gold

Gold prices averaged US $445 per ounce and followed an upward trend in 2005, closing the year at US $513 per ounce. In 2006, the trend has continued with gold
reaching nearly US $572 per ounce in February 2006. The prospects for the gold price remain favourable, particularly in response to any global economic/political uncertainty and a resurgence in
gold as an investment vehicle.

London Gold PM Fix Monthly Average
January 2004 to December 2005

GRAPHIC

Silver

In 2005, silver prices increased primarily due to increasing investment and industrial demand, along with higher world economic growth. As a result of higher
silver prices in 2005, demand from jewelry and silverware fabrication decreased. Early in 2006, silver prices have exceeded US$10 an ounce and for the remainder of the year, we believe silver prices
may remain at these higher levels.

London Silver Bullion Price Monthly Average
January 2004 to December 2005

GRAPHIC

Foreign Exchange

Since the revenue from our five products are substantially in US dollars, the Company is affected by the fluctuations in the Cdn/US dollar exchange rate. The
Company's US debt, US denominated copper concentrate purchases and its US dollar put options partially mitigates the impact of the Cdn/US dollar fluctuations on the Company's earnings; however, a
weaker US dollar would, overall, cause our earnings to decrease. The Canadian dollar has out-performed most major currencies in 2005, including the US dollar. We expect the Canadian dollar
to remain strong in 2006.

Electricity, Heavy Fuel Oil and Natural Gas

Electricity costs per kWh, in the longer term, may increase. Prices of heavy fuel and natural gas are subject to price movements over shorter periods of time. In
2005, the Company consumed almost 1 billion kWh's of electricity with the zinc plant being the largest consumer of electricity in HudBay's operations. Additionally we consume almost
250,000 barrels of heavy fuel oil and almost 25 million litres of propane at our mines and plants, annually. Changes in the cost of these commodities affect our costs to produce our
products. Consumption levels of these commodities in 2006 are expected to increase largely due to the re-opening of the Balmat mine as well as the purchase of the White Pine copper
refinery in 2006.

Inflationary Cost Pressures

Similar to other mining companies, HudBay has experienced significant inflationary cost pressures with increasing prices of consumables such as steel, explosives
and rubber products.

15

---



We
plan to continue focusing on procurement and continuous improvement initiatives to mitigate the impact of consumables, including controlling usage and extending the life of plant and equipment,
where possible.

Other Capital Expenditures

In addition to the capital expenditures at the mines and plants described in the Operations Overview section and excluding the reopening of the Balmat mine, the
Company plans to spend approximately $12 million in 2006 ($7 million of which relates to the expansion of the Flin Flon tailings impoundment system) compared to $3 million in
2005.

SENSITIVITY ANALYSIS

The following table shows the approximate impact of metal prices and exchange rates, using 2005 as a basis, on the Company's 2005 net income.

|                  |  | A change of: |       | Would change our 2005 net income by: (Cdn $ million) |   | Would change our 2005 earnings per share by:(1) (Cdn $/share)
|----------------- |  | ------------ | ----- | ---------------------------------------------------- | - | -------------------------------------------------------------
|Metal Prices      |  |              |       |                                                      |   |                                                              
|Zinc (lb.)        |  | US $         | 0.10  |                                                      | $ | 29                                                           
|Copper (lb.)      |  | US $         | 0.10  |                                                      | $ | 12                                                           
|Gold (troy oz.)   |  | US $         | 10.00 |                                                      | $ | 1                                                            
|Silver (troy oz.) |  | US $         | 1.00  |                                                      | $ | 1                                                            
|Exchange Rates    |  |              |       |                                                      |   |                                                              
|US $1 to C $1     |  | C $          | 0.01  |                                                      | $ | 3                                                            

---

16

---



MINERAL RESERVES AND INFERRED MINERAL RESOURCES

Estimated January 1, 2006 mineral reserves at our 777, Trout Lake and Chisel North Mines in Northern Manitoba and our Balmat Mine project in
New York State, in compliance with NI 43-101, was 21,357,000 tonnes at 1.8 g/t gold, 21.1 g/t silver, 2.0% copper and 5.3% zinc.

|Mine           |  | Tonnes     |  | Au (g/t) |  | Ag (g/t) |  | Cu (%) |  | Zn (%)
|-------------- |  | ---------- |  | -------- |  | -------- |  | ------ |  | ------
|777            |  |            |  |          |  |          |  |        |  |       
|Proven         |  | 3,474,000  |  | 2.5      |  | 28.4     |  | 2.4    |  | 4.7   
|Probable       |  | 12,261,000 |  | 2.1      |  | 25.7     |  | 2.5    |  | 4.4   
|Trout Lake     |  |            |  |          |  |          |  |        |  |       
|Proven         |  | 1,433,000  |  | 1.0      |  | 11.1     |  | 1.4    |  | 4.7   
|Probable       |  | 1,058,000  |  | 1.7      |  | 20.5     |  | 2.5    |  | 4.0   
|Chisel North   |  |            |  |          |  |          |  |        |  |       
|Proven         |  | 661,000    |  |         |  |         |  |       |  | 8.9   
|Probable       |  | 761,000    |  |         |  |         |  |       |  | 8.4   
|Balmat         |  |            |  |          |  |          |  |        |  |       
|Proven         |  | 686,000    |  |         |  |         |  |       |  | 10.6  
|Probable       |  | 1,023,000  |  |         |  |         |  |       |  | 11.4  
|Total Proven   |  | 6,254,000  |  | 1.6      |  | 18.3     |  | 1.6    |  | 5.8   
|Total Probable |  | 15,103,000 |  | 1.8      |  | 22.3     |  | 2.2    |  | 5.0   
|Total Reserves |  | 21,357,000 |  | 1.8      |  | 21.1     |  | 2.0    |  | 5.3   

Separately,
as of January 1, 2006, we estimated aggregate inferred mineral resources at our 777, Trout Lake and Chisel North Mines in Northern Manitoba and our Balmat Mine project
in New York State at 4,940,000 tonnes at 1.2 g/t gold 19.1 g/t silver, 1.0% copper and 7.45% zinc.

The
categorization of measured and indicated mineral resource is determined in a 12-step process, which includes determination of the integrity and validation of the data
collected, including, confirmation of specific gravity, assay results and methods of data recording. The process also includes determining the appropriate geological model, selection of data and the
application of statistical models including probability plots and restrictive kriging to establish continuity and model validation. The resultant estimates of measured and indicated mineral resources
are converted to proven and probable mineral reserves by the application of mining dilution and recovery, as well as the determination of economic viability using historical operating costs. Other
factors such as depletion from production are applied as appropriate. Long term metal prices, including premiums used for economic viability of the 2006 mineral reserves, were US $400 oz. gold, US
$6.00 oz. silver, US $0.91 lb. copper and US $0.52 lb. zinc.

Prior
period mineral reserves are filed in the Canadian Securities Administrators SEDAR filing system in the Renewal Annual Information Form of HudBay Minerals Inc.,
March 29, 2005.

17

---



FINANCIAL REVIEW

The following table sets forth our selected consolidated financial information for each of the eight most recently completed quarters. Note that the results
reflect the acquisition of HBMS as of December 21, 2004.

|                 |            | 2005    |      | 2004    |     
|---------------- | ---------- | ------- | ---- | ------- | ----
|
|
|Net Revenue      |            | 173,051 |      | 169,264 |     
|Earnings (loss)  |            | 43,941  |      | 23,405  |     
|Per Common Share |            |         |      |         |     
|                 | Basic      |         | 0.52 |         | 0.28
|                 | Diluted(1) |         | 0.34 |         | 0.28

With
the exception of ten days in December 2004, HudBay had no production and was essentially a development stage enterprise. As such, discussion and analysis of 2005 compared to
2004 has been limited and, additionally, a comparison of results achieved in the third and fourth quarters of 2005 has been provided.

Revenue

Revenues
are affected by sales volumes, commodity prices and currency exchange rates. For 2005, total revenue was $652.0 million, resulting from the sale of 114,682 tonnes
of zinc (which includes 31,760 tonnes to our Zochem division), 78,070 tonnes of copper, 95,511 ounces of gold and 1,321,784 ounces of silver.

Total
sales revenue for the quarter ended December 31, 2005 was $173.0 million from sales of approximately 17,644 tonnes of copper, and 29,598 tonnes of zinc
which included 9,226 tonnes to our Zochem facilities for use in the production of zinc oxide. In the fourth quarter of 2005, Zochem had sales of approximately 11,010 tonnes of zinc
oxide. Revenues for the quarter also included sales of approximately 21,783 ounces of gold, and 358,434 ounces of silver. The Company's re-negotiated contract with CMM for
conversion to an agency agreement from a sales agreement for sale of copper and precious metals resulted in lower sales volume of these products in the fourth quarter (refer to HudBay's Agency
Arrangement section below).

GRAPHIC

---

18

---



Over the quarter, realized prices averaged US $2.04/lb. copper, US $0.79/lb. zinc, US $465/troy oz. gold, and US $7.66/troy oz. silver. The
Canadian to US dollar exchange rate averaged Cdn $1.17 per US $1.00 for the quarter.

|                       |  | 2005 |  | Average
Prices(1) |  | 2004(2)
|---------------------- |  | ---- |  | ----------------- |  | -------
|Realized Metal Prices: |  |      |  |                   |  |        
|Zinc (US$/lb.)         |  | 0.65 |  | 0.63              |  | 0.49   
|Copper (US $/lb.)      |  | 1.72 |  | 1.67              |  | 1.35   
|Gold (US $/troy oz.)   |  | 445  |  | 445               |  | 387    
|Silver (US $/troy oz.) |  | 7.28 |  | 7.31              |  | 6.66   

HudBay's Agency Arrangement

Previous to this change, HudBay's operating subsidiary HBMS recognized 100% of its sales when its product was shipped from the Flin Flon operations and sold to
its 50% owned metal sales joint venture, Considar Metal Marketing ("CMM").

In
order to enhance the Company's credit capacity under its credit facility, by increasing account receivables and inventory, the Company re-negotiated its contractual
relationship with CMM.

As
at January 1, 2006, the Company changed its relationship with CMM from a sales to an agency arrangement, whereby copper and precious metal inventory are owned by the Company
until sold to customers.

Under
the agency contractual arrangement, HudBay will retain title to these metals until they are sold to third party customers. The associated one-time change in sales at
HBMS's Flin Flon location to the third party customer arrangement is approximately 7 weeks. The approximate financial impact on this contractual change with CMM for copper and precious metals
for the fourth quarter and year ended 2005 is shown in the following table.

19

---



Proforma Impact of Agency Arrangement on Selected Items

|                    |  | As Reported
Q4 |         | Financial
Impact(2) |   | Proforma
Q4 |   | Proforma
2005
|------------------- |  | -------------- | ------- | ------------------- | - | ----------- | - | -------------
|
|Sales               |  | $              | 170,000 |                     | $ | 36,000      |   | $            
|Operating Expenses  |  | $              | 122,000 |                     | $ | 27,000      |   | $            
|Net Earnings        |  | $              | 44,000  |                     | $ | 9,000       |   | $            
|EPS  Basic         |  | $              | 0.52    |                     | $ | 0.10        |   | $            
|EPS  Diluted       |  | $              | 0.34    |                     | $ | 0.07        |   | $            
|Accounts Receivable |  | $              | 45,000  |                     | $ | 36,000      |   | $            
|Inventories         |  | $              | 117,000 |                     | $ | (27,000     | ) | $            
|Copper Tonnes Sold  |  |                | 17,644  |                     |   | 5,500       |   |              
|Gold Ounces Sold    |  |                | 21,783  |                     |   | 8,000       |   |              

In
the first half of 2006, the Company plans to convert the remaining products of zinc and zinc oxide to the same agency arrangement. The financial impact of a similar delay is estimated
to be 3 to 4 weeks of revenue of $8 to $9 million and $7 to $8 million in costs resulting in lower earnings of $1 to $2 million.

Total
revenue for the fourth quarter of 2005 remained similar to the third quarter, despite the impact of changes to the CMM agency arrangements as described above, primarily due to
higher metal prices.

Expenses

Operating Expenses

Total operating expenses in 2005 were $480.5 million. Operating expenses in the fourth quarter of 2005, of $123.3 million, decreased by
approximately 3% compared to the third quarter of $125.4 million. This decrease primarily related to lower sales volumes from the relationship change with the Company's joint venture marketing
company offset by increased profit sharing expenses (10% of net profit distributed among eligible employees) of $2.0 million due to higher profits, an increase in concentrate purchase costs of
$7.4 million, primarily due to increases in metal prices, and other cost increases of $5.5 million in operations and mining, offset partly by increased production. For the quarter ended
December 31, 2005, operating costs in the mines and concentrators increased by approximately 13% related to increased operation development and the zinc plant and copper smelter increased by
approximately 10% compared to the previous quarter, due partly to record quarterly production for copper anode and zinc cathode. This increase resulted from additional maintenance costs and higher
costs of consumables (steel, heavy fuel oil, grinding media, etc.)

General and Administration

Total general and administrative ("G&A") expenses for 2005 were $19.6 million. G&A expense for the quarter ended December 31, 2005 was
$8.2 million compared to $3.1 million for the quarter ended September 30, 2005. Costs for the fourth quarter of 2005 were higher as total G&A expenses included consulting costs
for the fair valuation of the acquisition of HBMS of approximately $0.9 million, stock based compensation of $2.7 million, and additional legal and audit fees associated with both recent
compliance requirements and the fair valuation of HBMS in the amount of approximately $0.5 million.

---

20

---



Exploration Expenses

The previously announced program of exploration on the Company's lands in Manitoba and Saskatchewan continued during the quarter. The program provides for
$10 million of planned exploration in the Flin Flon greenstone belt during 2005 and the first quarter of 2006, of which approximately $5.9 million has been spent as of
December 31, 2005. For the year ended December 31, 2005, exploration expenditures of $11.3 million as shown on the income statement include $5.9 million relating to
flow-through activity, $4.1 million for Balmat feasibility costs (including exploration), and $1.3 million of other costs (primarily non flow-through related
expenses).

Foreign Exchange Loss

In 2005, the Company incurred a foreign exchange loss of $2.3 million (including amortization of deferred option premiums). This relates primarily to the
change in the value of the Company's cash balance which is held largely in US $ deposits, and was converted to Canadian dollars at a year-end exchange rate of Cdn $1.16 per US $1.00,
compared to higher rates earlier in the year. For the quarter ended December 31, 2005, there was a slight overall movement in foreign exchange rates resulting in a small loss.

Operating Earnings

For the quarter ended December 31, 2005, operating earnings were $25.5 million compared to $19.1 million for the three months ended
September 30, 2005. The favourable variance of $6.4 million is attributable to higher metal prices and a receipt of business interruption insurance of $2.0 million from a prior
claim, more than offset by the cost associated with the Company's relationship change with CMM of $9 million and increased costs for concentrates and operating expenses.

Foreign Exchange  Long Term Debt

For the year, the Company recorded a foreign exchange gain on long-term debt of $6.8 million on the dollar movements related to the US dollar
denominated debt. For the quarter ended December 31, 2005, the Company recorded a minor foreign exchange loss on long-term debt compared to a gain of $11.0 million in the
previous quarter. This gain was a result of the change in US $ denominated debt as valued at month end exchange rates.

Gain on Derivative Instruments

In the quarter ended December 31, 2005, the Company recorded a $3.2 million gain on derivative instruments compared to a $1.5 million gain
for the quarter ended September 30, 2005. The derivatives are forward contracts of zinc and to a lesser extent zinc oxide, placed in conjunction with CMM fixed price sales contracts to convert
the fixed price zinc sales contract to floating prices.

Tax Recovery

For the year, the Company recorded a recovery of taxes of $10.8 million, primarily related to the increase in the tax asset. The tax asset has been
adjusted to reflect the future income tax assets at an amount that the Company considers is more likely than not to be realized. Since HBMS had many years of tax losses, the tax asset has been based
on only one future year of earnings. One year is considered appropriate due to the uncertainties of future metal prices, exchange rates and the magnitude of prior losses, but will continue to be
reviewed as circumstances change.

As
a result of this adjustment being made in the quarter ended December 31, 2005, the Company recorded a non-cash tax recovery of $20.0 million compared to an
expense of $3.8 million in the quarter ended September 30, 2005. The Company has sufficient tax pools to shelter income and does not anticipate significant cash income taxes in the
foreseeable future.

21

---



Quarter Ended December 31, 2005 Compared to Quarter Ended September 30, 2005

For the quarter ended December 31, 2005, net earnings were $43.9 million compared to $23.4 million for the three months ended
September 30, 2005. The net $20.5 million variance is summarized broadly as follows: decreased sales volumes due to change in agency arrangements offset by increased metal sales prices,
increase in derivative gains of $1.7 million, and a settlement of a business interruption claim from prior years of $2.0 million; a reduction in foreign exchange losses on operating of
$2.7 million and a reduction in foreign exchange gains on long-term debt of $11.0 million, an increase to the tax asset of $13.3 million and a reduction to previously
recorded tax expense of $6.7 million (as compared to a tax expense of $3.8 million in the third quarter); and cost increases for G&A of $2.5 million, increases to the profit
sharing expenses of $2.0 million due to higher profits, increases in concentrate purchase costs of $7.4 million, primarily due to increases in metal prices, and other cost increases of
$5.5 million in the operating areas primarily related to production volume and amount of mine operating development.

The
following shows the variances from third quarter to fourth quarter net earnings:

Earnings  Third Quarter

$
23.4CMM Agency contractual change with CMM


(9.0
)Increase in revenue


31.4Foreign exchange


(8.3
)Tax recovery


23.8General and administrative expenses


(2.5
)Other


(14.9
)Earnings  Fourth Quarter

$
43.9


Quarter Ended December 31, 2005 Compared to Quarter Ended December 31, 2004

Net income for the quarter ended December 31, 2005 was $43.9 million compared with a loss of $2.9 million for the quarter ended
December 31, 2004.

Total
sales revenue for the quarter ended December 31, 2005 was $169.7 million from sales of metals produced. The Company had minimal metal sales in the fourth quarter of
2004 resulting from the acquisition of HBMS on December 21, 2004.

Operating
costs for the quarter ended December 31, 2005 increased to $121.9 million from $11.5 million for the quarter ended December 31, 2004. Costs in the
fourth quarter of 2004 primarily related to care and maintenance costs of the Balmat mine and the Gays River mine property, together with 10 days operations of HBMS.

CASH COST PER POUND OF ZINC SOLD

HudBay's cash cost of zinc sold, net of by-product credits, 2005 was US $0.16 per pound. The Company had minimal metal sales in 2004 with the
acquisition of HBMS on December 21, 2004.

22

---



Non-GAAP Reconciliation of Cash Cost per Pound of Zinc Sold, Net of By-Product Credits

|                                                       |                               | Quarter
Ended
March 31,
2005 |          | Quarter
Ended
June 30,
2005 |     | Quarter
Ended
Sept 30,
2005 |         | Quarter
Ended
Dec 31,
2005 |          | Quarter
Ended
Dec 31,
2005
(excluding
CMM change
to Agency) |     | Year
Ended
Dec 31,
2005 |         | Year
Ended
Dec 31,
2005
(excluding
CMM change
to Agency) |         
|------------------------------------------------------ | ----------------------------- | ---------------------------- | -------- | --------------------------- | --- | --------------------------- | ------- | -------------------------- | -------- | ----------------------------------------------------------- | --- | ----------------------- | ------- | -------------------------------------------------------- | --------
|
|Expenses                                               |                               | C$                           | 135,049  |                             | C$  | 136,726                     |         | C$                         | 150,140  |                                                             | C$  | 147,554                 |         | C$                                                       | 174,554 
|Non-cash operating costs                               |                               |                              |          |                             |     |                             |         |                            |          |                                                             |     |                         |         |                                                          |         
|                                                       | Depreciation and amortization |                              |          | (12,724                     | )   |                             | (13,228 | )                          |          | (13,618                                                     | )   |                         | (13,530 | )                                                        |         
|                                                       | Stock-based compensation      |                              |          | 0                           |     |                             | (1,354  | )                          |          | (591                                                        | )   |                         | (729    | )                                                        |         
|                                                       | Accretion and other non-cash  |                              |          | (652                        | )   |                             | (649    | )                          |          | (655                                                        | )   |                         | (656    | )                                                        |         
|                                                       | Exploration                   |                              |          | (569                        | )   |                             | (3,216  | )                          |          | (3,930                                                      | )   |                         | (3,566  | )                                                        |         
|                                                       | Foreign exchange gain (loss)  |                              |          | 250                         |     |                             | 424     |                            |          | (2,850                                                      | )   |                         | (162    | )                                                        |         
|                                                       |                               |                              |          |                             |     |                             |         |                            |          |                                                             |     |                         |         |                                                          |         
|                                                       |                               |                              | 121,354  |                             |     | 118,703                     |         |                            | 128,496  |                                                             |     | 128,911                 |         |                                                          | 155,911 
|Less: By-product credits(1)                            |                               |                              | (106,263 | )                           |     | (111,408                    | )       |                            | (120,812 | )                                                           |     | (111,615                | )       |                                                          | (147,615
|                                                       |                               |                              |          |                             |     |                             |         |                            |          |                                                             |     |                         |         |                                                          |         
|Cash cost net of by-products                           |                               | C$                           | 15,091   |                             | C$  | 7,295                       |         | C$                         | 7,684    |                                                             | C$  | 17,296                  |         | C$                                                       | 8,296   
|Exchange rate (C$/US $)(2)                             |                               |                              | 1.227    |                             |     | 1.244                       |         |                            | 1.200    |                                                             |     | 1.176                   |         |                                                          | 1.176   
|                                                       |                               |                              |          |                             |     |                             |         |                            |          |                                                             |     |                         |         |                                                          |         
|Cash cost net of by-products                           |                               | US$                          | 12,299   |                             | US$ | 5,864                       |         | US$                        | 6,403    |                                                             | US$ | 14,707                  |         | US$                                                      | 7,054   
|Zinc sales (000 lbs)                                   |                               |                              | 59,739   |                             |     | 62,754                      |         |                            | 65,015   |                                                             |     | 65,252                  |         |                                                          | 65,252  
|Cash cost per pound of zinc, net of by-product credits |                               | US$                          | 0.21     |                             | US$ | 0.09                        |         | US$                        | 0.10     |                                                             | US$ | 0.23                    |         | US$                                                      | 0.11    
|                                                       |                               |                              |          |                             |     |                             |         |                            |          |                                                             |     |                         |         |                                                          |         

---

Cash cost per pound of zinc, net of by-product credits, is furnished to provide additional information and is a non-GAAP measure that
does not have a standardized meaning and is therefore unlikely to be comparable to similar measures presented by other issuers. This measure should not be considered in isolation as a substitute for
measures of performance prepared in accordance with generally accepted accounting principles and is not necessarily indicative of operating expenses as determined under generally accepted accounting
principles. This measure is intended to provide investors with information about the cash generating capabilities of HBMS' operations. HBMS uses this information for the same purpose. Mining
operations are capital intensive. This measure excludes capital expenditures. Capital expenditures are discussed throughout the MD&A and the consolidated financial statements.

All per pound value in the following section are rounded to the closest cent.

The table on the previous page shows a US $0.13 per pound net increase in the cash cost per pound of zinc for the quarter ended December 31, 2005 compared
to the quarter ended September 30, 2005. For comparative purposes, the information for the quarter has been adjusted for the impact of the CMM agency change, which would result in only a US
$0.01 per pound increase from the prior quarter. The US $0.13 increase per pound of zinc is comprised of unfavourable variances of approximately US $0.31, and a benefit of US $0.18 from
by-product credits and changes in volumes and inventories. Unfavourable variances include approximately US $0.11 increase in copper concentrate purchases, a US $0.10 increase in mining and
processing costs, a US $0.03 increase in general and administrative, a US $0.02 exchange impact on Canadian dollar costs, and an increase of approximately US $0.05 for profit sharing expenses due to
the higher earnings. Increased mining and processing costs have been influenced by higher cost of consumables such as heavy fuel oil, grinding media, and steel products.

The
calculation of cash cost per pound of zinc is strongly influenced by by-product metal prices, which may fluctuate going forward.

23

---



OPERATING COSTS

|                                                      |                                             |  |         | Quarter
Ended
Mar 31,
2005 |        | Quarter
Ended
June 30,
2005 |        | Quarter
Ended
Sept 30,
2005 |        | Quarter
Ended
Dec 31,
2005 |        | Year
Ended
Dec 31,
2005
|----------------------------------------------------- | ------------------------------------------- |  | ------- | -------------------------- | ------ | --------------------------- | ------ | --------------------------- | ------ | -------------------------- | ------ | -----------------------
|Mines                                                 |                                             |  |         |                            |        |                             |        |                             |        |                            |        |                        
|                                                      | 777                                         |  | $/tonne |                            | 42.20  |                             | 36.07  |                             | 32.33  |                            | 40.46  |                        
|                                                      | Trout Lake                                  |  | $/tonne |                            | 36.39  |                             | 31.49  |                             | 34.81  |                            | 39.11  |                        
|                                                      | Chisel North                                |  | $/tonne |                            | 36.28  |                             | 37.56  |                             | 47.62  |                            | 48.23  |                        
|                                                      | Konuto                                      |  | $/tonne |                            | 40.32  |                             | 34.81  |                             | 31.94  |                            | 39.80  |                        
|                                                      |                                             |  |         |                            |        |                             |        |                             |        |                            |        |                        
|                                                      | Total mines                                 |  | $/tonne |                            | 39.16  |                             | 34.55  |                             | 35.09  |                            | 40.92  |                        
|Concentrators                                         |                                             |  |         |                            |        |                             |        |                             |        |                            |        |                        
|                                                      | Flin Flon                                   |  | $/tonne |                            | 8.21   |                             | 7.68   |                             | 7.88   |                            | 7.95   |                        
|                                                      | Snow Lake                                   |  | $/tonne |                            | 16.51  |                             | 17.30  |                             | 15.82  |                            | 19.80  |                        
|Metallurgical Plants                                  |                                             |  |         |                            |        |                             |        |                             |        |                            |        |                        
|                                                      | Copper Smelter                              |  | $/lb Cu |                            | 0.24   |                             | 0.24   |                             | 0.26   |                            | 0.25   |                        
|                                                      | Zinc Plant                                  |  | $/lb Zn |                            | 0.25   |                             | 0.25   |                             | 0.28   |                            | 0.26   |                        
|Non-GAAP Reconciliation of Operating Expenses ($000):
|Mines:                                                |                                             |  |         |                            |        |                             |        |                             |        |                            |        |                        
|                                                      | 777                                         |  | C$000   |                            | 10,136 |                             | 9,488  |                             | 9,029  |                            | 12,466 |                        
|                                                      | Trout Lake                                  |  |         |                            | 7,754  |                             | 6,926  |                             | 7,338  |                            | 8,407  |                        
|                                                      | Chisel North                                |  |         |                            | 3,141  |                             | 3,084  |                             | 4,147  |                            | 3,906  |                        
|                                                      | Konuto                                      |  |         |                            | 3,510  |                             | 3,132  |                             | 2,648  |                            | 2,090  |                        
|Concentrators:                                        |                                             |  |         |                            |        |                             |        |                             |        |                            |        |                        
|                                                      | Flin Flon                                   |  |         |                            | 4,538  |                             | 4,290  |                             | 4,605  |                            | 4,501  |                        
|                                                      | Snow Lake                                   |  |         |                            | 1,414  |                             | 1,375  |                             | 1,322  |                            | 1,638  |                        
|Metallurgical Plants:                                 |                                             |  |         |                            |        |                             |        |                             |        |                            |        |                        
|                                                      | Copper Smelter                              |  |         |                            | 10,770 |                             | 11,226 |                             | 11,970 |                            | 13,009 |                        
|                                                      | Zinc Plant                                  |  |         |                            | 16,015 |                             | 16,005 |                             | 15,646 |                            | 17,416 |                        
|Other:                                                |                                             |  |         |                            |        |                             |        |                             |        |                            |        |                        
|                                                      | Purchased Concentrate Treated               |  |         |                            | 34,555 |                             | 32,747 |                             | 43,606 |                            | 50,998 |                        
|                                                      | Anode Freight & Refining                    |  |         |                            | 6,313  |                             | 5,931  |                             | 5,713  |                            | 4,936  |                        
|                                                      | Services & Administration                   |  |         |                            | 6,059  |                             | 6,186  |                             | 7,024  |                            | 7,084  |                        
|                                                      | Care & Maintenance                          |  |         |                            | 820    |                             | 1,122  |                             | 878    |                            | 620    |                        
|                                                      | Zochem (excluding zinc purchases from HBMS) |  |         |                            | 4,131  |                             | 4,279  |                             | 3,081  |                            | 2,396  |                        
|                                                      | Other(1)                                    |  |         |                            | 8,557  |                             | 8,319  |                             | 8,359  |                            | (6,138 | )                      
|                                                      |                                             |  |         |                            |        |                             |        |                             |        |                            |        |                        
|Total Operating Expenses, per financials              |                                             |  |         | 117,713                    |        | 114,110                     |        | 125,366                     |        | 123,329                    |        | 480,518                
|                                                      |                                             |  |         |                            |        |                             |        |                             |        |                            |        |                        

---

24

---



CASH FLOWS, LIQUIDITY, AND CAPITAL RESOURCES

The following table summarizes our cash flows for the three and twelve-month periods ended December 31, 2005, and 2004.

|                                                              |  | Quarter Ended Dec 31, 2005 |   | Quarter Ended Sept 30, 2005 |   | Quarter Ended Dec 31, 2004(1) |   | Year Ended Dec 31, 2005 |   | Year Ended Dec 31, 2004(1) |  
|------------------------------------------------------------- |  | -------------------------- | - | --------------------------- | - | ----------------------------- | - | ----------------------- | - | -------------------------- | -
|
|Operating Activities                                          |  |                            |   |                             |   |                               |   |                         |   |                            |  
|Earnings (loss) for the period                                |  | 43,941                     |   | 23,405                      |   | (2,858                        | ) | 85,218                  |   | (9,920                     | )
|Items not affecting cash                                      |  | (10,739                    | ) | 9,758                       |   | (729                          | ) | 37,953                  |   | 705                        |  
|Net change in non-cash items                                  |  | 23,952                     |   | (11,349                     | ) | 959                           |   | 21,691                  |   | 1,987                      |  
|Cash generated by (required for) operating activities         |  | 57,154                     |   | 21,814                      |   | (2,628                        | ) | 144,862                 |   | (7,228                     | )
|Cash generated by (required for) investing activities         |  | (19,478                    | ) | (15,341                     | ) | 346,855                       |   | (57,430                 | ) | (274,084                   | )
|Cash generated by (required for) financing activities         |  | (22,736                    | ) | 201                         |   | (281,937                      | ) | (7,368                  | ) | 344,440                    |  
|Foreign exchange gain (loss) on cash held in foreign currency |  | 840                        |   | (4,761                      | ) | (689                          | ) | (2,957                  | ) | (689                       | )
|Increase in cash and cash equivalents                         |  | 15,780                     |   | 1,913                       |   | 61,601                        |   | 77,107                  |   | 62,439                     |  

---

With the exception of ten days in December 2004, HudBay had no production and was essentially a development stage enterprise. As such,
discussion and analysis of 2005 compared to 2004 has been limited and, additionally, a comparison of results achieved in the third and fourth quarters of 2005 has been provided.

Quarter Ended December 31, 2005 Compared to Quarter Ended September 30, 2005

As of December 31, 2005, HudBay had cash and cash equivalents of $141.7 million compared to $125.9 million as at September 30, 2005.
As at December 31, 2005, there were outstanding letters of credit in the amount of $35.2 million unchanged from September 30, 2005.

Cash
flow from operating activities totaled $57.2 million for the quarter ended December 31, 2005 compared to $21.8 million for the quarter ended
September 30, 2005. During the third quarter additional cash outlays were made of approximately $11.5 million for interest, $10.9 million due to timing of purchase concentrates,
and $4.6 for insurance premiums which were not incurred in the last quarter. The remaining difference of $3.9 million was a result of normal working capital fluctuations.

In
the fourth quarter of 2005, a net total of $19.5 million was required for investing activities, which related largely to capitalized mine development and other sustaining
capital expenditures at HBMS. Also, Balmat capital expenditures started in November 2005 and approximately $1.9 million was spent in the fourth quarter. This compares to
$15.3 million required for investment in development and

25

---



other
sustaining capital in the third quarter of 2005. As planned, the third quarter decrease in investing activities partially related to equipment purchases rescheduled into the fourth quarter.
Financing activities in the fourth quarter of 2005 resulted in cash outlays of $21.3 million which included a US $19.0 million repurchase of debt at a premium of $1.5 million, a
$0.9 million repayment under capital lease obligations, offset by approximately $1.6 million proceeds from the exercise of warrants. Financing activities in the third quarter of 2005
generated $0.2 million, which included approximately $1.1 million proceeds from the exercise of warrants, and a $0.9 million repayment under capital lease obligations.

As
at December 31, 2005, HudBay had long-term financial debt (excluding the current portion) of $223.4 million compared to $223.4 as at September 30,
2005. The change in the amount outstanding arises from a change in the quarter-end exchange rate used to convert US $ denominated debt, and the repurchase of debt described above, and
repayments of capital leases. The Company will continue to consider, from time to time, reducing debt further.

Net
cash flow for the quarter ended December 31, 2005 was $15.8 million compared to $1.9 million for the quarter ended September 30, 2005. Aside from the
repurchase of debt of $22 million, and an increase in capital expenditures of approximately $6.0 million as indicated above, working capital changes were primarily the reason for the
changes from quarter to quarter. The third quarter included significant cash expenditures as described above. Other changes were in the normal course of working capital variances.

New
cash requirements for the near term include approximately US $15 million (US $13 million plus US $2 million of adjustments), incurred in early 2006, for
the purchase of the White Pine Refinery, and an estimated 2006 expenditure of US $19 million for the Balmat mine.

Quarter Ended December 31, 2005 Compared to Quarter Ended December 31, 2004

As of December 31, 2005, HudBay had cash and cash equivalents of $141.7 million compared to $64.6 million as at December 31, 2004. As
at December 31, 2005, there were outstanding letters of credit in the amount of $35.2 million, while there were $22.8 million of outstanding letters of credit in 2004.

Cash
flow from operations totaled $57.1 million for the quarter ended December 31, 2005.

This
relates primarily to HBMS operations, and compares with $2.6 million cash required for operating activities in the same period in 2004 when the Company incurred a loss of
$2.9 million primarily in relation to management fees, mine care and maintenance activities and debenture interest expense, along with only 10 days operations of HBMS.

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

Cash flow from operations totaled $144.9 million for the year ended December 31, 2005. This relates primarily to HBMS operations, which contributed
$153.3 million, and compares with $7.2 million cash required for operating activities in the same period in 2004 when the Company incurred a loss of $9.9 million primarily in
relation to management fees, mine care and maintenance activities and debenture interest expense.

26

---



FINANCIAL CONDITION

Financial Condition at December 31, 2005 Compared to Financial Condition as at December 31, 2004

Cash and cash equivalents at December 31, 2005 increased to $77.1 million compared to December 31, 2004.

Working
capital improved by $61.8 million, reflecting the improved cash position net of $13.0 million of restricted cash and routine fluctuations in other working capital
items.

Common
share capital increased by $23.5 million, which included $12.9 million from exercise of warrants, $1.1 million from exercise of options and
$10.0 million from flow-through shares net of $0.6 million share issue costs.

Restricted
cash decreased by $13 million as funds placed in trust for the Provinces of Manitoba and Saskatchewan as financial assurance for the Company's asset retirement
obligations were replaced with letters of credit As at December 31, 2005, there were outstanding letters of credit in the amount of $35.2 million unchanged from September 30,
2005.

HudBay's
contractual obligations at December 31, 2005 are materially unchanged from December 31, 2004 except that, for the mutual benefit of both parties, the agreement to
purchase from Compania Minera Dona Ines de Collahuasi was terminated effective June 30, 2005. Pursuant to the agreement, the Company purchased 40,000 dmt of copper concentrate per year.
The termination of the agreement, which would otherwise have expired in 2008, is not expected to impact the Company's ability to obtain copper concentrate for its Flin Flon copper smelter.

The
Company entered into a long-term agreement for the purchase of 10% of another mine's concentrate, or approximately 13,000 dry metric tonnes in 2006, and 20% of
annual production or approximately 26,000 dry metric tonnes each year thereafter. The term of this agreement is from 2006 to 2015 and is subject to certain termination rights effective after
December 31, 2008.

The
Company committed to acquire 100% ownership of White Pine Copper Refinery Inc., through HBMS, by exercising an option held by its joint venture marketing Company Considar
Metal Marketing Inc. (CMM) effective January 1, 2006.

Pursuant
to a previous commitment to exchange HBMS' outstanding 95/8% Senior Secured Notes due January 15, 2012 (issued on December 21, 2004 in a private
placement), a prospectus was filed in Ontario and a registration statement on Form F-10 (for which that prospectus formed a part) was filed with the SEC in
August 2005. The Form F-10 registration statement registered the exchange of HBMS's outstanding notes for 95/8% Senior Secured Exchange Notes due
January 15, 2012 under the United States Securities Act of 1933, as amended (the "Securities Act of 1933"). The terms of the exchange notes are identical in all material respects
to those of the previously outstanding notes, except that the exchange notes are not subject to the same transfer restrictions. The exchange offer was both commenced and completed during the quarter
ended September 30, 2005. 100% of the notes were exchanged.

The
Company has received a commitment from the Bank of Nova Scotia to establish a revolving credit facility in the total amount of C$25 million. In addition, the bank may consent
to increasing the credit facility to C$50 million if HBMS satisfies certain conditions. The facility closed in February 2006.

The
Collective Bargaining Agreements (CBA's) with the unionized HBMS' Flin Flon/Snow Lake workforce expired on December 31, 2005 and negotiations are underway. In 1998, and in
support of the $435 million 777 Project, HBMS entered into a Amending Agreement in respect of certain of its collective bargaining agreements. The

27

---



amending
agreement prohibits strikes and lockouts through 2012 and provides for binding arbitration in the event that negotiated CBA settlements are not achieved.

RISK MANAGEMENT

The Company uses forward exchange contracts to limit the effects of movements in exchange rates on foreign currency denominated assets and liabilities and future
anticipated transactions. At December 31, 2005 the Company held US dollar put options giving it the right, but not the obligation, to sell up to US $56.9 million in equal quarterly
amounts at $1.20482 per US dollar, from January 2006 and continuing to January 2009.

From
time to time the Company maintains price protection programs and conducts commodity price risk management to reduce risk through the use of financial instruments. The Company
manages risk associated with forward physical sales that are made on a fixed price basis regarding zinc and zinc oxide and, accordingly, enters into forward zinc purchase contracts. These contracts
effectively offset the Company's forward sales price commitments. In the current environment of strong base metal market prices, the Company has benefited from full exposure to metal price movements,
but may consider implementing protection to limit the effects of future price changes.

CLOSURE AND ENVIRONMENTAL RECLAMATION PROVISIONS

HBMS has completed an evaluation of the closure and reclamation plans for its Manitoba and Saskatchewan operations and a review of other potential environmental
costs to a feasibility level of accuracy. The closure plans have been updated and completed to the feasibility level of accuracy by major Canadian environmental engineering firms.

Based
on the results of the evaluations to date, HudBay is satisfied that current financial statement provisions for closure and environmental reclamation obligations in Manitoba,
Saskatchewan and elsewhere, are adequate and appropriate. The HudBay financial statement provision for closure and environmental reclamation has been adjusted to reflect the estimates of
$55.1 million, which has been recorded as a net present value of $29.2 million. These provisions may be modified based on the review process currently being done by the governments of
Manitoba and Saskatchewan.

28

---



CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Contractual Obligations

The following table summarizes, as at December 31, 2005, certain of our contractual obligations for the period specified.

|                                                       |  | Payments Due by Period
|------------------------------------------------------ |  | ----------------------
|
|
|Contractual Obligations
(as at December 31, 2005)      |  |                       
|Interest on long-term debt obligations                 |  | 113,503               
|Long-term debt obligations                             |  | 195,493               
|Capital lease obligations                              |  | 12,836                
|Operating lease obligations                            |  | 3,939                 
|Purchase obligations                                   |  | 11,700                
|Pension and other employee future benefits obligations |  | 20,386                
|Asset retirement                                       |  | 55,059                
|                                                       |  |                       
|Total                                                  |  | 412,916               
|                                                       |  |                       

Commitments





29

---





30

---







31

---





CRITICAL ACCOUNTING ESTIMATES

The preparation of the financial statements in accordance with Canadian GAAP requires management to make estimates and judgements that affect the reported amounts
of assets, liabilities, revenues and expenses. We evaluate the estimates periodically, including those relating to mineral reserve determinations, asset impairment, in-process inventory
quantities, future income tax valuation reserves, asset retirement obligations, pension obligations and other employee future benefits. Actual results could differ from these estimates by material
amounts.

Mineral Reserves and Mineral Resources

Mineral reserves and mineral resources are estimated to determine future recoverable mine production based on assessment of geological, engineering and
metallurgical analyses, estimates of future production costs, capital costs and reclamation costs as well as metal prices. The costs of mineral properties and mine development are capitalized and
amortized by the unit-of-production basis based on related proven and probable mineral reserves.

Impairment

The carrying value of our operating mines and plant and equipment is periodically reviewed for impairment when events or changes in circumstances indicate that
the carrying amounts of related assets or groups of assets may not be recoverable. If total estimated future cash flows on an undiscounted basis are less than the carrying amount of the asset, an
impairment loss is measured and recorded to write down the asset to its fair value.

In-Process Inventories

In-process concentrates and metal inventory quantities comprise the majority of our inventories by value, and represent materials that are in the
process of being converted into saleable product. Measurement of in-process inventories is based on assays of material received at our metallurgical plants and estimates of recoveries in
the production processes. Realizable value of in-process inventories is estimated at financial statement dates and inventories are carried at the lower of cost and net realizable value.

Future Tax Assets and Liabilities

We use the liability method of tax allocation for accounting for income taxes. Under the liability method, future tax assets and liabilities are determined based
on differences between the financial reporting and tax bases of assets and liabilities. Future tax assets are reduced by a valuation allowance if it is more likely than not that some or all of the
future tax assets will not be realized. We evaluate the carrying value of our future tax assets periodically by assessing its valuation allowance and by adjusting the amount of such valuation
allowance, if necessary. The factors used to assess the likelihood of realization are forecasts of future taxable income and available tax planning strategies that could be implemented to realize
future tax assets.

32

---



Asset Retirement Obligations

Asset retirement obligations are estimated based on environmental plans, in compliance with current environmental and regulatory requirements. Decommissioning
costs are estimated and provided for, along with an identical decommissioning asset, when a new mine or plant is placed into commercial production. The decommissioning asset is amortized on a
straight-line basis over the life of the mine or plant. Accretion costs are estimated and accrued over the life of each operating mine. The accrued amounts are increased by an annual
interest component such that at the end of the asset life the provision is equal to the balance estimated to be paid at that date.

In
view of the uncertainties concerning these future obligations, the ultimate timing and cost of reclamation and mine closure may differ materially from our estimates.

Pensions and other Employee Future Benefits

Our on-going health care benefit plans comprise the majority of post-retirement obligations. The obligations relating to these plans,
together with pension plans maintained by us, are estimated based on actuarial determinations, which incorporate assumptions using management's best estimates of factors including plan performance,
salary escalation, retirement dates of employees and drug cost escalation rates.

33

---



DISCLOSURE CONTROLS

As of December 31, 2005 management has evaluated the effectiveness of the disclosure controls and procedures as defined under the rules adopted by the
U.S. Securities and Exchange Commission (SEC) and the Canadian securities regulatory authorities. This evaluation was performed under the supervision of and with the participation of the Chief
Executive Officer and the Chief Financial Officer. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of the disclosure controls
and procedures were effective.

2006 OUTLOOK

The Company plans to focus on the following key areas for 2006:



Growth Opportunities

In 2006, the Company will look at opportunities to identify and evaluate strategic growth, focusing on zinc but not to the exclusion of copper, precious metals or
secondary products. Opportunities synergistic with the Company's fully vertically integrated operations will be of particular interest.

Balmat Re-opening

HudBay decided to re-open its wholly owned Balmat mine and concentrator after completion of an internal feasibility study.

The
Balmat zinc mine is strategically located near a multi-modal transportation system, which includes truck, rail and ocean transportation options for concentrate. Most of the mines
production will be treated at the CEZ refinery close to Montreal, some 158 kilometres from the mine.

The
Company plans to continue in-fill ore definition drilling, as well are extension drilling, to upgrade our mineral reserve and resource base. Drilling to date has shown
good ore body consistency.

The
Balmat mine has been maintained to a high standard while on care and maintenance since October 2001. It includes a 3,200 foot deep shaft, underground excavations to
access the ore zones, extensive mining equipment and a 5,000 ton per day ore concentrator. Recovery of zinc to concentrate is expected to be 96%, producing a concentrate containing 55.5% zinc.
At full production in 2008, the mine is expected to produce close to, approximately 60,000 tons of zinc metal in concentrate, which is planned to be processed at the CEZ Refinery in Quebec,
with the capability for the Company to process 40% of the concentrate at its zinc plant in Manitoba.

34

---



Life
of mine total unit zinc production costs, including concentrate treatment and capital expenditures, are expected average US $0.48 lb. (US $0.57 per lb. for 2006 to 2008, and
US $0.43 per lb. thereafter).

At
year end, we have hired approximately 100 permanent employees and have some 25 underground development and diamond drill contractors at site. Several of the professional
skills were available in the mine area. At full production the mine is expected to have approximately 190 employees.

We
expect Balmat's first ore in the second quarter of 2006 and then increasing to full production in 2008.

Exploration

Our focus for 2006 is on exploration activities in the Flin Flon greenstone belt. In 2005, the Company raised $10 million through an issue of flow through
common shares. This provided the funding for the $10 million planned expenditure during 2005 and Q1 2006 for exploration on its approximately 210,000 hectares of prime exploration land
holdings in the Flin Flon greenstone belt. We plan to continue the $10 million per year program throughout 2006 and 2007.

Exploration
includes targets that could feed the Snow Lake concentrator which is operating under capacity. HudBay has historically discovered 25 mines in the Flin Flon greenstone
belt and further discoveries are an excellent opportunity for organic growth. The exploration program includes electromagnetic anomaly drill testing, drilling of known mineral deposits as well as
drilling of structural re-interpretations of prior ore bodies. During the recent winter months, we had six diamond drills operating.

Exploration
is being managed by Hudson Bay Exploration and Development Company Limited (HBED), a wholly owned subsidiary of HBMS.

Historically,
the Flin Flon greenstone belt ore bodies, have grown by an average of 2.5 times the mineral reserve at commencement of mining. Further growth of ore bodies currently
being mined is expected.

In
addition, the company also expects to be exploring the approximate 20,000 hectares of land adjacent to its Balmat mine in New York State and its lead/zinc deposit, Tom
Valley in the Yukon Territory, as well as its zinc holdings in Ontario and copper holdings in Chile.

Purchase of White Pine

On January 1, 2006, we completed the purchase of all the outstanding common shares of White Pine Copper Refinery Inc. (White Pine) for a total
purchase price of US $13.0 million plus US $2.1 million in adjustments. The acquisition of this refinery, which processes all of the Company's anode copper into cathode quality copper,
completes HudBay's vertical integration, provides a dedicated processing facility for our copper anodes, as well as lowers the Company's operating costs by approximately two cents per pound of copper
processed. We expect to spend total of $5 million in capital expenditures for 2006.

Divestiture of Scozinc

In December 2005, we announced we had entered into a letter of intent to sell Scozinc (Gays River's lead and zinc mineral property) to Acadian Gold
Corporation for $7.5 million. The transaction is expected to be completed in 2006 subject to satisfaction of certain conditions.

35

---



Relationship Change with CMM

On January 1, 2006, the Company changed its relationship with CMM from a sales to an agency arrangement, whereby 100% of copper and precious metal
inventory are owned by the Company until sold to customers. In the first half of 2006, the Company plans to convert the remaining products of zinc and zinc oxide under the same arrangement.

Improve Financial Strength

Early in 2006, our HBMS subsidiary received a commitment from the Bank of Nova Scotia to establish a revolving credit facility in the total amount of
C$25 million. The Bank may consent to increasing the credit facility to C$50 million if the Company satisfies certain conditions.

As
at year end we repurchased $19 million of the 9.625% US notes to reduce the outstanding amount of this debt to US $156 million. In 2006, the Company, may, from time to
time, divert cash toward further debt reduction.

2006 Expected Production

Estimated production for 2006 is:

|Zinc      |  | tonnes   |  | 120,000   |  | to |  | 140,000  
|--------- |  | -------- |  | --------- |  | -- |  | ---------
|Copper(1) |  | tonnes   |  | 45,000    |  | to |  | 55,000   
|Gold      |  | troy oz. |  | 85,000    |  | to |  | 100,000  
|Silver    |  | troy oz. |  | 1,000,000 |  | to |  | 1,300,000

FORWARD-LOOKING STATEMENTS

This MD&A contains certain forward-looking statements. All statements, other than statements of historical fact, included herein, including without limitation,
statements regarding the Company's future plans and objectives are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove
accurate, and actual results and future events could differ materially from those anticipated in such statements.

Important
factors that could cause actual results to differ materially from the Company's expectations are disclosed in documents that we have filed from time to time with the Canadian
and other regulatory authorities.

Certain
items of financial information in this MD&A, including free cash flow, operating cash flow per common share, unit operating expenses, and cash cost per pound of zinc, net of
by-product credits, are non-GAAP measures and are furnished to provide additional information. As non-GAAP measures they neither have standardized meanings nor are
they necessarily comparable with similar measures presented by other companies. These measures should not be considered in isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles and are not necessarily

---

36

---



indicative of operating expenses as determined under generally accepted accounting principles. These measures are intended to provide investors with information
about the cash generating capabilities of the Company's operations. HudBay uses this information for the same purpose. Mining operations are capital intensive. These measures exclude capital
expenditures. Capital expenditures are discussed throughout the MD&A and the consolidated financial statements.

37

---



APPENDIX  HBMS PRODUCTION

A summary of production statistics for the fourth quarter of 2005, as well as year-to-date data, together with comparative information for
2004 is shown in the following table.

|             |        |  |         | Quarter
Ended
Dec 31,
2005 |         | Quarter
Ended
Sept 30,
2005 |         | Quarter
Ended
Dec 31,
2004 |         | Year
Ended
Dec 31,
2005 |           | Year
Ended
Dec 31,
2004
|------------ | ------ |  | ------- | -------------------------- | ------- | --------------------------- | ------- | -------------------------- | ------- | ----------------------- | --------- | -----------------------
|Mines:       |        |  |         |                            |         |                             |         |                            |         |                         |           |                        
|777          |        |  |         |                            |         |                             |         |                            |         |                         |           |                        
|             | Ore    |  | tonnes  |                            | 308,099 |                             | 279,258 |                            | 245,695 |                         | 1,093,683 |                        
|             | Copper |  | %       |                            | 2.28    |                             | 2.28    |                            | 2.54    |                         | 2.24      |                        
|             | Zinc   |  | %       |                            | 5.10    |                             | 4.34    |                            | 4.22    |                         | 4.47      |                        
|             | Gold   |  | g/tonne |                            | 2.06    |                             | 2.18    |                            | 2.03    |                         | 2.11      |                        
|             | Silver |  | g/tonne |                            | 24.56   |                             | 23.93   |                            | 21.25   |                         | 23.84     |                        
|Trout Lake   |        |  |         |                            |         |                             |         |                            |         |                         |           |                        
|             | Ore    |  | tonnes  |                            | 214,982 |                             | 210,802 |                            | 226,630 |                         | 858,751   |                        
|             | Copper |  | %       |                            | 1.79    |                             | 1.29    |                            | 1.36    |                         | 1.39      |                        
|             | Zinc   |  | %       |                            | 3.86    |                             | 5.70    |                            | 6.06    |                         | 5.61      |                        
|             | Gold   |  | g/tonne |                            | 1.32    |                             | 1.57    |                            | 1.47    |                         | 1.47      |                        
|             | Silver |  | g/tonne |                            | 13.35   |                             | 14.63   |                            | 15.69   |                         | 14.59     |                        
|Chisel North |        |  |         |                            |         |                             |         |                            |         |                         |           |                        
|             | Ore    |  | tonnes  |                            | 80,995  |                             | 87,090  |                            | 83,158  |                         | 336,731   |                        
|             | Zinc   |  | %       |                            | 8.97    |                             | 8.31    |                            | 8.89    |                         | 9.00      |                        
|Konuto(4)    |        |  |         |                            |         |                             |         |                            |         |                         |           |                        
|             | Ore    |  | tonnes  |                            | 52,522  |                             | 82,895  |                            | 74,953  |                         | 312,465   |                        
|             | Copper |  | %       |                            | 3.30    |                             | 3.35    |                            | 3.91    |                         | 3.90      |                        
|             | Zinc   |  | %       |                            | 2.36    |                             | 2.07    |                            | 2.13    |                         | 1.81      |                        
|             | Gold   |  | g/tonne |                            | 1.73    |                             | 1.33    |                            | 1.66    |                         | 1.65      |                        
|             | Silver |  | g/tonne |                            | 11.46   |                             | 8.32    |                            | 9.71    |                         | 9.17      |                        
|Total Mines: |        |  |         |                            |         |                             |         |                            |         |                         |           |                        
|             | Ore    |  | tonnes  |                            | 656,598 |                             | 660,045 |                            | 630,436 |                         | 2,601,630 |                        
|             | Copper |  | %       |                            | 1.94    |                             | 1.83    |                            | 1.97    |                         | 1.89      |                        
|             | Zinc   |  | %       |                            | 4.95    |                             | 5.01    |                            | 5.25    |                         | 5.11      |                        
|             | Gold   |  | g/tonne |                            | 1.59    |                             | 1.65    |                            | 1.57    |                         | 1.64      |                        
|             | Silver |  | g/tonne |                            | 19.95   |                             | 18.63   |                            | 17.78   |                         | 19.40     |                        

---

38

---



Fourth Quarter Results

|                        |                             |       |         | Quarter
Ended
Dec 31,
2005 |         | Quarter
Ended
Sept 30,
2005 |         | Quarter
Ended
Dec 31,
2004 |         | Year
Ended
Dec 31,
2005 |           | Year
Ended
Dec 31,
2004
|----------------------- | --------------------------- | ----- | ------- | -------------------------- | ------- | --------------------------- | ------- | -------------------------- | ------- | ----------------------- | --------- | -----------------------
|Concentrators:          |                             |       |         |                            |         |                             |         |                            |         |                         |           |                        
|Flin Flon Concentrator: |                             |       |         |                            |         |                             |         |                            |         |                         |           |                        
|                        | Ore                         |       | tonnes  |                            | 556,445 |                             | 584,362 |                            | 529,875 |                         | 2,262,555 |                        
|                        | Copper                      |       | %       |                            | 2.23    |                             | 2.13    |                            | 2.22    |                         | 2.14      |                        
|                        | Zinc                        |       | %       |                            | 4.32    |                             | 4.44    |                            | 4.71    |                         | 4.53      |                        
|                        | Gold                        |       | g/tonne |                            | 1.75    |                             | 1.85    |                            | 1.79    |                         | 1.80      |                        
|                        | Silver                      |       | g/tonne |                            | 19.01   |                             | 18.19   |                            | 17.48   |                         | 18.15     |                        
|                        | Copper Concentrate Produced |       | tonnes  |                            | 49,465  |                             | 48,763  |                            | 47,081  |                         | 188,851   |                        
|                        |                             | Grade |         | % Cu                       |         | 23.99                       |         | 23.94                      |         | 22.95                   |           | 23.82                  
|                        | Zinc Concentrate Produced   |       | tonnes  |                            | 38,115  |                             | 42,488  |                            | 39,476  |                         | 164,416   |                        
|                        |                             | Grade |         | % Zn                       |         | 52.15                       |         | 51.40                      |         | 50.76                   |           | 51.51                  
|                        | Copper recovery to Cu Conc  |       | %       |                            | 93.7    |                             | 93.7    |                            | 91.8    |                         | 92.8      |                        
|                        | Gold recovery to Cu Conc    |       | %       |                            | 72.5    |                             | 71.8    |                            | 79.5    |                         | 74.9      |                        
|                        | Silver recovery to Cu Conc  |       | %       |                            | 66.1    |                             | 64.6    |                            | 76.4    |                         | 66.3      |                        
|                        | Zn recovery to Zn Conc      |       | %       |                            | 81.2    |                             | 84.1    |                            | 80.2    |                         | 82.6      |                        
|Snow Lake Concentrator: |                             |       |         |                            |         |                             |         |                            |         |                         |           |                        
|                        | Ore                         |       | tonnes  |                            | 82,729  |                             | 83,570  |                            | 85,580  |                         | 331,427   |                        
|                        | Zinc                        |       | %       |                            | 9.00    |                             | 8.26    |                            | 8.91    |                         | 9.00      |                        
|                        | Zinc Concentrate Produced   |       | tonnes  |                            | 14,118  |                             | 13,058  |                            | 14,431  |                         | 56,646    |                        
|                        |                             | Grade |         | % Zn                       |         | 51.21                       |         | 51.25                      |         | 51.48                   |           | 51.25                  
|                        | Zn recovery to Zn Conc      |       | %       |                            | 97.1    |                             | 96.9    |                            | 97.4    |                         | 97.3      |                        

39

---



|                            |                            |  |          | Quarter
Ended
Dec 31,
2005 |         | Quarter
Ended
Sept 30,
2005 |         | Quarter
Ended
Dec 31,
2004 |         | Year
Ended
Dec 31,
2005 |           | Year
Ended
Dec 31,
2004
|--------------------------- | -------------------------- |  | -------- | -------------------------- | ------- | --------------------------- | ------- | -------------------------- | ------- | ----------------------- | --------- | -----------------------
|Smelter                     |                            |  |          |                            |         |                             |         |                            |         |                         |           |                        
|Copper Concentrate Treated  |                            |  |          |                            |         |                             |         |                            |         |                         |           |                        
|                            | Domestic                   |  | tonnes   |                            | 55,172  |                             | 49,780  |                            | 55,068  |                         | 206,343   |                        
|                            | Purchased                  |  | tonnes   |                            | 28,828  |                             | 28,212  |                            | 28,252  |                         | 111,935   |                        
|                            | Total                      |  | tonnes   |                            | 84,000  |                             | 77,992  |                            | 83,320  |                         | 318,278   |                        
|Zinc Plant                  |                            |  |          |                            |         |                             |         |                            |         |                         |           |                        
|Zinc Concentrate Treated    |                            |  |          |                            |         |                             |         |                            |         |                         |           |                        
|                            | Domestic                   |  | tonnes   |                            | 59,856  |                             | 51,339  |                            | 56,784  |                         | 228,107   |                        
|                            | Purchased                  |  | tonnes   |                            | 0       |                             | 0       |                            | 0       |                         | 0         |                        
|                            | Total                      |  | tonnes   |                            | 59,856  |                             | 51,339  |                            | 56,784  |                         | 228,107   |                        
|Metal Produced              |                            |  |          |                            |         |                             |         |                            |         |                         |           |                        
|From HBMS Mines             |                            |  |          |                            |         |                             |         |                            |         |                         |           |                        
|                            | Copper                     |  | tonnes   |                            | 13,822  |                             | 11,538  |                            | 12,557  |                         | 49,179    |                        
|                            | Zinc                       |  | tonnes   |                            | 30,485  |                             | 25,733  |                            | 28,323  |                         | 114,557   |                        
|                            | Gold                       |  | troy oz. |                            | 25,311  |                             | 22,759  |                            | 26,220  |                         | 100,144   |                        
|                            | Silver                     |  | troy oz. |                            | 264,259 |                             | 205,144 |                            | 240,336 |                         | 916,810   |                        
|From Purchased Concentrates |                            |  |          |                            |         |                             |         |                            |         |                         |           |                        
|                            | Copper                     |  | tonnes   |                            | 9,985   |                             | 9,182   |                            | 9,351   |                         | 37,106    |                        
|                            | Zinc                       |  | tonnes   |                            | 35      |                             | 43      |                            | 24      |                         | 131       |                        
|                            | Gold                       |  | troy oz. |                            | 546     |                             | 441     |                            | 412     |                         | 1,927     |                        
|                            | Silver                     |  | troy oz. |                            | 137,131 |                             | 126,685 |                            | 136,091 |                         | 493,702   |                        
|Total Metal Produced        |                            |  |          |                            |         |                             |         |                            |         |                         |           |                        
|                            | Copper                     |  | tonnes   |                            | 23,807  |                             | 20,720  |                            | 21,908  |                         | 86,285    |                        
|                            | Zinc                       |  | tonnes   |                            | 30,520  |                             | 25,775  |                            | 28,348  |                         | 114,687   |                        
|                            | Gold                       |  | troy oz. |                            | 25,860  |                             | 23,200  |                            | 26,632  |                         | 102,371   |                        
|                            | Silver                     |  | troy oz. |                            | 401,385 |                             | 331,829 |                            | 376,427 |                         | 1,410,512 |                        
|HBMS Metal Sold(5)          |                            |  |          |                            |         |                             |         |                            |         |                         |           |                        
|                            | Copper                     |  | tonnes   |                            | 17,644  |                             | 19,800  |                            | 20,815  |                         | 78,070    |                        
|                            | Zinc, incl sales to Zochem |  | tonnes   |                            | 29,598  |                             | 29,500  |                            | 27,973  |                         | 114,682   |                        
|                            | Gold                       |  | troy oz. |                            | 21,783  |                             | 21,800  |                            | 25,403  |                         | 95,511    |                        
|                            | Silver                     |  | troy oz. |                            | 358,434 |                             | 309,500 |                            | 343,144 |                         | 1,321,784 |                        

---

40

---



QuickLinks