---



Management's Discussion and Analysis of Results of
Operations and Financial Condition

For the year ended December 31, 2016

February 22, 2017

---

TABLE OF CONTENTS

|                                                                                       | Page
|-------------------------------------------------------------------------------------- | ----
|Introduction                                                                           | 1   
|Our
      Business                                                                     | 1   
|Strategy                                                                               | 2   
|Summary
      of Results                                                               | 3   
|Key
      Financial Results                                                            | 5   
|Key
      Production Results                                                           | 6   
|Recent
      Developments                                                              | 7   
|Constancia
      Operations Review                                                     | 8   
|Manitoba
      Operations Review                                                       | 11  
|Outlook                                                                                | 17  
|Financial
      Review                                                                 | 20  
|Liquidity
      and Capital Resources                                                  | 29  
|Financial
      Risk Management                                                        | 35  
|Trend
      Analysis and Quarterly Review                                              | 36  
|Accounting
      Changes                                                               | 38  
|Critical
      Accounting Judgments and Estimates                                      | 39  
|Non-IFRS
      Financial Performance Measures                                          | 40  
|Disclosure
      Controls and Procedures and Internal Control Over Financial Reporting | 50  
|Notes
      to Reader                                                                  | 51  

---

INTRODUCTION

This Management's Discussion and Analysis ("MD&A") dated
February 22, 2017 is intended to supplement Hudbay Minerals Inc.'s audited
consolidated financial statements and related notes for the year ended December
31, 2016 (the "consolidated financial statements"). The consolidated financial
statements have been prepared in accordance with International Financial
Reporting Standards (IFRS") as issued by the International Accounting Standards
Board.

References to Hudbay, the Company, we, us, our or
similar terms refer to Hudbay Minerals Inc. and its direct and indirect
subsidiaries as at December 31, 2016. "Hudbay Peru" refers to HudBay Peru
S.A.C., our wholly-owned subsidiary which owns a 100% interest in the Constancia
mine, and Augusta and Hudbay Arizona refer to HudBay Arizona Corporation
(formerly named Augusta Resource Corporation), our wholly-owned subsidiary,
which indirectly owns a 92.05% interest in the Rosemont project.

Readers should be aware that:

| | − | This MD&A contains certain forward-looking
      statements and forward-looking information (collectively,
      forward-looking information) that are subject to risk factors set out in
      a cautionary note contained in our MD&A.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | − | This MD&A has been prepared in accordance with the
      requirements of the securities laws in effect in Canada, which may differ
      materially from the requirements of United States securities laws
      applicable to US issuers.    
| | − | We use a number of non-IFRS financial performance
      measures in our MD&A.                                                                                                                                                                 
| | − | The technical and scientific information in this MD&A
      has been approved by qualified persons based on a variety of assumptions
      and estimates.                                                                                     

For a discussion of each of the above matters, readers are
urged to review the Notes to Reader discussion beginning on page 51 of this
MD&A.

Additional information regarding Hudbay, including the risks
related to our business and those that are reasonably likely to affect our
financial statements in the future, is contained in our continuous disclosure
materials, including our most recent Annual Information Form (AIF),
consolidated financial statements and Management Information Circular available
on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

All amounts are in US dollars unless otherwise noted.

OUR BUSINESS

We are an integrated mining company producing copper
concentrate (containing copper, gold and silver) and zinc metal. With assets in
North and South America, we are focused on the discovery, production and
marketing of base and precious metals. Directly and through our subsidiaries, we
own four polymetallic mines, four ore concentrators and a zinc production
facility in northern Manitoba and Saskatchewan (Canada) and Cusco (Peru), and a
copper project in Arizona (United States). Our growth strategy is focused on the
exploration and development of properties we already control, as well as other
mineral assets we may acquire that fit our strategic criteria. Our vision is to
become a top-tier operator of long-life, low-cost mines in the Americas. Our
mission is to create sustainable value through the acquisition, development and
operation of high-quality and growing long-life deposits in mining-friendly
jurisdictions. We are governed by the Canada Business Corporations Actand our shares are listed under the symbol "HBM" on the Toronto Stock
Exchange, New York Stock Exchange and Bolsa de Valores de Lima. We also have
warrants listed under the symbol HBM.WT on the Toronto Stock Exchange and
HBM/WS on the New York Stock Exchange.

1

---

STRATEGY

Our mission is to create sustainable value through acquisition,
development and operation of high quality, long life deposits with exploration
potential in mining friendly jurisdictions.

We believe that the greatest opportunities for shareholder
value creation in the mining industry are in the discovery of new mineral
deposits and the development of new facilities to profitably extract ore from
those deposits. We also believe that our successful development, ramp-up and
operation of the Constancia mine in Peru, along with our long history of mining
and experience in northern Manitoba provide us with a competitive advantage in
these respects relative to other mining companies of similar scale.

We intend to grow Hudbay through exploration and development of
properties we already control, such as our Rosemont project in Arizona, as well
as through the acquisition of other properties that fit our strategic criteria.
We also intend to optimize the value of our producing assets through efficient
and safe operations.

In an attempt to ensure that any acquisitions we undertake
create sustainable value for stakeholders, we have established a number of
criteria for evaluating mineral property acquisition opportunities, which
include the following:

| | − | Potential acquisitions should be located in jurisdictions
      that are supportive of mining activity and have acceptable levels of
      political risk. Given our current scale and geographic footprint, our
      current geographic focus is on select investment grade countries in the
      Americas;                                                                                                                                                                                                                                                                                                                                                                                    
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | − | We believe we have particular expertise in the
      exploration and development of volcanogenic massive sulphide and porphyry
      mineral deposits. While these types of deposits typically contain copper,
      zinc and precious metals in varying quantities, we are not targeting any
      one type of metal; rather, we focus on properties where we see the
      greatest opportunities for risk-adjusted returns;                                                                                                                                                                                                                                                                    
| | − | We typically look for mineral assets that we believe
      offer significant potential for exploration, development and optimization.
      We believe that the market for mineral assets is sophisticated and fully
      values delineated resources and reserves, especially at properties that
      are already in production, which makes it difficult to acquire properties
      for substantially less than their fair value. However, markets may
      undervalue the potential of prospective properties, and more rarely
      producing properties, providing us with an opportunity to create value
      through exploration, development and optimization of acquired properties;
| | − | We believe that large, transformational mergers or
      acquisitions are risky and potentially value destructive in the mining
      industry, so we typically focus on specific high quality (low cost, long
      life) mines, development projects and earlier stage projects unless
      exceptional opportunities present themselves;                                                                                                                                                                                                                                                                                                                                                      
| | − | Before we make an acquisition, we develop a clear
      understanding of how we can add value to the acquired property through the
      application of our social, technical, operational and project execution
      expertise, the provision of necessary financial capacity and other
      optimization opportunities; and                                                                                                                                                                                                                                                                                                                                                                   
| | − | Acquisitions should be accretive to Hudbay on a per share
      basis. Given that our strategic focus includes the acquisition of
      non-producing assets at various stages of development, when evaluating
      accretion we will consider measures such as net asset value per share and
      the contained value of reserves and resources per share.                                                                                                                                                                                                                                                                                                                                     

Our key objectives for 2017 are to:

| | − | Continue to pursue efficiency improvements in our
      operations to sustain cost reductions achieved in 2016 and generate
      incremental free cash flow and increase net asset value;                                                 
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | − | Advance high-return in-house brownfield opportunities to
      increase throughput from the Lalor mine and related milling facilities,
      incrementally adding zinc and gold production in the near and medium term,
      respectively;
| | − | Deliver on plans to advance the development of the high
      grade Pampacancha deposit so that it can start to be mined late in 2018;                                                                                                     
| | − | Advance permitting and technical work at the Rosemont
      project;                                                                                                                                                                       
| | − | Utilize free cash flow generation to reduce debt and
      further reduce our cost of capital; and                                                                                                                                         
| | − | Continue to evaluate exploration and acquisition
      opportunities that meet our criteria described above, and pursue those
      opportunities that we determine to be in the best interest of the company
      and our stakeholders.  

2

---

SUMMARY RESULTS

Summary of Fourth Quarter Results

Operating cash flow before change in non-cash working capital
increased to $122.3 million in the fourth quarter of 2016 from $117.4 million in
the same quarter of 2015. While sales volumes were lower compared to the same
quarter last year, we benefited from lower operating costs and higher realized
prices on all metals. In addition, cash inflows from favourable changes in
working capital were a function of substantially increased receipts of statutory
amounts from Peru and lower on-hand inventory levels.

Net loss and loss per share in the fourth quarter of 2016 were
$47.3 million and $0.20, respectively, compared to a net loss and loss per share
of $255.5 million and $1.09, respectively, in the fourth quarter of 2015. The
prior period loss was mainly due to an after-tax asset and goodwill impairment
charge of $313.3 million recorded in the Peru and Arizona business units. While
the fourth quarter of 2016 benefited from an increase in gross profit of $19.4
million compared to the same period last year, this was offset in part by $49.9
million in costs primarily relating to the call premium paid to facilitate early
redemption of our $920 million of 9.50% senior unsecured notes due 2020 (the
Redeemed Notes).

Net loss and loss per share in the fourth quarter of 2016 were
affected by, among other things, the following items:

|                                                                    |  | Pre-tax loss |   |  | After-tax loss |   |  | Per share |  
|------------------------------------------------------------------- |  | ------------ | - |  | -------------- | - |  | --------- | -
|                                                                    |  | ($ millions) |   |  | ($ millions)   |   |  | ($/share) |  
|Costs on refinancing of 9.50% senior unsecured notes due
      2020 |  | (49.9        | ) |  | (36.5          | ) |  | (0.15     | )
|Net
      loss on mark-to-market of various items                   |  | (13.7        | ) |  | (10.9          | ) |  | (0.05     | )
|Non-cash deferred tax adjustments                                   |  | -            |   |  | (20.7          | ) |  | (0.09     | )

Our operations achieved strong quarterly consolidated
copper-equivalent production and continued low cash costs in both Peru and
Manitoba. In the fourth quarter of 2016, consolidated cash cost per pound of
copper produced, net of by-product credits, was $0.85, a significant decrease
compared to $1.24 in the same period last year1. Incorporating
sustaining capital, capitalized exploration, royalties and corporate selling and
administrative expenses, consolidated all-in sustaining cash cost per pound of
copper produced, net of by-product credits, in the fourth quarter of 2016
declined to $1.46 from $2.00 in the fourth quarter of 20151. The
decline was driven by substantial reductions in sustaining capital expenditures.

The annual cost reduction initiatives announced on February 24,
2016 were achieved and we met or exceeded all of our production and operating
cost guidance for 2016.

Net debt declined to $1,085.3 million at December 31, 2016 from
$1,105.2 million at September 30, 2016. Our outstanding senior unsecured debt
increased by $80.0 million upon completion of the refinancing of the Redeemed
Notes in the fourth quarter of 2016. The US$1.0 billion of New Notes (as defined
below) have extended maturity dates, significantly reduced interest costs and a
more flexible covenant structure. The increase in debt related to the New Notes
was more than offset by strong cash flow generation from our business, which was
utilized in part to repay debt on our revolving credit facilities.

____________________________1Cash cost and
all-in sustaining cash cost, net of by-product credits, per pound and operating
cash flow per share are not recognized under IFRS. For a detailed description of
each of these non-IFRS financial performance measures used in this MD&A,
please see the discussion under Non-IFRS Financial Performance Measures
beginning on page 40 of this MD&A.

3

---



Production on a copper equivalent basis is calculated by
converting contained metal in concentrate produced at realized prices.

Summary of Full Year Results

Operating cash flow before change in non-cash working capital
increased in 2016 to $387.9 million from $231.8 million in 2015. This increase
reflects the first full year of commercial production from the Constancia mine
in 2016 and the resulting growth in sales volumes of all metals. The increase in
sales volumes and associated economies of scale in 2016 were complemented by
lower operating costs and an increase in realized sales prices for zinc and
precious metals compared to last year. In addition, cash inflows from favourable
changes in working capital were a function of substantially increased receipts
of statutory amounts from Peru and lower on-hand inventory levels.

Net loss and loss per share for 2016 were $35.2 million and
$0.15, respectively, compared to a net loss and loss per share of $331.4 million
and $1.41, respectively, in 2015. The prior year loss was mostly the result of
an after-tax $313.3 million asset and goodwill impairment charge recorded on our
Peru and Arizona business units in the fourth quarter of 2015. The write-downs
were primarily due to lower expectations for both short and long-term commodity
prices. We also recorded an impairment loss of $54.5 million in the second and
third quarters of 2015 related to the write-down of Lalor concentrator assets
and certain equipment and long-lead deposits in the Arizona business unit. In
addition, there was a $104.5 million increase in gross profit from $118.4
million in 2015 to $222.9 million in 2016. The increase is a function of the
higher sales volumes noted earlier. Offsetting these favourable effects was an
increase in finance expenses of $89.6 million, from $77.5 million in 2015 to
$167.1 million in 2016. This increase is partly the result of a $49.9 million
charge taken in relation to the call premium that was paid to bondholders to
facilitate the early redemption of our $920 million of Redeemed Notes and the
write-down of unamortized transaction costs associated with the Redeemed Notes.
In addition, the achievement of commercial production at Constancia triggered
the cessation of capitalization of interest costs associated with our Redeemed
Notes resulting in the recognition of approximately $27.3 million of additional
interest costs on the consolidated income statements. Lastly, tax expense for
2016 increased by $108.4 million compared to 2015 primarily as a result of a
significant deferred tax recovery recorded in 2015 related to the asset
impairment expense.

4

---

KEY FINANCIAL RESULTS

|Financial Condition        |  |               |  |  |               | 
|-------------------------- |  | ------------- |  |  | ------------- | 
|(in $ thousands)           |  | Dec. 31, 2016 |  |  | Dec. 31, 2015 | 
|Cash and cash equivalents  |  | 146,864       |  |  | 53,852        | 
|Total
      long-term debt |  | 1,232,164     |  |  | 1,274,880     | 
|Net debt 1                 |  | 1,085,300     |  |  | 1,221,028     | 
|Working capital            |  | 121,539       |  |  | 57,613        | 
|Total assets               |  | 4,456,556     |  |  | 4,479,585     | 
|Equity                     |  | 1,763,212     |  |  | 1,787,290     | 

|Financial Performance                                          |  | Three months ended |   |  | Year ended |  
|-------------------------------------------------------------- |  | ------------------ | - |  | ---------- | -
|(in $ thousands, except per share amounts)                     |  | Dec. 31,           |   |  | Dec. 31,   |  
|                                                               |  | 2016               |   |  | 2015       |  
|Revenue                                                        |  | 316,654            |   |  | 336,641    |  
|Cost
      of sales                                            |  | 238,449            |   |  | 277,838    |  
|(Loss) profit before tax                                       |  | (26,065            | ) |  | (325,610   | )
|Loss                                                           |  | (47,273            | ) |  | (255,468   | )
|Basic and diluted loss per share                               |  | (0.20              | ) |  | (1.09      | )
|Operating cash flows before change in non-cash working capital |  | 122,257            |   |  | 117,408    |  
|Operating cash flow per
      share1                           |  | 0.52               |   |  | 0.50       |  

Net debt and operating cash flow per share, are non-IFRS
financial performance measures with no standardized definition under IFRS. For
further information and a detailed reconciliation, please see the discussion
under "Non-IFRS Financial Reporting Measures" beginning on page 40 of this
MD&A.

5

---

KEY PRODUCTION RESULTS

|                                         |  |        |  |  | Three months ended |  |  | Three months ended |  
|---------------------------------------- |  | ------ |  |  | ------------------ |  |  | ------------------ | -
|                                         |  |        |  |  | Dec. 31, 2016      |  |  | Dec. 31, 2015      |  
|                                         |  |        |  |  | Peru               |  |  | **Manitoba**       |  
|                                         |  |        |  |  |                    |  |  |                    |  
|Contained metal in concentrate produced1 |  |        |  |  |                    |  |  |                    |  
|Copper                                   |  | tonnes |  |  | 33,986             |  |  | 9,797              |  
|Gold                                     |  | oz     |  |  | 5,033              |  |  | 22,449             |  
|Silver                                   |  | oz     |  |  | 723,392            |  |  | 269,286            |  
|Zinc                                     |  | tonnes |  |  | -                  |  |  | 29,144             |  
|Payable
      metal in concentrate sold  |  |        |  |  |                    |  |  |                    |  
|Copper                                   |  | tonnes |  |  | 35,969             |  |  | 8,223              |  
|Gold                                     |  | oz     |  |  | 6,183              |  |  | 19,158             |  
|Silver                                   |  | oz     |  |  | 701,654            |  |  | 209,671            |  
|Refined zinc                             |  | tonnes |  |  | -                  |  |  | 28,094             |  
|                                         |  |        |  |  |                    |  |  |                    |  
|Cash cost2                               |  | $/lb   |  |  | 1.11               |  |  | (0.06              | )
|                                         |  |        |  |  |                    |  |  |                    |  
|Sustaining cash
      cost2              |  | $/lb   |  |  | 1.54               |  |  | 0.58               |  
|                                         |  |        |  |  |                    |  |  |                    |  
|All-in sustaining cash cost2             |  | $/lb   |  |  | -                  |  |  | -                  |  

|                                         |  |        |  |  | Year ended    |  |  | Year ended    | 
|---------------------------------------- |  | ------ |  |  | ------------- |  |  | ------------- | 
|                                         |  |        |  |  | Dec. 31, 2016 |  |  | Dec. 31, 2015 | 
|                                         |  |        |  |  | Peru          |  |  | **Manitoba**  | 
|                                         |  |        |  |  |               |  |  |               | 
|Contained metal in concentrate produced1 |  |        |  |  |               |  |  |               | 
|Copper                                   |  | tonnes |  |  | 133,432       |  |  | 41,059        | 
|Gold                                     |  | oz     |  |  | 26,276        |  |  | 88,020        | 
|Silver                                   |  | oz     |  |  | 2,760,332     |  |  | 995,564       | 
|Zinc                                     |  | tonnes |  |  | -             |  |  | 110,582       | 
|Payable
      metal in concentrate sold  |  |        |  |  |               |  |  |               | 
|Copper                                   |  | tonnes |  |  | 132,663       |  |  | 38,788        | 
|Gold                                     |  | oz     |  |  | 24,199        |  |  | 71,328        | 
|Silver                                   |  | oz     |  |  | 2,423,165     |  |  | 758,594       | 
|Refined zinc                             |  | tonnes |  |  | -             |  |  | 103,453       | 
|                                         |  |        |  |  |               |  |  |               | 
|Cash cost2                               |  | $/lb   |  |  | 1.09          |  |  | 0.41          | 
|                                         |  |        |  |  |               |  |  |               | 
|Sustaining cash
      cost2              |  | $/lb   |  |  | 1.51          |  |  | 1.16          | 
|                                         |  |        |  |  |               |  |  |               | 
|All-in sustaining cash cost2             |  | $/lb   |  |  | -             |  |  | -             | 

1Metal reported in concentrate is prior to
deductions associated with smelter contract terms. 2Cash cost,
sustaining cash cost and all-in sustaining cash cost per pound of copper
produced, net of by-product credits are non-IFRS financial performance measures
with no standardized definition under IFRS. For further information and a
detailed reconciliation, please see the discussion under "Non-IFRS Financial
Reporting Measures" beginning on page 40 of this MD&A.

6

---

RECENT DEVELOPMENTS

Senior Unsecured Notes Refinancing

On December 12, 2016, we completed an offering of $1.0 billion
aggregate principal amount of senior notes (the New Notes) in two series: (i)
a series of 7.250% senior notes due 2023 in an aggregate principal amount of
$400 million and (ii) a series of 7.625% senior notes due 2025 in an aggregate
principal amount of $600 million. The New Notes are governed by an indenture,
dated as of December 12, 2016, among the Company, the subsidiaries of the
Company party thereto as guarantors and U.S. Bank National Association, as
trustee.

The proceeds from this offering were used to redeem all US$920
million of our outstanding Redeemed Notes and to pay a call premium of $47.7
million, prepaid interest associated with the redemption of the Redeemed Notes
and transaction costs associated with the New Notes.

Dividend Declared

We declared a semi-annual dividend of C$0.01 per share on
February 22, 2017. The dividend will be paid on March 31, 2017 to shareholders
of record as of March 10, 2017.

Amalgamation

On January 1, 2017, the Company amalgamated with two of its
wholly-owned subsidiaries, being Hudson Bay Mining and Smelting Co., Limited and
Hudson Bay Exploration and Development Company Limited, and changed its name
from HudBay Minerals Inc. to Hudbay Minerals Inc..

7

---

CONSTANCIA OPERATIONS REVIEW

|                        |  |         |  |  | Three months ended |  |  | Year ended |  |  | Guidance 1 | 
|----------------------- |  | ------- |  |  | ------------------ |  |  | ---------- |  |  | ---------- | 
|                        |  |         |  |  | Dec. 31,           |  |  | Dec. 31,   |  |  | Dec. 31,   | 
|                        |  |         |  |  | 2016               |  |  | 2015       |  |  | 2016       | 
|                        |  |         |  |  |                    |  |  |            |  |  |            | 
|Ore
      mined         |  | tonnes  |  |  | 6,215,160          |  |  | 8,235,629  |  |  | 26,519,954 | 
|Copper                  |  | %       |  |  | 0.61               |  |  | 0.66       |  |  | 0.62       | 
|Gold                    |  | g/tonne |  |  | 0.05               |  |  | 0.06       |  |  | 0.07       | 
|Silver                  |  | g/tonne |  |  | 4.24               |  |  | 4.48       |  |  | 4.25       | 
|                        |  |         |  |  |                    |  |  |            |  |  |            | 
|Ore milled              |  | tonnes  |  |  | 7,202,321          |  |  | 7,445,905  |  |  | 27,032,775 | 
|Copper                  |  | %       |  |  | 0.58               |  |  | 0.63       |  |  | 0.60       | 
|Gold                    |  | g/tonne |  |  | 0.05               |  |  | 0.07       |  |  | 0.06       | 
|Silver                  |  | g/tonne |  |  | 4.65               |  |  | 5.36       |  |  | 4.90       | 
|Copper concentrate      |  | tonnes  |  |  | 132,741            |  |  | 148,982    |  |  | 527,296    | 
|Concentrate grade       |  | % Cu    |  |  | 25.60              |  |  | 25.33      |  |  | 25.31      | 
|Copper recovery         |  | %       |  |  | 81.6               |  |  | 79.8       |  |  | 82.4       | 
|Gold
      recovery     |  | %       |  |  | 43.9               |  |  | 39.1       |  |  | 48.4       | 
|Silver recovery         |  | %       |  |  | 67.1               |  |  | 49.6       |  |  | 64.9       | 
|Combined unit operating |  |         |  |  |                    |  |  |            |  |  |            | 
|costs 1                 |  | $/tonne |  |  | 7.98               |  |  | 8.57       |  |  | 8.09       | 

1Reflects combined mine, mill and general and
administrative ("G&A") costs per tonne of ore milled. Reflects the deduction
of expected capitalized stripping costs and excludes costs and tonnes associated
with pre-commercial production output.

Ore mined at our Constancia mine during the fourth quarter of
2016 decreased by 25% compared to the same period in 2015 as ore production
rates were aligned to mill throughput rates. Mined and milled copper grades in
the fourth quarter of 2016 were approximately 8% lower than the same period in
2015 as the mine plan continues to advance to lower levels in the pit.

Optimization of plant performance remains the primary focus for
Constancia. Total copper recovery was 81.6% in the fourth quarter of 2016,
compared to 79.8% in the same period in 2015, as oxidized copper in the ore feed
was lower in the current quarter and the metallurgy associated with the varying
ore types is better understood. Gold and silver recoveries also improved in 2016
compared to 2015. Recoveries of all metals were slightly lower in the fourth
quarter of 2016 compared to the third quarter as mining began on phase two of
the Constancia open pit where the initial near-surface ore contains a greater
amount of altered and oxidized mineralization.

Combined mine, mill and G&A unit operating costs in the
fourth quarter and full year of 2016 benefited from lower mining costs due to
ongoing improvement initiatives. Combined unit operating costs for the full year
of 2016 were within guidance expectations.

As is typical with large Peruvian mining operations following
startup, some of the employees at Constancia have formed a labour union.
Negotiations to establish an initial collective agreement are ongoing with
representatives of the union.

8

---

|                     |  |        |      |  | Three months ended |      |  | Year ended |      |  | Guidance  |     
|-------------------- |  | ------ | ---- |  | ------------------ | ---- |  | ---------- | ---- |  | --------- | ----
|Contained metal in   |  |        |      |  | Dec. 31,           |      |  | Dec. 31,   |      |  | Dec. 31,  |     
|concentrate produced |  |        | 2016 |  |                    | 2015 |  |            | 2016 |  |           | 2015
|Copper               |  | tonnes |      |  | 33,986             |      |  | 37,735     |      |  | 133,432   |     
|Gold                 |  | oz     |      |  | 5,033              |      |  | 6,560      |      |  | 26,276    |     
|Silver               |  | oz     |      |  | 723,392            |      |  | 636,514    |      |  | 2,760,332 |     
|Precious metals1     |  | oz     |      |  | 15,367             |      |  | 15,653     |      |  | 65,709    |     

1Precious metals production includes gold and
silver production on a gold equivalent basis. Silver converted to gold at a
ratio of 70:1.

In 2016, metal production at Constancia was above the guidance
range for all metals.



Constancias production of copper equivalent tonnes rapidly
ramped up from pre-commercial production in the first quarter of 2015 to
commercial production, which began during the second quarter of 2015. Subsequent
to commercial production being achieved, metal production has remained fairly
consistent quarter over quarter with the exception of the first quarter of 2016
when the planned replacement of the mill trunnions damaged during commissioning
resulted in downtime of approximately five weeks for grinding line 2.

Peru Cash Cost and Sustaining Cash Cost

|                                                                                     |  |      |  |  | Three months ended |  |  | Year ended | 
|------------------------------------------------------------------------------------ |  | ---- |  |  | ------------------ |  |  | ---------- | 
|                                                                                     |  |      |  |  | Dec. 31,           |  |  | Dec. 31,   | 
|                                                                                     |  |      |  |  | 2016               |  |  | 2015       | 
|Cash cost per pound of copper produced, net of by-product
      credits 1            |  | /$lb |  |  | 1.11               |  |  | 1.32       | 
|Sustaining cash cost per pound of copper
      produced, net of by-product credits 1 |  | $/lb |  |  | 1.54               |  |  | 1.93       | 

1Cash cost and sustaining cash costs per pound of
copper produced, net of by-product credits, are not recognized under IFRS. For
more detail on this non-IFRS financial performance measure, please see the
discussion under "Non-IFRS Financial Performance Measures" beginning on page 40
of this MD&A.

9

---

Cash cost per pound of copper produced, net of by-product
credits, for the three months and year ended December 31, 2016 was $1.11 and
$1.09, respectively, a decrease from the same periods in 2015 of 16% and 6%,
respectively, as a result of continued cost optimization and maintenance timing.

Sustaining cash cost per pound of copper produced, net of
by-product credits, for the three months and year ended December 31, 2016 was
$1.54 and $1.51, respectively, a decrease from the same period in 2015 of 20%
and 21%, respectively, as a result of lower capital costs from tailings
impoundment construction.



Metal Sold

|                                   |  |        |  |  | Three months ended |  |  | Year ended | 
|---------------------------------- |  | ------ |  |  | ------------------ |  |  | ---------- | 
|                                   |  |        |  |  | Dec. 31,           |  |  | Dec. 31,   | 
|                                   |  |        |  |  | 2016               |  |  | 2015       | 
|Payable metal in
      concentrate |  |        |  |  |                    |  |  |            | 
|Copper                             |  | tonnes |  |  | 35,969             |  |  | 48,898     | 
|Gold                               |  | oz     |  |  | 6,183              |  |  | 7,888      | 
|Silver                             |  | oz     |  |  | 701,654            |  |  | 511,148    | 

10

---

MANITOBA OPERATIONS REVIEW

Mines

|            |  |         |  |  | Three months ended |  |  | Year ended | 
|----------- |  | ------- |  |  | ------------------ |  |  | ---------- | 
|            |  |         |  |  | Dec. 31,           |  |  | Dec. 31,   | 
|            |  |         |  |  | 2016               |  |  | 2015       | 
|777         |  |         |  |  |                    |  |  |            | 
|Ore         |  | tonnes  |  |  | 298,135            |  |  | 368,801    | 
|Copper      |  | %       |  |  | 1.67               |  |  | 1.57       | 
|Zinc        |  | %       |  |  | 3.81               |  |  | 3.37       | 
|Gold        |  | g/tonne |  |  | 1.64               |  |  | 1.60       | 
|Silver      |  | g/tonne |  |  | 24.06              |  |  | 19.99      | 
|Lalor       |  |         |  |  |                    |  |  |            | 
|Ore         |  | tonnes  |  |  | 272,156            |  |  | 284,029    | 
|Copper      |  | %       |  |  | 0.58               |  |  | 0.67       | 
|Zinc        |  | %       |  |  | 7.42               |  |  | 8.74       | 
|Gold        |  | g/tonne |  |  | 2.07               |  |  | 2.16       | 
|Silver      |  | g/tonne |  |  | 21.73              |  |  | 22.44      | 
|Reed1       |  |         |  |  |                    |  |  |            | 
|Ore         |  | tonnes  |  |  | 104,719            |  |  | 119,183    | 
|Copper      |  | %       |  |  | 2.90               |  |  | 3.51       | 
|Zinc        |  | %       |  |  | 0.63               |  |  | 0.88       | 
|Gold        |  | g/tonne |  |  | 0.44               |  |  | 0.49       | 
|Silver      |  | g/tonne |  |  | 5.76               |  |  | 7.56       | 
|Total Mines |  |         |  |  |                    |  |  |            | 
|Ore         |  | tonnes  |  |  | 675,010            |  |  | 772,013    | 
|Copper      |  | %       |  |  | 1.42               |  |  | 1.54       | 
|Zinc        |  | %       |  |  | 4.77               |  |  | 4.96       | 
|Gold        |  | g/tonne |  |  | 1.63               |  |  | 1.63       | 
|Silver      |  | g/tonne |  |  | 20.28              |  |  | 18.98      | 

1Includes 100% of Reed mine production. We purchase
30% of the Reed ore production from our joint venture partner on market-based
terms.

|                     |  |          |  |  | Three months ended |  |  | Year ended | 
|-------------------- |  | -------- |  |  | ------------------ |  |  | ---------- | 
|                     |  |          |  |  | Dec. 31,           |  |  | Dec. 31,   | 
|Unit Operating Costs |  |          |  |  | 2016               |  |  | 2015       | 
|Mines                |  |          |  |  |                    |  |  |            | 
|777                  |  | C$/tonne |  |  | 53.40              |  |  | 57.65      | 
|Lalor                |  | C$/tonne |  |  | 69.14              |  |  | 75.54      | 
|Reed                 |  | C$/tonne |  |  | 57.39              |  |  | 59.73      | 
|Total Mines          |  | C$/tonne |  |  | 60.51              |  |  | 64.79      | 

11

---

Ore mined at our Manitoba mines during the fourth quarter of
2016 decreased by 13% compared to the same period in 2015 primarily as a result
of lower production at the 777 mine. Ore mined at the 777 mine declined as
ground conditions necessitated the implementation of a more conservative stope
sequence in order to adapt to more challenging operating conditions as the mine
ages. Overall copper and zinc grades were lower in the fourth quarter of 2016
compared to the same period in 2015 by 8% and 4%, respectively, due to lower
grades at Lalor and Reed. Unit operating costs in the fourth quarter of 2016
were 7% lower compared to the same period in 2015, reflecting ongoing cost
reduction efforts.

Full year ore production at our Manitoba mines in 2016 was 7%
higher than in 2015 as a result of increased production at our Lalor and 777
mines. Copper, zinc and gold grades in 2016 were lower compared with the grades
in 2015 by 9%, 3% and 6%, respectively, and silver grades were higher by 7%.
Unit operating costs in 2016 decreased by 13% compared to 2015, reflecting
ongoing cost reduction efforts and increased production.

12

---

Processing Facilities

|                                        |  |         |  |  | Three months ended |  |  | Year ended | 
|--------------------------------------- |  | ------- |  |  | ------------------ |  |  | ---------- | 
|                                        |  |         |  |  | Dec. 31,           |  |  | Dec. 31,   | 
|                                        |  |         |  |  | 2016               |  |  | 2015       | 
|Flin Flon Concentrator                  |  |         |  |  |                    |  |  |            | 
|Ore                                     |  | tonnes  |  |  | 464,747            |  |  | 480,177    | 
|Copper                                  |  | %       |  |  | 2.04               |  |  | 2.07       | 
|Zinc                                    |  | %       |  |  | 2.96               |  |  | 2.74       | 
|Gold                                    |  | g/tonne |  |  | 1.32               |  |  | 1.32       | 
|Silver                                  |  | g/tonne |  |  | 19.23              |  |  | 16.85      | 
|Copper concentrate                      |  | tonnes  |  |  | 36,695             |  |  | 38,723     | 
|Concentrate grade                       |  | % Cu    |  |  | 23.44              |  |  | 23.12      | 
|Zinc concentrate                        |  | tonnes  |  |  | 22,518             |  |  | 21,341     | 
|Concentrate grade                       |  | % Zn    |  |  | 51.34              |  |  | 50.55      | 
|Copper recovery                         |  | %       |  |  | 90.6               |  |  | 90.1       | 
|Zinc recovery                           |  | %       |  |  | 84.2               |  |  | 81.9       | 
|Gold recovery                           |  | %       |  |  | 60.6               |  |  | 51.4       | 
|Silver recovery                         |  | %       |  |  | 57.7               |  |  | 49.2       | 
|Contained metal in concentrate produced |  |         |  |  |                    |  |  |            | 
|Copper                                  |  | tonnes  |  |  | 8,602              |  |  | 8,954      | 
|Zinc                                    |  | tonnes  |  |  | 11,562             |  |  | 10,787     | 
|Precious metals 1                       |  | oz      |  |  | 14,344             |  |  | 12,290     | 
|Stall Concentrator                      |  |         |  |  |                    |  |  |            | 
|Ore                                     |  | tonnes  |  |  | 257,759            |  |  | 264,343    | 
|Copper                                  |  | %       |  |  | 0.58               |  |  | 0.66       | 
|Zinc                                    |  | %       |  |  | 7.39               |  |  | 8.79       | 
|Gold                                    |  | g/tonne |  |  | 2.10               |  |  | 2.14       | 
|Silver                                  |  | g/tonne |  |  | 21.77              |  |  | 22.46      | 
|Copper concentrate                      |  | tonnes  |  |  | 5,951              |  |  | 7,151      | 
|Concentrate grade                       |  | % Cu    |  |  | 20.08              |  |  | 20.28      | 
|Zinc concentrate                        |  | tonnes  |  |  | 33,995             |  |  | 42,094     | 
|Concentrate grade                       |  | % Zn    |  |  | 51.72              |  |  | 51.25      | 
|Copper recovery                         |  | %       |  |  | 80.0               |  |  | 83.0       | 
|Zinc recovery                           |  | %       |  |  | 92.3               |  |  | 92.8       | 
|Gold recovery                           |  | %       |  |  | 60.3               |  |  | 53.5       | 
|Silver recovery                         |  | %       |  |  | 57.4               |  |  | 53.1       | 
|Contained metal in concentrate produced |  |         |  |  |                    |  |  |            | 
|Copper                                  |  | tonnes  |  |  | 1,195              |  |  | 1,450      | 
|Zinc                                    |  | tonnes  |  |  | 17,582             |  |  | 21,575     | 
|Precious metals 1                       |  | oz      |  |  | 11,952             |  |  | 11,171     | 

1 Precious metals production includes gold and
silver production on a gold-equivalent basis. Silver is converted to gold at a
ratio of 70:1.

13

---

|                                         |  |          |  |  | Three months |  |  |            |  |  |          |  |  |          |  |  |               | 
|---------------------------------------- |  | -------- |  |  | ------------ |  |  | ---------- |  |  | -------- |  |  | -------- |  |  | ------------- | 
|                                         |  |          |  |  | ended        |  |  | Year ended |  |  | Guidance | 
|                                         |  |          |  |  | Dec. 31,     |  |  | Dec. 31,   |  |  | Dec. 31, |  |  | Dec. 31, |  |  | Annual        | 
|Unit
      Operating Costs               |  |          |  |  | 2016         |  |  | 2015       |  |  | 2016     |  |  | 2015     |  |  | 2016          | 
|Concentrators                            |  |          |  |  |              |  |  |            |  |  |          |  |  |          |  |  |               | 
|Flin Flon                                |  | C$/tonne |  |  | 18.48        |  |  | 13.58      |  |  | 18.32    |  |  | 14.63    |  |  |               | 
|Stall                                    |  | C$/tonne |  |  | 27.58        |  |  | 23.97      |  |  | 23.62    |  |  | 26.78    |  |  |               | 
|Combined mine/mill unit operating costs1 |  |          |  |  |              |  |  |            |  |  |          |  |  |          |  | 
|Manitoba                                 |  | C$/tonne |  |  | 96.38        |  |  | 100.43     |  |  | 92.77    |  |  | 103.67   |  |  | 80
      -100 | 

1Reflects combined mine, mill and G&A costs per
tonne of ore milled. Includes the cost of ore purchased from our joint venture
partner at the Reed mine. For 2015, combined mine and mill unit operating costs
have been restated on the same basis for consistency.

Ore processed in the Flin Flon concentrator in the fourth
quarter of 2016 was 3% lower than the same period in 2015 primarily as a result of lower mine production. Zinc and
precious metals recoveries were higher in the fourth quarter of 2016 compared to
the same period in 2015 as a result of higher head grades. Unit operating costs
at the Flin Flon concentrator were 36% higher in the fourth quarter of 2016
compared to the same period in 2015 as a result of higher maintenance
expenditures. Ore processed at the Stall concentrator in the fourth quarter of
2016 was consistent with the same period in 2015. Unit operating costs at the
Stall concentrator were 15% higher in the fourth quarter of 2016 compared to the
same period in 2015 as a result of higher maintenance expenditures resulting
from unplanned repairs.

For the full year, ore processed in Flin Flon was 5% higher
than in 2015 as a result of higher mine production at our 777 mine, partially
offset by unscheduled maintenance. Copper and zinc recoveries in 2016 were
fairly consistent with 2015, while precious metals recoveries were higher as a
result of higher head grades. Unit operating costs at the Flin Flon concentrator
in 2016 were 25% higher than in 2015 as a result of unscheduled maintenance in
the first quarter of 2016 and the completion of staged repairs throughout the
remainder of the year aligned with maintaining the asset to match the expected
mine life. For the full year, ore processed at the Stall concentrator was 17%
higher than in 2015 as a result of higher production at Lalor. Unit operating
costs at the Stall concentrator in 2016 were 12% lower than in 2015 as a result
of higher production throughout 2016.

Manitoba combined mine, mill and G&A unit operating costs
in the fourth quarter and full year in 2016 were 4% and 11% lower, respectively,
than in the same periods in 2015 as a result of ongoing cost reduction
initiatives, and were in line with full year guidance expectations.

|                           |  |        |          |  | Three months ended |          |  | Year ended |          |  | Guidance |         
|-------------------------- |  | ------ | -------- |  | ------------------ | -------- |  | ---------- | -------- |  | -------- | --------
|Manitoba contained metal   |  |        | Dec. 31, |  |                    | Dec. 31, |  |            | Dec. 31, |  |          | Dec. 31,
|in concentrate produced1,2 |  |        | 2016     |  |                    | 2015     |  |            | 2016     |  |          | 2015    
|Copper                     |  | tonnes |          |  | 9,797              |          |  | 10,404     |          |  | 41,059   |         
|Gold                       |  | oz     |          |  | 22,449             |          |  | 20,184     |          |  | 88,020   |         
|Silver                     |  | oz     |          |  | 269,286            |          |  | 229,360    |          |  | 995,564  |         
|Zinc                       |  | tonnes |          |  | 29,144             |          |  | 32,362     |          |  | 110,582  |         
|Precious metals3           |  | oz     |          |  | 26,296             |          |  | 23,461     |          |  | 102,242  |         

1  Includes 100% of Reed mine production. We own a 70% interest in
the Reed mine and purchase 30% of the Reed ore production from our joint venture
partner on market based terms.2Metal reported in concentrate is prior to
deductions associated with smelter terms.3Precious metals production includes gold and
  silver production on a gold-equivalent basis. Silver is converted to gold at a
ratio of 70:1.

For the fourth quarter of 2016, production of copper and zinc
  was lower than the fourth quarter of 2015 by 6% and 10%, respectively, mainly as
  a result of lower mill throughput as well as lower grades from our Lalor mine,
  while gold and silver production was higher than the fourth quarter of 2015 by
  11% and 17%, respectively, as a result of higher gold and silver recoveries.

14

---

In 2016, production of copper was consistent with 2015 levels
while production of the other metals increased compared to 2015 as a result of
increased production at Lalor and 777. Production of all metals was within
guidance ranges.



Manitobas production of copper equivalent tonnes has remained
fairly consistent quarter over quarter.

|                         |  |        |  |  | Three months ended |  |  | Year ended |  |  | Guidance | 
|------------------------ |  | ------ |  |  | ------------------ |  |  | ---------- |  |  | -------- | 
|                         |  |        |  |  | Dec. 31,           |  |  | Dec. 31,   |  |  | Dec. 31, | 
|Zinc Production          |  |        |  |  | 2016               |  |  | 2015       |  |  | 2016     | 
|Zinc Concentrate Treated |  |        |  |  |                    |  |  |            |  |  |          | 
|Domestic                 |  | tonnes |  |  | 60,350             |  |  | 59,130     |  |  | 216,982  | 
|Purchased                |  | tonnes |  |  | -                  |  |  | -          |  |  | -        | 
|Total                    |  | tonnes |  |  | 60,350             |  |  | 59,130     |  |  | 216,982  | 
|Refined Metal Produced   |  |        |  |  |                    |  |  |            |  |  |          | 
|Domestic                 |  | tonnes |  |  | 28,899             |  |  | 28,160     |  |  | 102,594  | 
|Purchased                |  | tonnes |  |  | -                  |  |  | -          |  |  | -        | 
|Total                    |  | tonnes |  |  | 28,899             |  |  | 28,160     |  |  | 102,594  | 

|                     |  |       |      |  | Three months ended |      |  | Year ended |      |  | Guidance |     
|-------------------- |  | ----- | ---- |  | ------------------ | ---- |  | ---------- | ---- |  | -------- | ----
|                     |  |       |      |  | Dec. 31,           |      |  | Dec. 31,   |      |  | Dec. 31, |     
|Unit Operating Costs |  |       | 2016 |  |                    | 2015 |  |            | 2016 |  |          | 2015
|Zinc Plant 1         |  | C$/lb |      |  | 0.44               |      |  | 0.43       |      |  | 0.45     |     

1Zinc unit operating costs include G&A costs.
For 2015, zinc unit operating costs have been restated to include G&A costs
for consistency.

Production of cast zinc and operating cost per pound of zinc
metal produced in the fourth quarter and full year of 2016 were consistent with
the same periods in 2015. Zinc plant production and unit costs were within
guidance ranges.

15

---

Manitoba Cash Cost and Sustaining Cash Cost

|                                                                                     |  |      |  |  | Three months ended |   |  | Year ended | 
|------------------------------------------------------------------------------------ |  | ---- |  |  | ------------------ | - |  | ---------- | 
|                                                                                     |  |      |  |  | Dec. 31,           |   |  | Dec. 31,   | 
|                                                                                     |  |      |  |  | 2016               |   |  | 2015       | 
|Cost per pound of copper produced                                                    |  |      |  |  |                    |   |  |            | 
|Cash
      cost per pound of copper produced, net of by-product credits 1            |  | $/lb |  |  | (0.06              | ) |  | 0.93       | 
|Sustaining cash cost per pound of
      copper produced, net of by-product credits 1 |  | $/lb |  |  | 0.58               |   |  | 1.95       | 
|                                                                                     |  |      |  |  |                    |   |  |            | 
|Cost per pound of zinc produced                                                      |  |      |  |  |                    |   |  |            | 
|Cash
      cost per pound of zinc produced, net of by-product credits 1              |  | $/lb |  |  | 0.36               |   |  | 0.36       | 
|Sustaining cash cost per pound of
      zinc produced, net of by-product credits 1   |  | $/lb |  |  | 0.57               |   |  | 0.69       | 

1Cash cost and sustaining cash cost per pound of
copper & zinc produced, net of by-product credits, are not recognized under
IFRS. For more detail on this non-IFRS financial performance measure, please see
the discussion under "Non-IFRS Financial Performance Measures" beginning on page
40 of this MD&A.

In Manitoba, cash cost per pound of copper produced, net of
by-product credits, in the fourth quarter of 2016 and full year were negative
$0.06 and $0.41 per pound of copper produced, respectively. These were lower
compared to the same periods in 2015 due to higher realized zinc prices,
decreased purchases of zinc concentrate for processing, and a decrease in
general support costs as a result of cost reduction initiatives. Full year 2016
cash cost was positively impacted by increased sales of precious metals.

Sustaining cash cost per pound of copper produced, net of
by-product credits, in the fourth quarter of 2016 and full year were $0.58 and
$1.16 per pound of copper produced, respectively, representing a decrease of 70%
and 43% per pound, respectively, compared to the same periods in 2015. The
decrease in sustaining costs resulted from the same factors described above as
well as reduced capital expenditures.

Cash cost and sustaining cash cost per pound of zinc produced,
net of by-product credits, were impacted by the same factors impacting cash cost
and sustaining cash cost of copper produced. Fourth quarter results were
impacted by lower zinc production compared to the same period in 2015. The
impact of lower costs in full year 2016 was partially offset by lower by-product
credits resulting primarily from lower realized copper prices in 2016 compared
to 2015.

16

---



Manitoba cash cost and sustaining cash cost per pound of copper
produced, net of by-product credits in the past three quarters have declined due
to reduced G&A costs incurred during 2016 as well as increased by-product
credits realized.

Metal Sold

|                             |  |        |  |  | Three months ended |  |  | Year ended | 
|---------------------------- |  | ------ |  |  | ------------------ |  |  | ---------- | 
|                             |  |        |  |  | Dec. 31,           |  |  | Dec. 31,   | 
|                             |  |        |  |  | 2016               |  |  | 2015       | 
|Payable metal in concentrate |  |        |  |  |                    |  |  |            | 
|Copper                       |  | tonnes |  |  | 8,223              |  |  | 9,816      | 
|Gold                         |  | oz     |  |  | 19,158             |  |  | 23,996     | 
|Silver                       |  | oz     |  |  | 209,671            |  |  | 239,967    | 
|Refined zinc                 |  | tonnes |  |  | 28,094             |  |  | 27,064     | 

OUTLOOK

The outlook and financial targets only relate to fiscal 2017.
This outlook includes forward-looking information about our operations and
financial expectations based on our expectations and outlook as of February 22,
2017. This outlook, including expected results and targets, is subject to
various risks, uncertainties and assumptions, which may impact future
performance and our achievement of the results and targets discussed in this
section. For additional information on forward-looking information, refer to
"Forward-Looking Information" on page 51 of this MD&A. We may update our
outlook depending on changes in metals prices and other factors.

In addition to this section, refer to the "Operations Review"
and "Financial Review" sections for additional details on our outlook for 2017.
For information on our sensitivity to metals prices, refer below to the
"Commodity Markets" and "Sensitivity Analysis" sections of this MD&A.

17

---

Material Assumptions

Our 2017 operational and financial performance will be
influenced by a number of factors. At the macro-level, the general performance
of the Chinese, North American and global economies will influence the demand
for our products. The realized prices we achieve in the commodity markets
significantly affect our performance. Our general expectations regarding metals
prices and foreign exchange rates are included below in the Commodity Markets
and Sensitivity Analysis sections of this MD&A.

2017 Mine and Mill Production (Contained Metal in
Concentrate)

|                 |  |        |  |  | Year ended        |  |  |                   | 
|---------------- |  | ------ |  |  | ----------------- |  |  | ----------------- | 
|                 |  |        |  |  | December 31, 2016 |  |  | 2017 Guidance     | 
|Copper           |  | tonnes |  |  | 174,491           |  |  | 132,500 - 157,500 | 
|Zinc             |  | tonnes |  |  | 110,582           |  |  | 125,000 - 150,000 | 
|Precious metals1 |  | oz     |  |  | 167,951           |  |  | 145,000 - 175,000 | 

1Precious metals production includes gold and
silver production on a gold-equivalent basis. Silver converted to gold at a
ratio of 70:1.

In 2017, production of zinc contained in concentrate is
forecast to increase by approximately 25% compared to 2016 production,
reflecting the continued ramp up of Lalor ore production and the re-sequencing
of the mine plan at 777 to prioritize stopes containing higher zinc grades in
order to take advantage of favourable expected zinc prices. Copper and precious
metals production in 2017 is expected to decline by 17% and 5%, respectively,
from 2016 levels due to lower copper grades at Constancia, as per the recently
released 43-101 technical report, as well as reduced mining rates and lower
copper grades at the 777 mine. Declining production at the 777 mine reflects
more challenging operating conditions as the mine ages. Lower expected copper
grades at the 777 mine are due to the re-sequencing of the mine plan to
prioritize stopes containing higher zinc grades and is expected to result in
improved overall economics per tonne at 777.

Commodity Markets

In addition to our production, financial performance is
directly affected by a number of factors, including metals prices, foreign
exchange rates, and input costs, including energy prices. Average prices for
copper were significantly lower in 2016 compared to 2015, whereas zinc and
precious metals prices were higher.

We have developed the following market analysis from various
information sources including analyst and industry experts.

Copper

In 2016, the London Metal Exchange (LME) copper price
averaged $2.21 per pound ("/lb"), with prices ranging between $1.96/lb and
$2.70/lb. Copper refined metal markets experienced a moderate surplus in 2016,
as strong growth in mine supply from projects sanctioned several years ago and
relatively few production disruptions were partly offset by lower copper scrap
availability due to weak metal prices. Demand growth in China and globally was
moderate, exceeding weak expectations earlier in 2016.

In 2017, total mine production is expected to be similar to
2016, although there is greater than usual risk of production disruptions due to
renegotiations of labour agreements at major copper mines and underinvestment in
higher-cost copper mines to preserve cash flow during the recent low price
environment. Copper demand in 2017 is forecast to grow moderately again with a
strong US economy and reflationary macroeconomic policies expected to be
supportive of global copper demand.

18

---

We believe current copper prices remain at levels that are too
low to incentivize significant investments in new copper production. New copper
production will be needed to replace mine depletion and progressively lower mine
grades globally. As a result, copper mine supply is expected to peak before the
end of the decade which, assuming continued global and Chinese economic growth,
is expected to be followed by copper market deficits and significantly higher
copper prices.

Zinc

In 2016, the LME zinc price averaged $0.95/lb, with prices
ranging from $0.66/lb to $1.32/lb. Zinc market deficits that have been in place
for several years accelerated in 2016 with a number of mine production
suspensions due to low prices. As a result, global zinc concentrate stocks were
significantly depleted by late 2016, causing a sharp decline in zinc treatment
charges and reduced zinc smelter production due to lack of feed. Zinc demand in
China and globally saw moderate growth in 2016, which is expected to continue
into 2017. Zinc prices rose during the second half of 2016 in anticipation of a
shortage of physical zinc metal, and a continued drawdown in zinc metal
inventories is expected to cause stocks to reach critically low levels during
2017, likely causing further price increases sufficient to restart higher-cost
supply and constrain marginal demand.

Precious Metals

Gold and silver prices averaged $1,249 per ounce and $17.12 per
ounce, respectively, during 2016. Prices rose substantially in the first quarter
of 2016, as concerns about negative interest rate policies and low inflation
improved sentiment for gold. However, following the US presidential election the
introduction of pro-growth, inflationary macroeconomic policies and related
expectations for higher US interest rates led to a fall in precious metal prices
in the fourth quarter. The outlook for gold and silver is likely to remain
dependent on market sentiment and the trajectory of interest rates and
inflation.

Sensitivity Analysis

The following table
displays the estimated impact of changes in metals prices and foreign exchange
rates on our 2017 net profit, earnings per share and operating cash flow,
assuming that our operational performance is consistent with our guidance for
2017. The effects of a given change in an assumption are isolated.

|                      | 2017      | Change of 10%   | Impact on | Impact on | Impact on           
|--------------------- | --------- | --------------- | --------- | --------- | --------------------
|                      | Base      | represented by: | Profit    | EPS1      | operating cash flow2
|Metals Prices3        |           |                 |           |           |                     
|Copper price          | $2.50/lb  | +/- $0.25/lb    | +/- $51M  | +/- 0.21  | +/-
      $73M      
|Zinc
      price      | $1.20/lb  | +/- $0.12/lb    | +/- $24M  | +/- 0.10  | +/- $30M            
|Gold
      price4     | $1,200/oz | +/- $120/oz     | +/- $8M   | +/- 0.03  | +/-
      $10M      
|                      |           |                 |           |           |                     
|Exchange
      Rates5 |           |                 |           |           |                     
|C$/US$                | 1.30      | +/- 0.13        | +/- $35M  | +/- 0.15  | +/- $30M            

1 Based on estimated weighted average number of
common shares outstanding as at December 31, 2016 of 237.3 million.
2 Operating cash flow before changes in non-cash working capital.
3Copper and zinc prices are based on quoted LME prices and gold
price is based on London Bullion Market Association prices. 4Gold price sensitivity also includes the impact of a +/-10% change in the
silver price (2017 assumption: $18/oz of silver). 5 Change in
profit from operational performance only, does not include change in profit
arising from translation of balance sheet accounts.

19

---

FINANCIAL REVIEW

Financial Results

In the fourth quarter of 2016, our loss was $47.3 million
compared to a loss of $255.5 million for the fourth quarter of 2015. For the
full year 2016, we recorded a loss of $35.2 million compared to a loss of $331.4
million in 2015.

The following table provides further details of this variance:

|                                                     |  | Three months ended |   |  | Year ended    |  
|---------------------------------------------------- |  | ------------------ | - |  | ------------- | -
|(in $ millions)                                      |  | Dec. 31, 2016      |   |  | Dec. 31, 2016 |  
|Increase (decrease) in components of profit or loss: |  |                    |   |  |               |  
|Revenues                                             |  | (19.9              | ) |  | 242.6         |  
|Cost of sales                                        |  |                    |   |  |               |  
|Mine operating
      costs                           |  | 25.3               |   |  | (56.5         | )
|Depreciation and amortization                        |  | 14.1               |   |  | (81.6         | )
|Asset and goodwill impairment loss                   |  | 378.9              |   |  | 433.4         |  
|Gain on disposal of subsidiary                       |  | (37.0              | ) |  | (37.0         | )
|Finance expenses                                     |  | (49.2              | ) |  | (89.6         | )
|Other                                                |  | (12.6              | ) |  | (6.7          | )
|Tax                                                  |  | (91.4              | ) |  | (108.4        | )
|                                                     |  |                    |   |  |               |  
|Decrease in loss for the period                      |  | 208.2              |   |  | 296.2         |  

Revenue

Total revenue for the fourth quarter of 2016 was $316.7
million, $19.9 million lower than the same period in 2015. This decrease was
primarily due to lower copper and gold sales volumes compared to the fourth
quarter of 2015. Lower sales volumes were partially offset by higher prices for
all metals and the effect of lower treatment and refining charges.

For the full year 2016, revenue was $1,128.7 million, $242.6
million higher than in 2015, due to higher sales volumes at Constancia and lower
pre-production revenue which was capitalized. These increases were partially
offset by higher treatment and refining charges as well as lower copper prices.
The following table provides further details of this variance:

20

---

|                                                              |  | Three
      months ended |   |  | Year
      ended |  
|------------------------------------------------------------- |  | ------------------------ | - |  | ---------------- | -
|(in $ millions)                                               |  | Dec. 31, 2016            |   |  | Dec. 31, 2016    |  
|Metals prices1                                                |  |                          |   |  |                  |  
|Higher (lower)
      copper prices                            |  | 12.6                     |   |  | (27.9            | )
|Higher zinc prices                                            |  | 21.9                     |   |  | 9.4              |  
|Higher gold prices                                            |  | 3.3                      |   |  | 14.7             |  
|Higher silver prices                                          |  | 1.0                      |   |  | 4.2              |  
|Sales volumes                                                 |  |                          |   |  |                  |  
|(Lower) higher copper sales volumes                           |  | (65.2                    | ) |  | 176.6            |  
|Higher zinc sales
      volumes                               |  | 1.9                      |   |  | 3.3              |  
|Lower gold sales volumes                                      |  | (6.5                     | ) |  | (1.4             | )
|Higher silver sales
      volumes                             |  | 2.2                      |   |  | 18.2             |  
|Other                                                         |  |                          |   |  |                  |  
|Derivative
      mark-to-market (decrease) increase           |  | (1.9                     | ) |  | 10.1             |  
|Pre-production revenue (increase) decrease                    |  | (1.6                     | ) |  | 56.2             |  
|Other volume and
      pricing differences                    |  | (0.3                     | ) |  | (0.2             | )
|Effect of lower (higher) treatment and refining charges       |  | 12.7                     |   |  | (20.6            | )
|                                                              |  |                          |   |  |                  |  
|(Decrease) increase in revenue in 2016 compared
      to 2015 |  | (19.9                    | ) |  | 242.6            |  

1 See discussion below for further information
regarding metals prices.

Our revenue by significant product type is summarized
below:

|                               |  | Three months ended |   |  | Year ended |  
|------------------------------ |  | ------------------ | - |  | ---------- | -
|                               |  | Dec. 31,           |   |  | Dec. 31,   |  
|(in $ millions)                |  | 2016               |   |  | 2015       |  
|Copper                         |  | 230.7              |   |  | 283.3      |  
|Zinc                           |  | 71.6               |   |  | 49.9       |  
|Gold                           |  | 28.8               |   |  | 32.0       |  
|Silver                         |  | 14.3               |   |  | 11.1       |  
|Other                          |  | 0.7                |   |  | 0.8        |  
|Gross
      revenue1           |  | 346.1              |   |  | 377.1      |  
|Treatment and refining charges |  | (29.4              | ) |  | (42.1      | )
|Pre-production revenue         |  | -                  |   |  | 1.6        |  
|Revenue                        |  | 316.7              |   |  | 336.6      |  

1Copper, gold and silver revenues include
unrealized gains and losses related to non-hedge derivative contracts including
fixed for floating swaps, that are included in realized prices. Zinc revenues
include unrealized gains and losses related to non-hedge derivative contracts
that are not included in realized prices.

21

---

Realized sales pricesThis measure
is intended to enable management and investors to understand the average
realized price of metals sold to third parties in each reporting period. The
average realized price per unit sold does not have any standardized meaning
prescribed by IFRS, is unlikely to be comparable to similar measures presented
by other issuers, and should not be considered in isolation or a substitute for
measures of performance prepared in accordance with IFRS.

For sales of copper, gold and silver there are outstanding
non-hedge derivatives (QP hedges) which are intended to manage the provisional
pricing risk arising from quotational period terms in concentrate sales
agreements. The QP hedges are not removed from the calculation of realized
prices. We expect that gains and losses on QP hedges will offset provisional
pricing adjustments on concentrate sales contracts.

Our realized prices for the fourth quarter and full year of
2016 and 2015, respectively, are summarized below:

|        |  |      |  |  |         |  |  | Realized prices1for the |  |  |          |  |  | Realized prices1for the | 
|------- |  | ---- |  |  | ------- |  |  | ----------------------- |  |  | -------- |  |  | ----------------------- | 
|        |  |      |  |  |         |  |  | Three months ended      |  |  |          |  |  | Year ended              | 
|        |  |      |  |  | LME QTD |  |  | Dec. 31,                |  |  | Dec. 31, |  |  | LME YTD                 | 
|        |  |      |  |  | 20162   |  |  | 2016                    |  |  | 2015     |  |  | 20162                   | 
|Prices  |  |      |  |  |         |  |  |                         |  |  |          |  |  |                         | 
|Copper  |  | $/lb |  |  | 2.40    |  |  | 2.37                    |  |  | 2.19     |  |  | 2.21                    | 
|Zinc3   |  | $/lb |  |  | 1.14    |  |  | 1.19                    |  |  | 0.83     |  |  | 0.95                    | 
|Gold4   |  | $/oz |  |  |         |  |  | 1,136                   |  |  | 1,005    |  |  |                         | 
|Silver4 |  | $/oz |  |  |         |  |  | 15.72                   |  |  | 14.82    |  |  |                         | 

1Realized prices exclude refining and treatment
charges and are on the sale of finished metal or metal in concentrate. Realized
prices include the effect of provisional pricing adjustments on prior period
sales.2London Metal Exchange average for copper and
zinc prices.3Zinc realized prices include premiums
paid by customers for delivery of refined zinc metal, but exclude unrealized
gains and losses related to non-hedge derivative contracts that are included in
zinc revenues. For the three months ended December 31, 2016, the unrealized
component of the zinc derivative resulted in a loss of $0.03/lb.
4Sales of gold and silver from our 777 and Constancia
mines are subject to our precious metals stream agreement with Silver Wheaton,
pursuant to which we recognize deferred revenue for precious metals deliveries
and also receive cash payments. Stream sales are included within realized prices
and their respective deferred revenue and cash payment rates can be found on
page 24.



22

---

The following table provides a reconciliation of average
realized price per unit sold, by metal, to revenues as shown in the consolidated
financial statements:

|                                                   |  | Three months
      ended December 31, 2016 | 
|-------------------------------------------------- |  | ------------------------------------------ | 
|(in $ millions)1                                   |  | Copper                                     | 
|Revenue per financial statements                   |  | 230.7                                      | 
|Derivative mark-to-market 2                        |  | -                                          | 
|Revenue, excluding mark-to-market on non-QP hedges |  | 230.7                                      | 
|Payable metal in concentrate sold 3                |  | 44,192                                     | 
|Realized price 4                                   |  | 5,221                                      | 
|Realized price 5                                   |  | 2.37                                       | 

|                                                   |  | Year ended
      December 31, 2016 | 
|-------------------------------------------------- |  | ---------------------------------- | 
|(in $ millions)1                                   |  | Copper                             | 
|Revenue per financial statements                   |  | 835.5                              | 
|Derivative mark-to-market 2                        |  | -                                  | 
|Revenue, excluding mark-to-market on non-QP hedges |  | 835.5                              | 
|Payable metal in concentrate sold 3                |  | 171,451                            | 
|Realized price 4                                   |  | 4,872                              | 
|Realized price 5                                   |  | 2.21                               | 

|                                                   |  | Three months ended
      December 31, 2015
|-------------------------------------------------- |  | ------------------------------------------
|(in $ millions)1                                   |  | Copper                                    
|Revenue per financial statements                   |  | 283.3                                     
|Derivative mark-to-market 2                        |  | -                                         
|Revenue, excluding mark-to-market on non-QP hedges |  | 283.3                                     
|Payable metal in concentrate sold 3                |  | 58,714                                    
|Realized price 4                                   |  | 4,826                                     
|Realized price 5                                   |  | 2.19                                      

|                                                          |  | Year ended December
      31, 2015
|--------------------------------------------------------- |  | ----------------------------------
|(in $ millions)1                                          |  | Copper                            
|Revenue per financial statements                          |  | 686.0                             
|Derivative mark-to-market 2                               |  | -                                 
|Difference in average versus
      realized exchange rate |  | 0.7                               
|Revenue, excluding mark-to-market on non-QP hedges        |  | 686.7                             
|Payable metal in concentrate sold 3                       |  | 134,600                           
|Realized price 4                                          |  | 5,102                             
|Realized price 5                                          |  | 2.31                              

1Average realized price per unit sold may not
calculate based on amounts presented in this table due to rounding.2Derivative mark-to-market excludes mark-to-market on QP
hedges.3Copper and zinc shown in tonnes and gold and silver
shown in ounces.4Realized price for copper and zinc
in $/metric tonne and realized price for gold and silver in $/oz. 5Realized price for copper and zinc in $/lb.

The price, quantity and mix of metals sold, affect our revenue,
operating cash flow and profit. Revenue from metals sales can vary from quarter
to quarter due to production levels, shipping volumes and transfer of risk and
title to customers.

23

---

Metals Prices

For details on market metal prices refer to the discussion on
Commodity Markets section beginning on page 18 of this MD&A.

Stream Sales

The following table shows stream sales included within realized
prices and their respective deferred revenue and cash payment rates:

|                                       |  |      |  |  | Three months ended |  |  | Year ended    | 
|-------------------------------------- |  | ---- |  |  | ------------------ |  |  | ------------- | 
|                                       |  |      |  |  | Dec. 31, 2016      |  |  | Dec. 31, 2016 | 
|                                       |  |      |  |  | Manitoba           |  |  | Peru          | 
|Gold                                   |  | oz   |  |  | 6,314              |  |  | 3,343         | 
|Silver                                 |  | oz   |  |  | 83,838             |  |  | 701,654       | 
|Gold deferred revenue drawdown rate1   |  | $/oz |  |  | 977                |  |  | 432           | 
|Gold
      cash rate 2                 |  | $/oz |  |  | 408                |  |  | 400           | 
|Silver deferred revenue drawdown rate1 |  | $/oz |  |  | 17.89              |  |  | 7.40          | 
|Silver cash rate 2                     |  | $/oz |  |  | 6.02               |  |  | 5.90          | 

|                                       |  |      |  |  | Three months ended |  |  | Year ended    | 
|-------------------------------------- |  | ---- |  |  | ------------------ |  |  | ------------- | 
|                                       |  |      |  |  | Dec. 31, 2015      |  |  | Dec. 31, 2015 | 
|                                       |  |      |  |  | Manitoba           |  |  | Peru          | 
|Gold                                   |  | oz   |  |  | 6,362              |  |  | 4,473         | 
|Silver                                 |  | oz   |  |  | 77,895             |  |  | 511,148       | 
|Gold deferred revenue drawdown rate1   |  | $/oz |  |  | 921                |  |  | 436           | 
|Gold
      cash rate 2                 |  | $/oz |  |  | 404                |  |  | 400           | 
|Silver deferred revenue drawdown rate1 |  | $/oz |  |  | 18.68              |  |  | 7.63          | 
|Silver cash rate 2                     |  | $/oz |  |  | 5.96               |  |  | 5.90          | 

1Deferred revenue amortization is recorded in
Manitoba at C$1,382/oz and C$25.23/oz for gold and silver, respectively, (2015 -
C$1,243/oz and C$25.18/oz) and converted to US dollars at the exchange rate in
effect at the time of revenue recognition.2The gold
and silver cash rate for Manitoba increased by 1% from $400/oz and $5.90/oz
effective August 1, 2015. Subsequently every year, on August 1, the cash rate
will increase by 1% compounded. The weighted average cash rate is
disclosed.

24

---

Cost of Sales

Our detailed cost of sales is summarized as follows:

|                                                               |  | Three months ended |   |  | Year ended | 
|-------------------------------------------------------------- |  | ------------------ | - |  | ---------- | 
|                                                               |  | Dec. 31,           |   |  | Dec. 31,   | 
|(in $ thousands)                                               |  | 2016               |   |  | 2015       | 
|Peru                                                           |  |                    |   |  |            | 
|Mine                                                           |  | 12,261             |   |  | 20,780     | 
|Concentrator                                                   |  | 32,253             |   |  | 29,792     | 
|Changes in product inventory                                   |  | 8,538              |   |  | 11,008     | 
|Depreciation and amortization                                  |  | 48,847             |   |  | 62,278     | 
|G&A                                                            |  | 12,957             |   |  | 13,232     | 
|Freight,
      royalties and other charges                     |  | 13,038             |   |  | 23,574     | 
|Total Peru cost of sales                                       |  | 127,894            |   |  | 160,664    | 
|                                                               |  |                    |   |  |            | 
|Manitoba                                                       |  |                    |   |  |            | 
|Manitoba mines                                                 |  | 29,193             |   |  | 35,685     | 
|Manitoba concentrators                                         |  | 11,767             |   |  | 9,635      | 
|Zinc plant                                                     |  | 17,113             |   |  | 15,959     | 
|Purchased ore and concentrate (before
      inventory changes) |  | 4,501              |   |  | 2,514      | 
|Changes in product inventory                                   |  | (4,894             | ) |  | 327        | 
|Depreciation and amortization                                  |  | 29,345             |   |  | 30,012     | 
|G&A                                                            |  | 13,291             |   |  | 12,300     | 
|Freight, royalties and other
      charges                     |  | 10,239             |   |  | 10,742     | 
|Total
      Manitoba cost of sales                             |  | 110,555            |   |  | 117,174    | 
|                                                               |  |                    |   |  |            | 
|Cost of sales                                                  |  | 238,449            |   |  | 277,838    | 

Total cost of sales for the fourth quarter of 2016 was $238.4
million, reflecting a decrease of $39.4 million from the fourth quarter of 2015.
Cost of sales related to Peru was $32.8 million lower primarily due to lower
mining and freight costs as a result of reduced ore production and lower
concentrate sales. Mining costs in Manitoba decreased as a result of cost
reduction efforts.

Cost of sales for the full year in 2016 was $905.8 million, an
increase of $138.1 million compared to 2015. Cost of sales related to Peru was
$181.3 million higher primarily as a result of the commencement of commercial
production at Constancia during 2015. Cost of sales related to Manitoba was
$43.2 million lower primarily as a result of reductions of purchased zinc
concentrate and a decline in G&A costs as a result of cost reduction efforts
and the fact that the prior year included $17.1 million in pension costs
associated with new collective bargaining agreements.

For details on unit operating costs refer to the respective
tables in the Operations Review section beginning on page 8 of this MD&A.

For the fourth quarter of 2016, other significant variances in
expenses, compared to the same period in 2015, include the following:

|− | Asset and goodwill impairment expensesof $378.9
      million in the fourth quarter of 2015 were related to impairments at our
      Peru and Arizona business units primarily resulting from lower expected
      short and long-term copper prices and an expected delay in Rosemont
      construction.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

25

---

|− | Gain on disposal of subsidiaryof $37.0 million in
      the fourth quarter of 2015 is related to the sale of Balmat on November 2,
      2015 to Star Mountain Resources, Inc.                                                                                                                                                                                 
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                
|− | Finance expense increasedby $49.2 million
      compared to the fourth quarter of 2015. This increase is mostly the result
      of the $47.7 million call premium paid to facilitate the early redemption
      of our Redeemed Notes.                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                
|− | Selling and administrative expensesincreased by
      $5.1 million compared to the same period in 2015. The increase was
      primarily due to an increase in stock based compensation charges of $4.1
      million for previously issued share units. The increase resulted primarily
      from share price appreciation during the fourth quarter of 2016.
|  |                                                                                                                                                                                                                                                                                                                                                                
|− | Other finance lossesincreased by $6.9 million,
      compared to the same period in 2015, primarily as a result of:                                                                                                                                                                                                                                            

| | − | A fair value adjustment on the embedded derivative
      related to the Redeemed Notes and our gold option liability related to the
      acquisition of the New Britannia Mine and Mill (New Britannia) resulted
      in a loss of $5.4 million in the fourth quarter of 2016 compared to a gain
      of $0.2 million in the fourth quarter of 2015.                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | − | Mark-to-market on warrants resulted in losses of $4.1
      million in the fourth quarter of 2016 compared to gains of $0.5 million in
      the fourth quarter of 2015.                                                                                                                                                                                                                                                                                                                                                                                                      
| | − | Foreign exchange gains in the fourth quarter of 2016 were
      $1.2 million, $3.2 million higher than the same period in 2015. The
      favourable variance is a function of a weakening Canadian dollar versus
      the US dollar providing gains on US denominated receivables in the
      Manitoba business unit and Canadian denominated liabilities in the parent
      entity. Also contributing to the higher gains was a stronger Peruvian Sol
      which increases the value of Sol denominated statutory receivables in the
      South American business unit.

For the full year, other significant variances in expenses in
2016, compared to 2015 include the following:

|− | Asset and goodwill impairment expenseswere $433.4 million for 2015. This mainly resulted from the following
      impairments:
|- | ------------------------------------------------------------------------------------------------------------------------------

| | − | Goodwill impairment charges of $114.5 million recorded on
      the Arizona business unit. The goodwill impairment charge was triggered
      primarily due to lower expected copper prices and an expected delay in the
      start of construction at the Rosemont project.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | − | Goodwill and asset impairment charges of $67.1 million
      and $197.3 million, respectively, for the Peru business unit. These
      charges were triggered primarily due to lower expected copper prices.                                                                 
| | − | An impairment of $34.5 million in the Arizona business
      unit taken in the third quarter of 2015 related to equipment previously
      purchased or ordered by prior Augusta management which was deemed
      unsuitable to achieve the design objectives for Rosemont. 
| | − | An impairment charge of $19.9 million taken in the second
      quarter of 2015 as a result of the decision not to proceed with
      construction of a new concentrator at Lalor following the New Britannia
      acquisition in May 2015.                                 

|− | Gain on disposition of subsidiariesof $37.0
      million for 2015 occurred in the fourth quarter and is related to the sale
      of Balmat.                                                                                                                                                                                                                                                                                   
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|− | Selling and administrative expensesincreased by
      $6.8 million in 2016 compared to 2015. The increase was primarily due to
      an increase in stock based compensation charges of $9.0 million for share
      units, resulting primarily from share price appreciation during 2016. This
      was partially offset by a decrease in general support costs as a result of
      efforts to reduce discretionary spending.

26

---

|− | Finance expensesincreased by $89.6 million in
      2016 compared to 2015. This increase is mainly the result of the $47.7
      million call premium paid to facilitate the early redemption of our
      Redeemed Notes. In addition, the achievement of commercial production at
      Constancia triggered the cessation of capitalization of interest costs
      associated with our Redeemed Notes resulting in the recognition of
      approximately $27.3 million of additional interest costs on the
      consolidated income statements in 2016. We also incurred higher interest
      costs and amortization of finance fees on our Credit Facilities, which
      were a function of drawdowns on our Credit Facilities in 2015 and early
      2016.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Tax Expense (Recovery)

For the three months ended and year ended December 31, 2016,
tax expense increased by $91.4 million and $108.4 million, respectively,
compared to the same periods in 2015. The following table provides further
details:

|                                               |  | Three months ended |  |  | Year ended |  
|---------------------------------------------- |  | ------------------ |  |  | ---------- | -
|                                               |  | Dec. 31,           |  |  | Dec. 31,   |  
|(in $ thousands)                               |  | 2016               |  |  | 2015       |  
|Deferred tax expense (recovery) - income tax 1 |  | 12,154             |  |  | (63,269    | )
|Deferred tax expense (recovery) - mining tax 1 |  | 1,717              |  |  | (11,390    | )
|Total deferred tax expense (recovery)          |  | 13,871             |  |  | (74,659    | )
|Current tax expense - income tax               |  | 1,320              |  |  | 1,782      |  
|Current tax expense - mining tax               |  | 6,017              |  |  | 2,735      |  
|Total
      current tax expense                |  | 7,337              |  |  | 4,517      |  
|                                               |  |                    |  |  |            |  
|Tax expense (recovery)                         |  | 21,208             |  |  | (70,142    | )

1Deferred tax expense (recovery) represents our
draw down/increase of non-cash deferred income and mining tax
assets/liabilities.

Income Tax Expense

For 2016, applying the estimated Canadian statutory income tax
rate of 27.0% to our income before taxes of $5.6 million would have resulted in
a tax expense of approximately $1.5 million; however, we recorded an income tax
expense of $28.0 million. The significant items causing our effective income tax
rate to be different than the 27.0% estimated Manitoba statutory income tax rate
include:

|− | Certain deductible temporary differences with respect to
      liabilities for Manitoba decommissioning and restoration and other
      employee benefit liabilities were not recognized, as it was not probable
      that we would realize the recovery based on the timing of the reversals of
      the deductible temporary differences and the future projected taxable
      profit of the Manitoba operations, resulting in an increase in deferred
      tax expense of approximately $13.8 million;                                                                                                                                                                       
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|− | Management revised its estimated reversals of taxable
      temporary differences in Peru using projected accounting and tax
      depreciation rates in addition to taking into account newly enacted tax
      legislation in Peru that increased the corporate income tax rate to 29.5%.
      As a result, certain taxable temporary differences were determined
      probable to reverse outside the timeframe of the 15 year tax stability
      agreement in Peru and will be subject to the newly enacted income tax rate
      of 29.5% rather than the previously enacted income tax rate of 26%,
      resulting in an increase in deferred tax expense of $8.0 million;
|− | The tax benefit of certain Peruvian expenses was not
      recognized in the year since it was not considered probable that the
      benefit of these expenditures would be realized as the tax authorities in
      Peru would view them as non-deductible expenditures for income tax
      purposes, resulting in an increase in deferred tax expense of $7.3
      million;                                                                                                                                                                                                                                                                                                    
|− | Certain deductible temporary differences with respect to
      our foreign operations are recorded using an income tax rate other than
      the Canadian statutory income tax rate of 27.0%, resulting in an increase
      in deferred tax expense of $2.3 million; and                                                                                                                                                                                                                                                                                                                                                                                                           

27

---

|− | A decrease in the deferred tax expense of $3.4
      million due to the fact that certain Canadian non-monetary assets are
      recognized at historical cost while the tax bases of the assets change as
      exchange rates fluctuate, which gives rise to taxable temporary
      differences.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For 2015, applying the estimated Canadian statutory income tax
rate of 27.0% to our loss before taxes of $399.0 million would have resulted in
a tax recovery of approximately $107.7 million; however, we recorded an income
tax recovery of $67.1 million. The significant items causing our effective
income tax rate to be different than the 27.0% estimated Manitoba statutory
income tax rate include:

|− | Under IFRS, no deferred taxes are recorded with respect
      to temporary differences initially arising on goodwill in a business
      combination. As a result, the impairment of the goodwill of approximately
      $181.6 million does not result in a corresponding tax recovery resulting
      in an increase in deferred tax expense of $49 million;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|− | The tax benefit of certain Peruvian expenses were not
      recognized in the year since it was not considered probable that the
      benefit of these expenditures would be realized as the tax authorities in
      Peru would view them as non-deductible expenditures for income tax
      purposes, resulting in an increase in deferred tax expense of $5.5
      million;                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|− | Certain deductible temporary differences with respect to
      additional liabilities for Manitoba decommissioning and restoration and
      other employee benefit liabilities were not recognized, as it was not
      probable that we would realize the recovery based on the timing of the
      reversals of the deductible temporary differences and the future projected
      taxable profit of the Manitoba operations, resulting in an increase in
      deferred tax expense of approximately $4.4 million;                                                                                                                                                                                                                                                                                                                                       
|− | An increase in the deferred tax expense of $4.4 million
      due to the fact that certain Canadian non-monetary assets are recognized
      at historical cost while the tax base of the assets change as exchange
      rates fluctuate, which gives rise to taxable temporary differences;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|− | Certain foreign exchange losses of $9.2 million are not
      deductible for local income tax purposes and therefore result in an
      increase in deferred tax expense of approximately $2.5 million;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|− | Increases to our decommissioning and restoration
      liabilities in Manitoba resulting from a decrease in discount rates
      required us to record a corresponding non-cash increase to property,
      plant, and equipment. We recognized a deferred tax expense of $2.1 million
      related to the increase in property, plant and equipment; however, we did
      not recognize a deferred tax recovery related to the increase in the
      decommissioning and restoration liabilities because we determined it is
      not probable that we will realize the benefit of the recovery;                                                                                                                                                                                                                                                          
|− | Management revised its estimated reversals of taxable
      temporary differences in Peru using projected accounting and tax
      depreciation rates. The revised projections reflects revised allocations
      to specific tax pools taking into consideration the risk of loss
      carryforwards expiring within the four year carryforward period based on
      future forecasted commodity prices and additional capital expenditures. As
      a result, certain taxable temporary differences were determined probable
      to reverse inside the timeframe of the 15 year tax stability agreement in
      Peru and will be subject to the income tax rate of 32% rather than the
      income tax rate of 26% that will apply outside the tax stability
      agreement, resulting in an increase in deferred tax expense of $1.3
      million;
|− | Certain deductible temporary differences with respect to
      our foreign operations are recorded using an income tax rate other than
      the Manitoba statutory income tax rate of 27.0%, resulting in a decrease
      in deferred tax expense of $18.7 million; and,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|− | The $37.0 million gain on the Balmat sale is mainly the
      result of the derecognition of net liabilities and foreign currency
      translation adjustments which are non-taxable for local income tax
      purposes and is not reflected in the income tax provision as the
      deductible temporary differences related to Balmat were not recognized in
      the income tax provision as it was not probable that the deductible
      temporary differences would be realized, resulting in a decrease in
      deferred tax expense of $10.0 million.                                                                                                                                                                                                                                                                                            

28

---

Mining Tax Expense

Applying the estimated Manitoba mining tax rate of 10.0% to our
income before taxes of $5.6 million for the year ended December 31, 2016 would
have resulted in a tax expense of approximately $0.6 million and we recorded a
mining tax expense of $12.8 million (2015  recovery $0.5 million). Effective
mining tax rates can vary significantly based on the composition of our earnings
and the expected amount of mining taxable profits. Corporate costs and other
costs not related to mining operations are not deductible in computing mining
profits. A brief description of how mining taxes are calculated in our various
business units is discussed below.

Manitoba

The Province of Manitoba imposes mining tax on profit related
to the sale of mineral products mined in the Province of Manitoba (mining
taxable profit) at the following rates:

|− | 10% of total mining taxable profit if mining
      profit is $50 million or less;                       
|- | --------------------------------------------------------------------------------------------------------
|− | 15% of total mining taxable profit if mining
      profits are between $55 million and $100 million; and
|− | 17% of total mining taxable profit if mining
      profits exceed $105 million.                         

We estimate that the tax rate that will be applicable when
temporary differences reverse will be approximately 10.0% .

Peru

The Peruvian government imposes two parallel mining tax
regimes, the Special Mining Tax and the Modified Royalty, on companies'
operating mining income on a sliding scale, with progressive rates ranging from
2.0% to 8.4% and 1.0% to 12.0%, respectively. Based on financial forecasts, we
have recorded a deferred tax liability as at December 31, 2016 at the tax rate
we expect to apply when temporary differences reverse.

LIQUIDITY AND CAPITAL RESOURCES

Senior Unsecured Notes Refinancing

On December 12, 2016, we completed an offering of $1.0 billion
aggregate principal amount of senior notes in two series: (i) a series of 7.250%
senior notes due 2023 in an aggregate principal amount of $400 million and (ii)
a series of 7.625% senior notes due 2025 in an aggregate principal amount of
$600 million. The New Notes are governed by an indenture, dated as of December
12, 2016, among the Company, the subsidiaries of the Company party thereto as
guarantors and U.S. Bank National Association, as trustee.

The proceeds from this offering were used to redeem all US$920
million of our outstanding Redeemed Notes and to pay a call premium of $47.7
million, prepaid interest associated with the redemption of the Redeemed Notes
and transaction costs associated with the New Notes.

Senior Secured Revolving Credit Facilities

On March 30, 2016, we amended and restated our Canadian and
Peruvian senior secured revolving credit facilities (the Credit Facilities) to
consolidate the lender groups and restructure the two Credit Facilities to
provide, among other things, more flexible financial covenants. Additional
commitments were received during the second and fourth quarters to bring total
commitments under the Credit Facilities to $550 million.

We have approximately $68.6 million in letters of credit issued
to support Peruvian reclamation obligations; these letters of credit had
previously been cash collateralized. During the year ended 2016, we reissued
these letters of credit under our Peru facility and released the associated
restricted cash, which in turn was utilized to repay indebtedness under the
Credit Facilities.

29

---

As at December 31, 2016, between our two Credit Facilities we
have drawn $202.1 million in cash and $104.0 in letters of credit, leaving total
undrawn availability of $243.9 million.

As at December 31, 2016, we were in compliance with our
covenants under the Credit Facilities.

Equipment Finance Facility

As at December 31, 2016, we had approximately $54.4 million
owing under the facility.

Financial Condition

Financial Condition as at December 31, 2016 compared to
December 31, 2015

Cash and cash equivalents increased by $93.0 million from
December 31, 2015 to $146.9 million as at December 31, 2016. This increase was
mainly a result of operating cash flow of $475.1 million and a net release of
restricted cash of $45.9 million. These amounts were partly offset by $192.8
million of capital investments primarily at our Peru and Manitoba operations,
interest payments of $126.5 million, financing costs of $21.8 million, payment
of tender premiums of $47.7 million to refinance our Redeemed Notes and net
borrowing on our long-term debt instruments of $45.3 million. We hold the
majority of our cash and cash equivalents in low-risk, liquid investments with
major Canadian and Peruvian financial institutions.

Working capital increased by $63.9 million to $121.5 million
from December 31, 2015 to December 31, 2016. In addition to the increased cash
and cash equivalents position:

|− | Current portion of long-term debt decreased by $53.4
      million mainly as a result of amendments to the Credit Facilities;
|- | -----------------------------------------------------------------------------------------------------------------------------
|− | Trade and other payables decreased by $17.5 million
      primarily as a result of the timing of capital spending;           
|− | Receivables decreased by $76.1 million, primarily due to
      the timing of sales and statutory payments from Peru;         
|− | Other financial assets decreased by $13.1 million, mainly
      due to mark-to-market valuations on QP hedging; and          
|− | Inventories decreased by $7.7 million as a result of the
      timing of concentrate shipments.                              

30

---

Cash Flows

The following table summarizes our cash flows for the three
months and year ended December 31, 2016 and December 31, 2015:

|                                                                        |  | Three months ended |   |  | Year ended |  
|----------------------------------------------------------------------- |  | ------------------ | - |  | ---------- | -
|                                                                        |  | Dec. 31,           |   |  | Dec. 31,   |  
|(in $ thousands)                                                        |  | 2016               |   |  | 2015       |  
|Loss for the period                                                     |  | (47,273            | ) |  | (255,468   | )
|Tax
      expense (recovery)                                            |  | 21,208             |   |  | (70,142    | )
|Items not affecting cash                                                |  | 151,523            |   |  | 443,768    |  
|Taxes paid                                                              |  | (3,201             | ) |  | (750       | )
|Operating cash flows before changes in non-cash working
      capital   |  | 122,257            |   |  | 117,408    |  
|Change in non-cash working capital                                      |  | 17,868             |   |  | (46,640    | )
|Cash generated from operating activities                                |  | 140,125            |   |  | 70,768     |  
|Cash
      used in investing activities                                 |  | (43,870            | ) |  | (89,543    | )
|Cash (used) generated in financing activities                           |  | (68,464            | ) |  | (30,461    | )
|Effect
      of movement in exchange rates on cash and cash equivalents |  | 815                |   |  | (10,880    | )
|                                                                        |  |                    |   |  |            |  
|Increase (decrease) in cash and cash equivalents                        |  | 28,606             |   |  | (60,116    | )

Cash Flow from Operating Activities

Cash generated from operating activities was $140.1 million
during the fourth quarter of 2016, an increase of $69.4 million compared with
the same period last year. Changes in non-cash working capital generated $17.9
million of cash in the current quarter mostly due to the timing of trade
payables. Operating cash flows before change in non-cash working capital was
$122.3 million during the fourth quarter of 2016, reflecting an increase of $4.8
million compared to the fourth quarter of 2015. Operating cash flows benefited
from higher overall realized sales prices and lower costs, which was partially
offset by lower sales volumes compared to the fourth quarter of 2015.

Year-to-date cash generated from operating activities was
$475.1 million in 2016, an increase of $289.4 million compared to 2015.
Operating cash flows before changes in non-cash working capital were $387.9
million, an increase of $156.0 million compared to 2015. The significant
increases are mainly the result of higher sales volumes from the Constancia site
as it generated a full year of operating cash flow in the current year compared
to only a partial period of time last year. In addition, there was a substantial
increase in cash generated from changes in non-cash working capital mostly due
to receipts of statutory receivable amounts from Peru.

Cash Flow from Investing and Financing Activities

During the fourth quarter of 2016, we used $112.3 million in
investing and financing activities primarily driven by the repayment of $64.0
million in principal on our Credit Facilities and capital expenditures of $43.5
million.

Year-to-date, we used $383.1 million of cash in investing and
financing activities primarily driven by net principal repayments on our Credit
Facilities of $95.0 million, principal paid on our equipment finance facility of
$16.5 million, capital expenditures of $192.8 million, interest paid of $126.5
million, partially offset by funds released from restricted cash of $45.9
million.

31

---

Capital Expenditures

The following summarizes accrued and cash additions to capital
assets for the periods indicated:

|                                                 |  | Three months |   |  |            |   |  |          |   |  |          |   |  |          | 
|------------------------------------------------ |  | ------------ | - |  | ---------- | - |  | -------- | - |  | -------- | - |  | -------- | 
|                                                 |  | ended        |   |  | Year ended |   |  | Guidance |  
|                                                 |  | Dec. 31,     |   |  | Dec. 31,   |   |  | Dec. 31, |   |  | Dec. 31, |   |  | Annual 1 | 
|(in $ millions)                                  |  | 2016         |   |  | 2015       |   |  | 2016     |   |  | 2015     |   |  | 2016     | 
|Manitoba sustaining capital expenditures         |  | 12.2         |   |  | 20.4       |   |  | 60.0     |   |  | 72.7     |   |  | 80.0     | 
|Peru
      sustaining capital expenditures       |  | 31.7         |   |  | 48.6       |   |  | 118.0    |   |  | 183.6    |   |  | 140.0    | 
|Total sustaining capital
      expenditures      |  | 43.9         |   |  | 69.0       |   |  | 178.0    |   |  | 256.3    |   |  | 220.0    | 
|Arizona other capitalized costs                  |  | 3.4          |   |  | 14.6       |   |  | 25.4     |   |  | 49.7     |   |  | 30.0     | 
|Peru other capitalized costs                     |  | (3.9         | ) |  | 0.8        |   |  | 13.8     |   |  | 57.1     |   |  |          | 
|Manitoba other capitalized costs                 |  | 7.0          |   |  | 1.7        |   |  | 22.8     |   |  | 22.4     |   |  |          | 
|Capitalized exploration                          |  | -            |   |  | 1.7        |   |  | 1.9      |   |  | 5.0      |   |  | 3.0      | 
|Capitalized interest                             |  | 3.7          |   |  | 3.7        |   |  | 14.7     |   |  | 42.0     |   |  |          | 
|Other capitalized costs                          |  | -            |   |  | 0.6        |   |  | -        |   |  | 0.7      |   |  |          | 
|Total other capitalized costs                    |  | 10.2         |   |  | 23.1       |   |  | 78.6     |   |  | 176.9    |   |  |          | 
|Total accrued capital additions                  |  | 54.1         |   |  | 92.1       |   |  | 256.6    |   |  | 433.2    |   |  |          | 
|Reconciliation to cash capital additions:        |  |              |   |  |            |   |  |          |   |  |          |   |  |          | 
|Decommissioning and
      restoration obligation |  | 1.9          |   |  | (6.0       | ) |  | (25.0    | ) |  | (22.5    | ) |  |          | 
|Capitalized interest                             |  | (3.7         | ) |  | (3.7       | ) |  | (14.7    | ) |  | (42.0    | ) |  |          | 
|Changes in
      capital accruals and other      |  | (8.8         | ) |  | 15.5       |   |  | (24.1    | ) |  | 122.0    |   |  |          | 
|                                                 |  |              |   |  |            |   |  |          |   |  |          |   |  |          | 
|Total cash capital additions                     |  | 43.5         |   |  | 97.9       |   |  | 192.8    |   |  | 490.7    |   |  |          | 

1Capital expenditure guidance excludes capitalized
interest.

Sustaining capital expenditures in 2016 were lower than
guidance as a result of cost savings and deferral of certain expenditures to
2017 and subsequent years.

Sustaining capital expenditures in Manitoba for the three
months and year ended December 31, 2016 were $12.2 million and $60.0 million,
respectively, a decrease of $8.2 million and $12.7 million, respectively,
compared to the same period in 2015. This decrease is primarily due to decreases
in capitalized underground mine development.

Sustaining capital expenditures in Peru for the three months
and year ended December 31, 2016 were $31.7 million and $118.0 million,
respectively, a decrease of $16.9 million and $65.6 million, respectively,
compared to the same period in 2015. This decrease is mainly the result of
reduced capitalized stripping and lower capital costs from tailings improvement
construction.

Other Peru capitalized costs include capitalized pre-commercial
production operating costs, net of pre-commercial production sales receipts for
2015, and decommissioning and restoration adjustments. Other Manitoba
capitalized costs include decommissioning and restoration adjustments.

32

---



Accrued capital expenditures have significantly decreased
quarter over quarter. The decrease is primarily due to decreased expenditures at
our Constancia project due to the completion of the Constancia mine during the
second quarter of 2015. In Peru capital expenditures include pre-production net
revenues, which is the primary reason why there was a large decline in Q2 2015
accrued capital additions.

Peru's planned sustaining capital expenditures in 2017 include
approximately $52 million of expenditures related to the tailings management
facility and approximately $15 million of capitalized stripping costs.
Expenditures on the tailings management facility are expected to decline
substantially after 2017. Manitoba growth capital of $40 million is allocated to
the construction of a new paste backfill plant for our Lalor mine. The paste
backfill plant is intended to reduce operating costs, increase mining rates and
maximize ore recovery. Peru growth capital of $25 million is allocated to
initial expenditures for developing the Pampacancha deposit, which is expected
to begin ore production in late 2018. Arizona spending of $20 million on the
Rosemont project is intended to support ongoing permitting efforts.

33

---

Contractual Obligations and
Commitments

The following table summarizes, as at December 31, 2016,
certain of our contractual obligations for the periods specified:

|                                                       |  |           |  |  | Less than |  |  | 1-3     |  |  | 4-5     |  |  | After 5   | 
|------------------------------------------------------ |  | --------- |  |  | --------- |  |  | ------- |  |  | ------- |  |  | --------- | 
|Payment Schedule (in $ thousands)                      |  | Total     |  |  | 1 Year    |  |  | Years   |  |  | Years   |  |  | Years     | 
|Long-term debt obligations including interest          |  | 1,946,925 |  |  | 107,731   |  |  | 515,306 |  |  | 154,523 |  |  | 1,169,365 | 
|Capital lease obligations                              |  | 13,720    |  |  | 3,508     |  |  | 6,667   |  |  | 3,545   |  |  | -         | 
|Operating lease obligations                            |  | 7,414     |  |  | 3,379     |  |  | 3,636   |  |  | 399     |  |  | -         | 
|Purchase obligation - capital commitments1             |  | 208,162   |  |  | 57,740    |  |  | 20,877  |  |  | 186     |  |  | 129,359   | 
|Purchase obligation - other commitments2               |  | 662,572   |  |  | 166,366   |  |  | 193,917 |  |  | 117,445 |  |  | 184,844   | 
|Pension and other employee future benefits obligations |  | 142,018   |  |  | 26,571    |  |  | 34,183  |  |  | 6,323   |  |  | 74,941    | 
|Decommissioning and restoration
      obligations3     |  | 186,498   |  |  | 999       |  |  | 14,080  |  |  | 13,568  |  |  | 157,851   | 
|                                                       |  |           |  |  |           |  |  |         |  |  |         |  |  |           | 
|Total                                                  |  | 3,167,309 |  |  | 366,294   |  |  | 788,666 |  |  | 295,989 |  |  | 1,716,360 | 

1Amounts classified as after 5 years relate to the mobile fleet for the Rosemont project. The obligation has been classified as after 5 yearsdue to our ability to defer this obligation.2 Primarily made up of a long-term agreement with operational
suppliers, obligation for power purchase, concentrate, fleet and port services.3Before inflation.

In addition to the contractual obligations included in the
  above payment schedule, we also have the following commitments which impact our
financial position:

|− | A profit-sharing plan with most Manitoba
      employees;                                   
|- | --------------------------------------------------------------------------------------------
|− | Silver Wheaton precious metals stream
      agreements for the 777 and Constancia mines; and
|− | A net smelter returns royalty agreement related
      to the 777 mine.                      

Liquidity

As at December 31, 2016, we had total liquidity of
approximately $390.8 million, including $146.9 million in cash and cash
equivalents, as well as $243.9 million in availability under our Credit
Facilities. We expect that our current liquidity and future cash flows will be
sufficient to meet our obligations in the coming year.

Outstanding Share Data

As of February 21, 2017, there were 237,271,188 common shares
of Hudbay issued and outstanding. In addition, Hudbay warrants to acquire an
aggregate of 22,391,490 common shares of Hudbay were outstanding and options for
an aggregate of 1,460,377 common shares outstanding.

34

---

FINANCIAL RISK
MANAGEMENT

From time to time, we maintain price protection programs and
conduct commodity price risk management to reduce risk through the use of
financial instruments.

Base Metals Price Strategic Risk Management

Our strategic objective is to provide our investors with
exposure to base metals prices, unless a reason exists to implement a hedging
arrangement. In the normal course, we typically consider base metal price
hedging:

| | − | In conjunction with a major capital commitment
      to a growth opportunity for which operating cash flow is a key funding
      source;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| | − | To ensure the viability of a shorter life
      and/or higher cost mine;                                                                 
| | − | To manage the risk associated with provisional
      pricing terms in concentrate purchase and sale agreements;                          
| | − | To offset fixed price zinc sales contracts with
      customers.                                                                         

During 2016, we entered into copper hedging transactions
intended to manage the risk associated with provisional pricing terms in
concentrate sales agreements. As at December 31, 2016, we had 41,000 tonnes of
copper fixed for floating swaps outstanding at an average fixed receivable price
of $2.42/lb associated with provisional pricing risk in concentrate sales
agreements. These swaps settle across February to June 2017.

To provide a service to customers who purchase zinc from our
plants and require known future prices, we enter into fixed price sales
contracts. To ensure that we continue to receive a floating or unhedged realized
zinc price, we enter into forward zinc purchase contracts that effectively
offset the fixed price sales contracts with our customers.

From time to time, we enter into gold and silver forward sales
contracts to hedge the commodity price risk associated with the future
settlement of provisionally priced deliveries. We are generally obligated to
deliver gold and silver to Silver Wheaton prior to the determination of final
settlement prices. These forward sales contracts are entered into at the time we
deliver gold and silver to Silver Wheaton, and are intended to mitigate the risk
of subsequent adverse gold and silver price changes. Gains and losses resulting
from the settlement of these derivatives are recorded directly to revenue, as
the forward sales contracts do not achieve hedge accounting, and the associated
cash flows are classified in operating activities.

Our swap agreements are with counterparties we believe to be
creditworthy and do not require us to provide collateral.

Interest Rate and Foreign Exchange Risk
Management

To the extent that we incur indebtedness at variable interest
rates to fund our growth objectives, we may enter into interest rate hedging
arrangements to manage our exposure to short-term interest rates. To the extent
that we make commitments to capital expenditures denominated in foreign
currencies, we may enter into foreign exchange forwards or acquire foreign
currency outright, which may result in foreign exchange gains or losses in our
consolidated income statements.

At December 31, 2016, approximately $116.2 million of our cash
and cash equivalents was held in US dollars, approximately $27.2 million of our
cash and cash equivalents was held in Canadian dollars, and approximately $3.5
million of our cash and cash equivalents was held in PEN.

35

---

TREND ANALYSIS AND QUARTERLY REVIEW

The following table sets forth selected consolidated financial
information for each of our eight most recently completed quarters:

|                                       |  | 2016    |   |  | 2015    | 
|-------------------------------------- |  | ------- | - |  | ------- | 
|                                       |  |         |   |  |         | 
|(in $ thousands)                       |  | Q4      |   |  | Q3      | 
|Revenue                                |  | 316,654 |   |  | 311,424 | 
|(Loss)
      profit before tax         |  | (26,065 | ) |  | 42,001  | 
|(Loss) profit                          |  | (47,273 | ) |  | 33,571  | 
|(Loss)
      earnings per share:       |  |         |   |  |         | 
|Basic                                  |  | (0.20   | ) |  | 0.14    | 
|Diluted                                |  | (0.20   | ) |  | 0.14    | 
|Operating cash flow per
      share1,2 |  | 0.52    |   |  | 0.53    | 

1Operating cash flow per share is before precious metals stream
deposit and change in non-cash working capital. It is a non-IFRS financial
performance measure with no standardized definition under IFRS. For
further information and a detailed reconciliation, refer to the discussion under
"Non-IFRS Financial Reporting Measures" beginning on page 40 of this
MD&A.2Operating cash flow per share has been
restated to reflect the presentation changes with respect to receivable and
payable balances associated with copper fixed for floating swaps. For more
information on this change, refer to note 4 of our December 31, 2016
consolidated financial statements.

Fiscal 2016 marks the first year where both the Constancia and
Lalor mines were operating near capacity and also marks a year with considerable
commodity price volatility. We benefited from rising copper and zinc prices
during the fourth quarter of 2016 and from lower unit operating costs as a
result of our cost containment commitment for 2016. The higher and stable
operating cash flows generated from our operations enabled the net repayment of
$95 million in principal on our Credit Facilities. In addition, during the
fourth quarter, we re-financed our Redeemed Notes with New Notes that have later
maturities and lower interest rates. We incurred a $47.7 million call premium
during the fourth quarter of 2016 to facilitate the early redemption of the
Redeemed Notes. As indicated, the fourth quarter of 2016 continued the trend of
high and consistent production from our Constancia and Manitoba operations which
contributed significantly to generating a gross profit of $78.2 million during
the quarter.

In the third quarter of 2016, the steady increase in production
and sales continued the trend of increasing revenues. The increase in production
of concentrate in both Peru and Manitoba has resulted in lower unit costs as a
result of the economies of scale achieved and the focus on cost optimization at
all sites. The result of this production driven growth was an increase in gross
profits compared to the prior year and prior quarters. Despite volatility in
commodity price markets, particularly precious metals, realized prices in the
third quarter were marginally higher than the most recent quarters.

In the second quarter of 2016, revenues remained consistent
with the first quarter of 2016 as higher realized prices for precious metals
offset marginal declines in sales volume due to the timing of production. Gross
margins and cash generated from operating activities improved compared to the
first quarter of 2016 as costs at Constancia benefited from continued site
optimization and the Manitoba business unit benefited from cost reduction
efforts as well as the weaker Canadian dollar.

In the first quarter of 2016, we continued to benefit from
increased sales volumes following from commercial production being attained at
Constancia. Lower average realized prices of copper compared to the quarters in
2015 partially offset the continued strong production volumes from the Peru
operation and caused both gross profit and operating cash flow per share to be
lower than in the fourth quarter of 2015.

36

---

The ramp-up of Constancia after reaching commercial production
in the second quarter of 2015, drove revenues and gross profit higher in the
third and fourth quarters of 2015, notwithstanding lower realized metals prices.
Following from Constancia reaching commercial production, we no longer
capitalize interest costs associated with financing Constancia development and
therefore those charges are recognized in finance expenses. In addition, mining
costs were favourably impacted in the Manitoba business unit with the weakening
of the Canadian dollar versus the US dollar, which lowers costs denominated in
Canadian dollars.

In the fourth quarter of 2015, we recognized a gain of $37.0
million on the disposal of the Balmat mine and took pre-tax goodwill and asset
impairments for the Peru and Arizona business units of $378.9 million, mainly as
a result of lower expected copper prices and an expected delay in construction
at Rosemont.

In addition, in the third quarter of 2015 we incurred
impairment charges of $34.5 million related to an equipment impairment in the
Arizona business unit. Beginning July 1, 2015, Hudbays parent entity changed
its functional currency to the US dollar to reflect the achievement of
commercial production at Constancia, which conducts most business in US dollars.
The result is limited exposure for Hudbay on its consolidated income statements
to fluctuations in the Canadian to US dollar exchange rate. During the second
quarter of 2015, Constancia achieved commercial production with associated net
proceeds from sales related to pre-production being credited to property, plant
and equipment. This also resulted in the interest costs on our Redeemed Notes
beginning to be treated as a finance expense. Constancia reported sales revenue
from shipments in late June 2015, which resulted in an increase in sales
compared to previous quarters.

There were a number of non-cash accounting adjustments in the
second quarter of 2015 including the negative impact to cost of sales of the
$17.1 million charge related to pension enhancements, which arose as a result of
new collective agreements with all seven unions in Manitoba. In addition, during
the second quarter of 2015, we recognized an impairment on our Lalor
concentrator assets of $19.9 million as a result of the decision not to proceed
with construction of a new concentrator at Lalor following the New Britannia
acquisition in May 2015.

In the first quarter of 2015, sales revenue and operating cash
flow per share increased primarily as a result of higher copper and zinc sales
volumes offset partially by lower realized copper prices. The continued
strengthening of the US dollar against the Canadian dollar positively impacted
revenues while negatively impacting net profit as a result of unrealized losses
on the revaluation of US dollar denominated net liability monetary items while
the parent entitys functional currency was Canadian dollars.

In general, over the past eight quarters, revenues have varied
as a result of volatile commodity prices and the timing of shipments, however,
in most recent quarters we have benefited significantly from increased
production from Constancia, Lalor and Reed.

37

---

The following table sets forth selected consolidated financial
information for each of the three most recently completed years:

|(in $ thousands, except for earnings
      (loss) per share and |  |           |   |  |           |   |  |           | 
|--------------------------------------------------------------- |  | --------- | - |  | --------- | - |  | --------- | 
|dividends
      declared per share)                             |  | 2016      |   |  | 2015      |   |  | 2014      | 
|Revenue                                                         |  | 1,128,678 |   |  | 886,051   |   |  | 507,515   | 
|Profit
      (loss) before tax                                  |  | 5,605     |   |  | (399,041  | ) |  | 13,942    | 
|(Loss) profit                                                   |  | (35,193   | ) |  | (331,428  | ) |  | 65,269    | 
|(Loss)
      earnings per share1                                |  | (0.15     | ) |  | (1.41     | ) |  | 0.31      | 
|Total assets                                                    |  | 4,456,556 |   |  | 4,479,585 |   |  | 4,850,881 | 
|Operating cash flow2,3                                          |  | 387,868   |   |  | 231,821   |   |  | 16,771    | 
|Total long-term financial liabilities4                          |  | 1,253,777 |   |  | 1,232,640 |   |  | 1,016,722 | 
|Dividends declared per share - C$5                              |  | 0.02      |   |  | 0.02      |   |  | 0.02      | 

|1Attributable to owners of the
  Company.                                                                                                                                                                                                                                                                                     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2Operating cash flow before precious metals
      stream deposit and change in non-cash working capital is a non-IFRS
      financial performance measure with no standardized definition under IFRS.
      For further information and a detailed reconciliation, please see page 40
      of this MD&A.                     
|3Operating cash flow per share has been
      restated to reflect the presentation changes with respect to receivable
      and payable balances associated with copper fixed for floating swaps. For
      more information on this change, refer to note 4 of our December 31, 2016
      consolidated financial statements.
|4Total long-term financial liabilities
      include non-current portions of net long-term debt, other financial
      liabilities.                                                                                                                                                                                           
|5Dividend paid during March and September of
      each year.                                                                                                                                                                                                                                                                 

In 2016, copper metal in concentrate produced rose by 18%
compared to 2015 as a result of having a full year of operations at our
Constancia operation. Zinc production rose 7% in Manitoba compared to 2015 while
precious metals production climbed 20% compared to 2015. The higher production
of metals allowed us to capitalize on higher copper and zinc prices later in
2016 and strong prices for precious metals earlier in 2016. The result was a
156% increase in cash generated from operations of $289.4 million to $475.1
million. Cash generated from operations also benefited from the collection of
statutory receivables in Peru and reduced inventory levels. Operating cash flow
before change in non-cash working capital rose by $156.0 million or 67%.
Interest costs were approximately $27.3 million higher in 2016 compared to 2015
due to the cessation of capitalized interest following commercial production at
Constancia. In 2016, we re-financed our Redeemed Notes and took a $47.7 million
charge in relation to the call premium that was paid to facilitate the early
redemption of the Redeemed Notes.

Although profit before tax was lower in 2015 compared to 2014,
after excluding depreciation and impairment charges, profit was higher by 157%
in 2015 driven by the aforementioned gross profit increases, a $37.0 million
gain on disposal of Balmat in the fourth quarter of 2015 and the weakening of
the Canadian dollar versus the US dollar which favourably impacts Canadian
dollar costs in the Manitoba business unit. Impairment charges were taken in the
third quarter of 2015 of $54.5 million related to certain equipment and long
lead deposits in the Arizona business unit and Lalor concentrator assets in the
Manitoba business unit. Goodwill and asset impairments for the Peru and Arizona
business units were taken in the fourth quarter of 2015 of $313.3 million,
after-tax, mainly as a result of lower expected copper prices and an expected
delay in construction at Rosemont.

Operating cash flow before stream deposit and change in
non-cash working capital was higher in 2015 compared to 2014 by $205.4 million
as a result of the aforementioned sales volume growth.

ACCOUNTING CHANGES

New standards and interpretations adopted in 2016

For information on our adoption of new accounting standards and
interpretations, refer to note 5 of our audited consolidated financial
statements for the year ended in December 31, 2016.

38

---

New standards and interpretations not yet adopted

For information on new standards and interpretations not yet
adopted, refer to note 5 of our audited consolidated financial statements for
the year ended December 31, 2016.

CRITICAL ACCOUNTING JUDGEMENTS AND
ESTIMATES

The preparation of the consolidated financial statements in
conformity with IFRS requires us to make judgements, estimates and assumptions
that affect the application of accounting policies, reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities at the date of
the consolidated financial statements, and reported amounts of revenue and
expenses during the reporting period. Actual results may differ from these
estimates.

We review these estimates and underlying assumptions on an
ongoing basis based on our experience and other factors, including expectations
of future events that we believe to be reasonable under the circumstances.
Revisions to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected. Certain accounting
estimates and judgements have been identified as being critical to the
presentation of our financial condition and results of operations because they
require us to make subjective and/or complex judgments about matters that are
inherently uncertain; or there is a reasonable likelihood that materially
different amounts could be reported under different conditions or using
different assumptions and estimates.

The following are significant judgements and estimates
impacting the consolidated financial statements:

|− | Judgements and estimates that affect multiple
      areas of the consolidated financial statements:
|- | ---------------------------------------------------------------------------------------------------

| | − | Mineral reserves and resources which form the basis of
      life of mine plans which are utilized in impairment testing, timing of
      payments related to decommissioning obligations and depreciation of
      capital assets. We estimate our ore reserves and mineral resources based
      on information compiled by qualified persons as defined in accordance with
      NI 43-101;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | − | Determination of functional currency;                                                                                                                                                                                                                                                                                                                                                         
| | − | Income and mining taxes, including estimates of future
      taxable profit which impacts the ability to realize deferred tax assets on
      our balance sheet;                                                                                                                                                                                                                              
| | − | Commencement of commercial production which impacts the
      timing of revenue recognition, reclassification of capital works in
      progress and depreciation commencement;                                                                                                                                                                                                               
| | − | Acquisition method accounting; and                                                                                                                                                                                                                                                                                                                                                            
| | − | In respect of the outcome of uncertain future events as
      it concerns recognizing contingent liabilities.                                                                                                                                                                                                                                                                                 



|− | Judgements and estimates that relate mainly to
      assets (these judgements may also affect other areas of the consolidated
      financial statements):
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

| | − | Property, plant and equipment:
| | - | ------------------------------

| | − | Cost allocations for mine development;                                                                                                                                                  
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | − | Mining properties expenditures capitalized;                                                                                                                                             
| | − | Classification of supply costs as related to capital
      development or inventory acquisition;                                                                                        
| | − | Determining when exploration and evaluation assets should
      be transferred to capital works in progress within property, plant and
      equipment;                                 
| | − | Determination of when an asset or group of assets is in
      the condition and location to be ready for use as intended by management
      for the purposes of commencing deprecation;
| | − | Componentization;                                                                                                                                                                       
| | − | Assessment of impairment, including determination of cash
      generating units and assessing indicators of impairment;                                                                
| | − | Recoverability of exploration and evaluation assets,
      including determination of cash generating units and assessing for
      indications of impairment;                          
| | − | Determining whether assets meet criteria for
      classification as held for sale;                                                                                                     
| | − | Units of production depreciation;                                                                                                                                                       
| | − | Plant and equipment estimated useful lives and residual
      values;                                                                                                                   

39

---

| | − | Capitalized stripping costs; and
| | - | --------------------------------
| | − | Finite life intangible assets.  

| | − | Impairment of non-financial assets:
| | - | -----------------------------------

| | − | Future production levels and timing;
| | - | ------------------------------------
| | − | Operating and capital costs;        
| | − | Future commodity prices;            
| | − | Foreign exchange rates; and         
| | − | Risk adjusted discount rates.       

| | − | Valuation of acquired assets;                                                             
| | - | ------------------------------------------------------------------------------------------
| | − | Measurement and classification of Peruvian
      sales taxes paid; and                    
| | − | In process inventory quantities, inventory cost
      allocations and inventory valuation.

|− | Judgements and estimates that relate mainly to
      liabilities (these judgements may also affect other areas of the
|- | ---------------------------------------------------------------------------------------------------------------------
|  | consolidated financial statements):                                                                                  

| | − | Determining the accounting classification of
      the precious metals stream deposit;                             
| | - | -------------------------------------------------------------------------------------------------------------------
| | − | Determination of deferred revenue per unit
      related to the precious metals stream transactions and            
| |   | determination of current portion of deferred
      revenue;                                                        
| | − | Pensions and other employee benefits;                                                                              
| | − | Decommissioning, restoration and similar
      liabilities including estimated future costs and timing of spending;
| | − | Contingent liabilities; and                                                                                        
| | − | Capital commitments.                                                                                               

|− | Estimates that relate mainly to the
      consolidated income statements:
|- | -------------------------------------------------------------------------

| | − | Assaying used to determine revenues and
      recoverability of inventories.
| | - | ----------------------------------------------------------------------------

For more information on judgements and estimates, refer to note
2d of our consolidated financial statements for the year ended December 31,
2016.

NON-IFRS FINANCIAL PERFORMANCE
MEASURES

Operating cash flow per share is included in this MD&A
because we believe that it helps investors and management to evaluate changes in
cash flow generated from the various operations while taking into account
changes in shares outstanding. Net debt is shown because it is a performance
measure used by the Company to assess our financial position. Cash cost,
sustaining and all-in sustaining cash cost per pound of copper produced are
shown because we believe they help investors and management assess the
performance of our operations, including the margin generated by the operations
and the company. Cash cost and sustaining cash cost per pound of zinc produced
are shown because we believe they help investors and management assess the
performance of our Manitoba operations. These measures do not have a meaning
prescribed by IFRS and are therefore unlikely to be comparable to similar
measures presented by other issuers. These measures should not be considered in
isolation or as a substitute for measures prepared in accordance with IFRS and
are not necessarily indicative of operating profit or cash flow from operations
as determined under IFRS. Other companies may calculate these measures
differently.

40

---

Operating Cash Flow per Share
The following table presents our calculation of
operating cash flow per share for the three months ended and year ended December
31, 2016 and December 31, 2015:

|                                                                     |   | Three months ended |   |  | Year ended  | 
|-------------------------------------------------------------------- | - | ------------------ | - |  | ----------- | 
|(in $ thousands, except shares and                                   |   | Dec. 31,           |   |  | Dec. 31,    | 
|per share
      amounts)                                             |   | 2016               |   |  | 2015        | 
|Cash generated in operating activities                               |   | 140,125            |   |  | 70,768      | 
|Change
      in non-cash working capital                             |   | (17,868            | ) |  | 46,640      | 
|Operating cash flows before change in non-cash working
      capital |   | 122,257            |   |  | 117,408     | 
|Weighted average shares outstanding - basic                          |   | 236,446,367        |   |  | 235,231,688 | 
|                                                                     |   |                    |   |  |             | 
|Operating cash flows per share                                       | $ | 0.52$              |   |  | 0.50        | 

Net Debt

The following table presents our calculation of net debt as at
December 31, 2016 and December 31, 2015:

|                                |  | Dec. 31,  |   |  | Dec. 31,  |  
|------------------------------- |  | --------- | - |  | --------- | -
|(in $ thousands)                |  | 2016      |   |  | 2015      |  
|Total long-term debt            |  | 1,232,164 |   |  | 1,274,880 |  
|Cash
      and cash equivalents |  | (146,864  | ) |  | (53,852   | )
|                                |  |           |   |  |           |  
|Net debt                        |  | 1,085,300 |   |  | 1,221,028 |  

41

---

Cash Cost, Sustaining and All-in Sustaining Cash Cost
(Copper basis)

Cash cost per pound of copper produced (cash cost) is a
non-IFRS measure that management uses as a key performance indicator to assess
the performance of our operations. Our calculation designates copper as our
primary metal of production as it has been the largest component of revenues.
The calculation is presented in four manners:

|− | Cash cost, before by-product credits -This
      measure is gross of by-product revenues and is a function of the efforts
      and costs incurred to mine and process all ore mined. However, the measure
      divides this aggregate cost over only pounds of copper produced, our
      primary metal of production. This measure is generally less volatile from
      period to period, as it is not affected by changes in the price received
      for by-product metals. It is, however, significantly affected by the
      relative mix of copper concentrate and finished zinc production, where the
      sale of the zinc will occur later, and an increase in production of zinc
      metal will tend to result in an increase in cash cost under this measure.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|− | Cash cost, net of by-product credits -In order to
      calculate the net cost to produce and sell copper, the net of by-product
      credits measure subtracts the revenues realized from the sale of the
      metals other than copper. The by-product revenues from zinc, gold, and
      silver are significant and are integral to the economics of our
      operations. The economics that support our decision to produce and sell
      copper would be different if we did not receive revenues from the other
      significant metals being extracted and processed. This measure provides
      management and investors with an indication of the minimum copper price
      consistent with positive operating cash flows and operating margins,
      assuming realized by-product metal prices are consistent with those
      prevailing during the reporting period. It also serves as an important
      operating statistic that management and investors utilize to measure our
      operating performance versus that of our competitors. However, it is
      important to understand that if by-product metal prices decline alongside
      copper prices, the cash cost net of by-product credits would increase,
      requiring a higher copper price than that reported to maintain positive
      cash flows and operating margins.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|− | Sustaining cash cost, net of by-product credits -This measure is an extension of cash cost that includes sustaining
      capital expenditures, capitalized exploration and net smelter returns
      royalties. It does not include corporate selling and administrative
      expenses. It provides a more fulsome measurement of the cost of sustaining
      production than cash cost, which is focused on operating costs only.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|− | All-in sustaining cash cost, net of by-product credits
      -This measure is an extension of sustaining cash cost that includes
      corporate G&A. Due to the inclusion of corporate selling and
      administrative expenses, all-in sustaining cash cost is presented on a
      consolidated basis only.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

The tables below present a detailed build-up of cash cost and
sustaining cash cost, net of by-product credits, by business unit in addition to
consolidated all-in sustaining cash cost, net of by-product credits, and
reconciliations between cash cost, net of by-product credits, to the most
comparable IFRS measures of cost of sales for the years ended December 31, 2016
and 2015. Cash cost, net of by-product credits may not calculate exactly based
on amounts presented in the tables below due to rounding.

42

---

|Consolidated                         |  | Three months ended |  |  | Year ended    | 
|------------------------------------ |  | ------------------ |  |  | ------------- | 
|Net pounds of copper produced1       |  |                    |  |  |               | 
|(in thousands)                       |  | Dec. 31, 2016      |  |  | Dec. 31, 2015 | 
|Peru                                 |  | 74,927             |  |  | 83,194        | 
|Manitoba                             |  | 21,599             |  |  | 22,937        | 
|                                     |  |                    |  |  |               | 
|Net pounds of copper
      produced1 |  | 96,526             |  |  | 106,131       | 

1Contained copper in concentrate, exclusive of
Constancia copper produced prior to the achievement of commercial production on
May 1, 2015.

|Consolidated                               |  | Three months ended |   |  |               |   |  | Year ended    |  
|------------------------------------------ |  | ------------------ | - |  | ------------- | - |  | ------------- | -
|Cash cost per pound of                     |  | Dec. 31, 2016      |   |  | Dec. 31, 2015 |   |  | Dec. 31, 2016 |  
|copper produced                            |  | $000s              |   |  | $/lb          |   |  | $000s         |  
|Cash cost, before by-product
      credits |  | 182,677            |   |  | 1.89          |   |  | 213,495       |  
|By-product credits                         |  | (101,043           | ) |  | (1.05         | ) |  | (81,936       | )
|                                           |  |                    |   |  |               |   |  |               |  
|Cash cost, net of by-product credits       |  | 81,634             |   |  | 0.85          |   |  | 131,559       |  

|Consolidated                                            |  | Three months
      ended |   |  | Year ended    |  
|------------------------------------------------------- |  | ------------------------ | - |  | ------------- | -
|Supplementary cash cost                                 |  | Dec. 31, 2016            |   |  | Dec. 31, 2015 |  
|information                                             |  | 000s                     |   |  | /lb1          |  
|                                                        |  |                          |   |  |               |  
|By-product credits:                                     |  |                          |   |  |               |  
|Zinc                                                    |  | 71,588                   |   |  | 0.74          |  
|Gold                                                    |  | 28,792                   |   |  | 0.30          |  
|Silver                                                  |  | 14,327                   |   |  | 0.15          |  
|Other                                                   |  | 640                      |   |  | 0.01          |  
|Total
      by-product credits                          |  | 115,347                  |   |  | 1.20          |  
|Less: deferred revenue                                  |  | (14,304                  | ) |  | (0.15         | )
|Less: pre-production credits                            |  | -                        |   |  | -             |  
|Total by-product credits, net of pre-production credits |  | 101,043                  |   |  | 1.05          |  
|                                                        |  |                          |   |  |               |  
|Reconciliation to IFRS:                                 |  |                          |   |  |               |  
|Cash
      cost, net of by-product credits              |  | 81,634                   |   |  |               |  
|By-product credits                                      |  | 115,347                  |   |  |               |  
|Change
      in deferred revenues                       |  | (14,304                  | ) |  |               |  
|Pre-production revenues                                 |  | -                        |   |  |               |  
|Treatment and refining charges 2                        |  | (29,401                  | ) |  |               |  
|Share-based payment                                     |  | 537                      |   |  |               |  
|Pension enhancement                                     |  | -                        |   |  |               |  
|Change in product inventory                             |  | 3,644                    |   |  |               |  
|Royalties                                               |  | 2,800                    |   |  |               |  
|Depreciation and amortization3                          |  | 78,192                   |   |  |               |  
|                                                        |  |                          |   |  |               |  
|Cost of sales                                           |  | 238,449                  |   |  |               |  

1Per pound of copper produced.2Excludes $7,664 of treatment and refining charges which
were incurred prior to commercial production during the year ended December 31,
2015.3Depreciation is based on concentrate
sold.

43

---

|Peru                                                      |  | Three months ended |  |  | Year ended    | 
|--------------------------------------------------------- |  | ------------------ |  |  | ------------- | 
|(in thousands)                                            |  | Dec. 31, 2016      |  |  | Dec. 31, 2015 | 
|Pounds of copper produced1                                |  | 74,927             |  |  | 83,194        | 
|Less:
      pre-production production of copper produced1 |  | -                  |  |  | -             | 
|                                                          |  |                    |  |  |               | 
|Net pounds of copper
      produced1                      |  | 74,927             |  |  | 83,194        | 

1Contained copper in concentrate.

|Peru                                 |  | Three months ended |   |  | Year ended    |  
|------------------------------------ |  | ------------------ | - |  | ------------- | -
|Cash cost per pound of copper        |  | Dec. 31, 2016      |   |  | Dec. 31, 2015 |  
|produced                             |  | $000s              |   |  | $/lb          |  
|Mining                               |  | 12,261             |   |  | 0.16          |  
|Milling                              |  | 32,253             |   |  | 0.43          |  
|G&A                                  |  | 12,957             |   |  | 0.17          |  
|Onsite
      costs                   |  | 57,471             |   |  | 0.77          |  
|Treatment & refining                 |  | 23,256             |   |  | 0.31          |  
|Freight & other                      |  | 11,806             |   |  | 0.16          |  
|Cash cost, before by-product credits |  | 92,533             |   |  | 1.23          |  
|By-product credits                   |  | (9,691             | ) |  | (0.13         | )
|                                     |  |                    |   |  |               |  
|Cash cost, net of by-product credits |  | 82,842             |   |  | 1.11          |  

44

---

|Peru                                                          |  | Three months ended  |   |  |               |   |  |                     |   |  | Year ended    |   |  |         |  
|------------------------------------------------------------- |  | ------------------- | - |  | ------------- | - |  | ------------------- | - |  | ------------- | - |  | ------- | -
|Supplementary cash cost                                       |  | Dec. 31,
      2016 |   |  | Dec. 31, 2015 |   |  | Dec. 31,
      2016 |   |  | Dec. 31, 2015 |  
|information                                                   |  | **$000s**           |   |  | $/lb1         |   |  | $000s               |   |  | $/lb 1        |   |  | $000s   |  
|                                                              |  |                     |   |  |               |   |  |                     |   |  |               |   |  |         |  
|By-product credits:                                           |  |                     |   |  |               |   |  |                     |   |  |               |   |  |         |  
|Gold                                                          |  | 5,961               |   |  | 0.08          |   |  | 5,873               |   |  | 0.07          |   |  | 22,886  |  
|Silver                                                        |  | 10,366              |   |  | 0.14          |   |  | 7,230               |   |  | 0.09          |   |  | 35,589  |  
|Other                                                         |  | -                   |   |  | -             |   |  | -                   |   |  | -             |   |  | 129     |  
|Total by-product credits                                      |  | 16,327              |   |  | 0.22          |   |  | 13,103              |   |  | 0.16          |   |  | 58,604  |  
|Less: deferred revenue                                        |  | (6,636              | ) |  | (0.09         | ) |  | (5,853              | ) |  | (0.07         | ) |  | (24,559 | )
|Less: pre-production
      credits                            |  | -                   |   |  | -             |   |  | 1,153               |   |  | 0.01          |   |  | -       |  
|Total
      by-product credits, net of pre-production credits |  | 9,691               |   |  | 0.13          |   |  | 8,403               |   |  | 0.10          |   |  | 34,045  |  
|                                                              |  |                     |   |  |               |   |  |                     |   |  |               |   |  |         |  
|Reconciliation to IFRS:                                       |  |                     |   |  |               |   |  |                     |   |  |               |   |  |         |  
|Cash cost, net of by-product credits                          |  | 82,842              |   |  |               |   |  | 110,132             |   |  |               |   |  | 319,426 |  
|By-product credits                                            |  | 16,327              |   |  |               |   |  | 13,103              |   |  |               |   |  | 58,604  |  
|Change in deferred revenues                                   |  | (6,636              | ) |  |               |   |  | (5,853              | ) |  |               |   |  | (24,559 | )
|Pre-production revenues                                       |  | -                   |   |  |               |   |  | 1,153               |   |  |               |   |  | -       |  
|Treatment and refining charges2                               |  | (23,256             | ) |  |               |   |  | (32,712             | ) |  |               |   |  | (83,574 | )
|Share-based payment                                           |  | 43                  |   |  |               |   |  | -                   |   |  |               |   |  | 112     |  
|Change in product inventory                                   |  | 8,538               |   |  |               |   |  | 11,008              |   |  |               |   |  | 13,544  |  
|Royalties                                                     |  | 1,189               |   |  |               |   |  | 1,555               |   |  |               |   |  | 5,580   |  
|Depreciation and
      amortization3                          |  | 48,847              |   |  |               |   |  | 62,278              |   |  |               |   |  | 178,099 |  
|                                                              |  |                     |   |  |               |   |  |                     |   |  |               |   |  |         |  
|Cost of sales                                                 |  | 127,894             |   |  |               |   |  | 160,664             |   |  |               |   |  | 467,232 |  

1Per pound of copper produced.2Excludes $7,664 of treatment and refining
charges which were incurred prior to commercial production during the year ended
December 31, 2016.3Depreciation is based on
concentrate sold.

|Manitoba                             |  | Three months ended |  |  | Year ended    | 
|------------------------------------ |  | ------------------ |  |  | ------------- | 
|(in thousands)                       |  | Dec. 31, 2016      |  |  | Dec. 31, 2015 | 
|                                     |  |                    |  |  |               | 
|Net pounds of copper
      produced1 |  | 21,599             |  |  | 22,937        | 

1Contained copper in concentrate.

|Manitoba                             |  | Three months ended |   |  |               |   |  | Year ended    |  
|------------------------------------ |  | ------------------ | - |  | ------------- | - |  | ------------- | -
|Cash cost per pound of               |  | Dec. 31, 2016      |   |  | Dec. 31, 2015 |   |  | Dec. 31, 2016 |  
|copper produced                      |  | **$** **000s**     |   |  | $/lb          |   |  | $000s         |  
|Mining                               |  | 29,193             |   |  | 1.35          |   |  | 35,685        |  
|Milling                              |  | 11,767             |   |  | 0.54          |   |  | 9,635         |  
|Refining (zinc)                      |  | 17,113             |   |  | 0.79          |   |  | 15,959        |  
|G&A                                  |  | 13,291             |   |  | 0.62          |   |  | 12,300        |  
|Purchased ore and zinc concentrates  |  | 4,501              |   |  | 0.21          |   |  | 2,514         |  
|Onsite
      costs                   |  | 75,865             |   |  | 3.51          |   |  | 76,093        |  
|Treatment & refining                 |  | 6,145              |   |  | 0.28          |   |  | 9,622         |  
|Freight & other                      |  | 8,134              |   |  | 0.38          |   |  | 9,245         |  
|Cash cost, before by-product credits |  | 90,144             |   |  | 4.17          |   |  | 94,960        |  
|By-product credits                   |  | (91,352            | ) |  | (4.23         | ) |  | (73,533       | )
|                                     |  |                    |   |  |               |   |  |               |  
|Cash cost, net of by-product credits |  | (1,208             | ) |  | (0.06         | ) |  | 21,427        |  

45

---

|Manitoba                                                      |  | Three months
      ended |   |  | Year ended    |  
|------------------------------------------------------------- |  | ------------------------ | - |  | ------------- | -
|Supplementary cash cost                                       |  | Dec. 31, 2016            |   |  | Dec. 31, 2015 |  
|information                                                   |  | $000s                    |   |  | $/lb1         |  
|                                                              |  |                          |   |  |               |  
|By-product credits:                                           |  |                          |   |  |               |  
|Zinc                                                          |  | 71,588                   |   |  | 3.31          |  
|Gold                                                          |  | 22,831                   |   |  | 1.06          |  
|Silver                                                        |  | 3,961                    |   |  | 0.18          |  
|Other                                                         |  | 640                      |   |  | 0.03          |  
|Total
      by-product credits                                |  | 99,020                   |   |  | 4.58          |  
|Less: deferred revenue                                        |  | (7,668                   | ) |  | (0.35         | )
|Total
      by-product credits, net of pre-production credits |  | 91,352                   |   |  | 4.23          |  
|                                                              |  |                          |   |  |               |  
|Reconciliation to IFRS:                                       |  |                          |   |  |               |  
|Cash cost, net of by-product credits                          |  | (1,208                   | ) |  |               |  
|By-product credits                                            |  | 99,020                   |   |  |               |  
|Change in deferred revenues                                   |  | (7,668                   | ) |  |               |  
|Treatment and refining charges                                |  | (6,145                   | ) |  |               |  
|Share-based payment                                           |  | 494                      |   |  |               |  
|Pension enhancement                                           |  | -                        |   |  |               |  
|Change in product inventory                                   |  | (4,894                   | ) |  |               |  
|Royalties                                                     |  | 1,611                    |   |  |               |  
|Depreciation and
      amortization2                          |  | 29,345                   |   |  |               |  
|                                                              |  |                          |   |  |               |  
|Cost of sales                                                 |  | 110,555                  |   |  |               |  

1Per pound of copper produced.2Depreciation is based on concentrate sold.

46

---

|Consolidated                                                 |  | Three months ended |  |  | Year ended    | 
|------------------------------------------------------------ |  | ------------------ |  |  | ------------- | 
|All-in sustaining cash cost per                              |  | Dec. 31, 2016      |  |  | Dec. 31, 2015 | 
|pound of copper produced                                     |  | $000s              |  |  | $/lb          | 
|Cash cost, net of by-product credits                         |  | 81,634             |  |  | 0.85          | 
|Sustaining capital expenditures-cash1                        |  | 43,831             |  |  | 0.45          | 
|Capitalized exploration                                      |  | -                  |  |  | -             | 
|Royalties                                                    |  | 2,800              |  |  | 0.03          | 
|Sustaining cash cost, net of by-product
      credits        |  | 128,265            |  |  | 1.33          | 
|Corporate selling and administrative expenses                |  | 12,623             |  |  | 0.13          | 
|All-in sustaining cash cost,
      net of by-product credits |  | 140,888            |  |  | 1.46          | 

1Excludes costs associated with pre-commercial
production output.

|Peru                                              |  | Three months ended |  |  | Year ended    | 
|------------------------------------------------- |  | ------------------ |  |  | ------------- | 
|Sustaining
      cash cost per pound              |  | Dec. 31, 2016      |  |  | Dec. 31, 2015 | 
|of copper produced                                |  | $000s              |  |  | $/lb          | 
|Cash
      cost, net of by-product credits        |  | 82,842             |  |  | 1.11          | 
|Sustaining capital
      expenditures-cash1       |  | 31,673             |  |  | 0.42          | 
|Royalties                                         |  | 1,189              |  |  | 0.02          | 
|Sustaining cash cost per pound of copper produced |  | 115,704            |  |  | 1.54          | 

1Excludes costs associated with pre-commercial
production output.

|Manitoba                                                |  | Three months ended |   |  | Year ended    |  
|------------------------------------------------------- |  | ------------------ | - |  | ------------- | -
|Sustaining cash cost per pound                          |  | Dec. 31, 2016      |   |  | Dec. 31, 2015 |  
|of copper produced                                      |  | $000s              |   |  | $/lb          |  
|                                                        |  |                    |   |  |               |  
|Cash cost, net of by-product credits                    |  | (1,208             | ) |  | (0.06         | )
|Sustaining capital expenditures - cash                  |  | 12,158             |   |  | 0.56          |  
|Capitalized exploration                                 |  | -                  |   |  | -             |  
|Royalties                                               |  | 1,611              |   |  | 0.07          |  
|Sustaining cash cost per
      pound of copper produced |  | 12,561             |   |  | 0.58          |  

47

---

Zinc Cash Cost and Zinc Sustaining Cash
Cost

Cash cost per pound of zinc produced (zinc cash cost) is a
non-IFRS measure that management uses as a key performance indicator to assess
the performance of our Manitoba operations. This alternative cash cost
calculation designates zinc as our primary metal of production as it is becoming
the largest component of revenues for our Manitoba business unit, and should
therefore be less volatile over time than Manitoba cash cost per pound of
copper. The calculation is presented in three manners:

|− | Zinc cash cost, before by-product credits -This
      measure is gross of by-product revenues and is a function of the efforts
      and costs incurred to mine and process all ore mined. However, the measure
      divides this aggregate cost over only pounds of zinc produced, our primary
      metal of production. This measure is generally less volatile from period
      to period, as it is not affected by changes in the price received for
      by-product metals. It is, however, significantly affected by the relative
      mix of copper concentrate and finished zinc production, where the sale of
      the copper will occur later, and an increase in production of copper metal
      will tend to result in an increase in zinc cash cost under this measure.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|− | Zinc cash cost, net of by-product credits -In
      order to calculate the net cost to produce and sell zinc, the net of
      by-product credits measure subtracts the revenues realized from the sale
      of the metals other than zinc. The by-product revenues from copper, gold,
      and silver are significant and are integral to the economics of our
      Manitoba operation. The economics that support our decision to produce and
      sell zinc would be different if we did not receive revenues from the other
      significant metals being extracted and processed. This measure provides
      management and investors with an indication of the minimum zinc price
      consistent with positive operating cash flows and operating margins,
      assuming realized by-product metal prices are consistent with those
      prevailing during the reporting period. It also serves as an important
      operating statistic that management and investors utilize to measure our
      operating performance at Manitoba operation versus that of our
      competitors. However, it is important to understand that if by-product
      metal prices decline alongside zinc prices, the zinc cash cost net of
      by-product credits would increase, requiring a higher zinc price than that
      reported to maintain positive cash flows and operating margins.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|− | Zinc sustaining cash cost, net of by-product credits -This measure is an extension of zinc cash cost that includes
      sustaining capital expenditures, capitalized exploration and net smelter
      returns royalties. It does not include corporate selling and
      administrative expenses. It provides a more fulsome measurement of the
      cost of sustaining production than zinc cash cost, which is focused on
      operating costs only.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

The tables below present a detailed build-up of zinc cash cost
and zinc sustaining cash cost, net of by-product credits, for the Manitoba
business unit, and reconciliations between zinc cash cost, net of by-product
credits, to the most comparable IFRS measures of cost of sales for the years
ended December 31, 2016 and 2015. Zinc cash cost, net of by-product credits, may
not calculate exactly based on amounts presented in the tables below due to
rounding.

48

---

|Manitoba                             |  | Three months ended |  |  | Year ended    | 
|------------------------------------ |  | ------------------ |  |  | ------------- | 
|(in thousands)                       |  | Dec. 31, 2016      |  |  | Dec. 31, 2015 | 
|                                     |  |                    |  |  |               | 
|Pounds of zinc produced1             |  | 64,251             |  |  | 71,346        | 
|Less:
      pre-production pounds of |  |                    |  |  |               | 
|Net pounds of zinc
      produced1   |  | 64,251             |  |  | 71,346        | 

1Contained zinc in concentrate.

|Manitoba                                        |  | Three months
      ended |   |  | Year ended    |  
|----------------------------------------------- |  | ------------------------ | - |  | ------------- | -
|Cash cost per pound of                          |  | Dec. 31, 2016            |   |  | Dec. 31, 2015 |  
|zinc produced                                   |  | **$****000s**            |   |  | $/lb          |  
|                                                |  |                          |   |  |               |  
|Cash cost, before by-product credits1           |  | 90,144                   |   |  | 1.40          |  
|By-product credits                              |  | (67,025                  | ) |  | (1.04         | )
|Zinc cash cost, net of
      by-product credits |  | 23,119                   |   |  | 0.36          |  

1For additional detail on cash cost, before
by-product credits please see page 45 of this MD&A.

|                                                            |  | Three months
      ended |   |  | Year ended    |  
|----------------------------------------------------------- |  | ------------------------ | - |  | ------------- | -
|Supplementary cash cost                                     |  | Dec. 31, 2016            |   |  | Dec. 31, 2015 |  
|information                                                 |  | $000s                    |   |  | $/lb1         |  
|                                                            |  |                          |   |  |               |  
|By-product credits:                                         |  |                          |   |  |               |  
|Copper                                                      |  | 47,261                   |   |  | 0.74          |  
|Gold                                                        |  | 22,831                   |   |  | 0.36          |  
|Silver                                                      |  | 3,961                    |   |  | 0.06          |  
|Other                                                       |  | 640                      |   |  | 0.01          |  
|Total
      by-product credits                              |  | 74,693                   |   |  | 1.16          |  
|Less: deferred revenue                                      |  | (7,668                   | ) |  | (0.12         | )
|                                                            |  |                          |   |  |               |  
|Total
    by-product credits, net of pre-production credits |  | 67,025                   |   |  | 1.04          |  
|                                                            |  |                          |   |  |               |  
|Reconciliation to IFRS:                                     |  |                          |   |  |               |  
|Cash
      cost, net of by-product credits                  |  | 23,119                   |   |  |               |  
|By-product credits                                          |  | 74,693                   |   |  |               |  
|Change
      in deferred revenues                           |  | (7,668                   | ) |  |               |  
|Treatment and refining charges                              |  | (6,145                   | ) |  |               |  
|Share-based payment                                         |  | 494                      |   |  |               |  
|Pension enhancement                                         |  | -                        |   |  |               |  
|Change
      in product inventory                           |  | (4,894                   | ) |  |               |  
|Royalties                                                   |  | 1,611                    |   |  |               |  
|Depreciation and amortization2                              |  | 29,345                   |   |  |               |  
|                                                            |  |                          |   |  |               |  
|Cost of sales                                               |  | 110,555                  |   |  |               |  

1Per pound of zinc produced.2Depreciation is based on concentrate sold.

49

---

|Manitoba                                              |  | Three months ended |  |  |               |  |  | Year ended    | 
|----------------------------------------------------- |  | ------------------ |  |  | ------------- |  |  | ------------- | 
|Sustaining cash cost per pound                        |  | Dec. 31, 2016      |  |  | Dec. 31, 2015 |  |  | Dec. 31, 2016 | 
|of zinc produced                                      |  | $000s              |  |  | $/lb          |  |  | $000s         | 
|                                                      |  |                    |  |  |               |  |  |               | 
|Zinc cash cost, net of by-product                     |  |                    |  |  |               |  |  |               | 
|credits                                               |  | 23,119             |  |  | 0.36          |  |  | 26,017        | 
|Sustaining capital expenditures - cash                |  | 12,158             |  |  | 0.19          |  |  | 20,428        | 
|Capitalized exploration                               |  | -                  |  |  | -             |  |  | 1,686         | 
|Royalties                                             |  | 1,611              |  |  | 0.03          |  |  | 1,298         | 
|Sustaining cash cost per pound of zinc
      produced |  | 36,888             |  |  | 0.57          |  |  | 49,429        | 

DISCLOSURE CONTROLS AND PROCEDURES
AND INTERNAL CONTROL OVER FINANCIAL REPORTING

Disclosure controls and procedures (DC&P)

Management is responsible for establishing and maintaining
adequate DC&P. As of December 31, 2016, we have evaluated the effectiveness
of the design and operation of our DC&P in accordance with requirements of
National Instrument 52-109 of the Canadian Securities Commission (NI 52-109)
and the Sarbanes Oxley Act of 2002 (as adopted by the US Securities and Exchange
Commission). Our Chief Executive Officer (CEO) and Chief Financial Officer
(CFO) supervised and participated in this evaluation.

As of December 31, 2016, based on managements evaluation, our
CEO and CFO concluded that our DC&P were effective to ensure that
information required to be disclosed by us in reports we file or submit is
recorded, processed, summarized and reported within the time periods specified
in securities legislation and is accumulated and communicated to our management,
including our CEO and CFO, to allow timely decisions regarding required
disclosure.

Internal control over financial reporting (ICFR)

Management is responsible for establishing and maintaining
adequate ICFR. Under the supervision and with the participation of our
management, including our CEO and CFO, we evaluated the effectiveness of our
ICFR based upon the Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on
managements evaluation, our CEO and CFO concluded that our ICFR was effective
as of December 31, 2016.

The Companys internal control over financial reporting as at
December 31, 2016 has been audited by Deloitte LLP, Independent Registered
Public Accounting Firm who also audited the Companys consolidated financial
statements for the year ended December 31, 2016. Deloitte LLP expressed an
unqualified opinion on the Companys internal control over financial reporting.

Changes in ICFR

We did not make any changes to ICFR during the year ended
December 31, 2016 that materially affected, or are reasonably likely to
materially affect, our ICFR.

Inherent limitations of controls and procedures

All internal control systems, no matter how well designed, have
inherent limitations. As a result, even systems determined to be effective may
not prevent or detect misstatements on a timely basis, as systems can provide
only reasonable assurance that the objectives of the control system are met. In
addition, projections of any evaluation of the effectiveness of ICFR to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may change.

50

---

NOTES TO READER

Forward-Looking Information

This MD&A contains forward-looking information within the
meaning of applicable Canadian and United States securities legislation. All
information contained in this MD&A, other than statements of current and
historical fact, is forward-looking information. Often, but not always,
forward-looking information can be identified by the use of words such as
plans, expects, budget, guidance, scheduled, estimates, forecasts,
strategy, target, intends, objective, goal, understands,
anticipates and believes (and variations of these or similar words) and
statements that certain actions, events or results may, could, would,
should, might occur or be achieved or will be taken (and variations of
these or similar expressions). All of the forward-looking information in this
MD&A is qualified by this cautionary note.

Forward-looking information includes, but is not limited to,
production, cost and capital and exploration expenditure guidance, including
anticipated capital and operating cost savings and anticipated production at our
mines and processing facilities, the anticipated timing, cost and benefits of
developing the Pampacancha deposit and Lalor paste backfill plant, anticipated
mine plans, anticipated metals prices and the anticipated sensitivity of our
financial performance to metals prices, events that may affect our operations
and development projects, anticipated cash flows from operations and related
liquidity requirements, the potential outcome of labour negotiations in Peru,
the anticipated effect of external factors on revenue, such as commodity prices,
economic outlook, government regulation of mining operations, and business and
acquisition strategies. Forward-looking information is not, and cannot be, a
guarantee of future results or events. Forward-looking information is based on,
among other things, opinions, assumptions, estimates and analyses that, while
considered reasonable by us at the date the forward-looking information is
provided, inherently are subject to significant risks, uncertainties,
contingencies and other factors that may cause actual results and events to be
materially different from those expressed or implied by the forward-looking
information.

The material factors or assumptions that we identified and were
applied by us in drawing conclusions or making forecasts or projections set out
in the forward-looking information include, but are not limited to:

| | − | the success of mining, processing, exploration and
      development activities;                                                                                                                                                         
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | − | the scheduled maintenance and availability of our
      processing facilities;                                                                                                                                                           
| | − | the sustainability and success of Hudbays cost reduction
      initiatives;                                                                                                                                                             
| | − | the accuracy of geological, mining and metallurgical
      estimates;                                                                                                                                                                    
| | − | anticipated metals prices and the costs of production;                                                                                                                                                                                   
| | − | the supply and demand for metals we produce;                                                                                                                                                                                             
| | − | the supply and availability of all forms of energy and
      fuels at reasonable prices;                                                                                                                                                 
| | − | no significant unanticipated operational or technical
      difficulties;                                                                                                                                                                
| | − | the execution of our business and growth strategies,
      including the success of our strategic investments and initiatives;                                                                                                           
| | − | the availability of additional financing, if needed;                                                                                                                                                                                     
| | − | the ability to complete project targets on time and on
      budget and other events that may affect our ability to develop our
      projects;                                                                                          
| | − | the timing and receipt of various regulatory and
      governmental approvals;                                                                                                                                                           
| | − | the availability of personnel for our exploration,
      development and operational projects and ongoing employee relations;                                                                                                            
| | − | the ability to secure required land rights to develop the
      Pampacancha deposit;                                                                                                                                                     
| | − | maintaining good relations with the communities in which
      we operate, including the communities surrounding our Constancia mine and
      Rosemont project and First Nations communities surrounding our Lalor and
      Reed mines;
| | − | no significant unanticipated challenges with stakeholders
      at our various projects;                                                                                                                                                 
| | − | the ability to successfully conclude a collective
      agreement with the labour union at Constancia;                                                                                                                                   
| | − | no significant unanticipated events or changes relating
      to regulatory, environmental, health and safety matters;                                                                                                                   

51

---

| | − | no contests over title to our properties,
      including as a result of rights or claimed rights of aboriginal peoples;                                                                   
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | − | the timing and possible outcome of pending
      litigation and no significant unanticipated litigation;                                                                                   
| | − | certain tax matters, including, but not limited
      to current tax laws and regulations and the refund of certain value added
      taxes from the Canadian and Peruvian governments; and
| | − | no significant and continuing adverse changes
      in general economic conditions or conditions in the financial markets
      (including commodity prices and foreign exchange rates).   

The risks, uncertainties, contingencies and other factors that
may cause actual results to differ materially from those expressed or implied by
the forward-looking information may include, but are not limited to, risks
generally associated with the mining industry, such as economic factors
(including future commodity prices, currency fluctuations, energy prices and
general cost escalation), uncertainties related to the development and operation
of our projects (including risks associated with the economics and permitting of
the Rosemont project and related legal challenges), risks related to the
maturing nature of our 777 mine and its impact on the related Flin Flon
metallurgical complex, dependence on key personnel and employee and union
relations, risks related to political or social unrest or change, risks in
respect of aboriginal and community relations, rights and title claims,
operational risks and hazards, including unanticipated environmental, industrial
and geological events and developments and the inability to insure against all
risks, failure of plant, equipment, processes, transportation and other
infrastructure to operate as anticipated, compliance with government and
environmental regulations, including permitting requirements and anti-bribery
legislation, depletion of our reserves, volatile financial markets that may
affect our ability to obtain additional financing on acceptable terms, the
permitting and development of the Rosemont project not occurring as planned, the
failure to obtain required approvals or clearances from government authorities
on a timely basis, uncertainties related to the geology, continuity, grade and
estimates of mineral reserves and resources, and the potential for variations in
grade and recovery rates, uncertain costs of reclamation activities, our ability
to comply with our pension and other post-retirement obligations, our ability to
abide by the covenants in our debt instruments and other material contracts, tax
refunds, hedging transactions, as well as the risks discussed under the heading
Risk Factors in our most recent Annual Information Form.

Should one or more risk, uncertainty, contingency or other
factor materialize or should any factor or assumption prove incorrect, actual
results could vary materially from those expressed or implied in the
forward-looking information. Accordingly, you should not place undue reliance on
forward-looking information. We do not assume any obligation to update or revise
any forward-looking information after the date of this MD&A or to explain
any material difference between subsequent actual events and any forward-looking
information, except as required by applicable law.

Note to United States Investors

This MD&A has been prepared in accordance with the
requirements of the securities laws in effect in Canada, which may differ
materially from the requirements of United States securities laws applicable to
US issuers.

Qualified Person

The technical and scientific information in this MD&A
related to the Constancia mine has been approved by Cashel Meagher, P. Geo, our
Senior Vice President and Chief Operating Officer. The technical and scientific
information related to all other sites and projects contained in this MD&A
has been approved by Robert Carter, P. Eng, our Lalor Mine Manager. Messrs.
Meagher and Carter are qualified persons pursuant to NI 43-101. For a
description of the key assumptions, parameters and methods used to estimate
mineral reserves and resources, as well as data verification procedures and a
general discussion of the extent to which the estimates of scientific and
technical information may be affected by any known environmental, permitting,
legal title, taxation, sociopolitical, marketing or other relevant factors,
please see the Technical Reports for our material properties as filed by us on
SEDAR at www.sedar.com.

52

---