**Exhibit 99.1**

 

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**HUDBAY MINERALS INC.**

 

**ANNUAL****INFORMATION FORM**

 

**FOR THE**

 

**YEAR ENDED DECEMBER 31, 2013**

 

**March 28, 2014**

 

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**TABLE OF CONTENTS**

 
| FORWARD-LOOKING INFORMATION                                      | 1  |
|-----------------------------------------------------------------------|----|
| INFORMATION CONCERNING   AUGUSTA                                      | 3  |
| NOTE TO UNITED STATES   INVESTORS                                     | 3  |
| CAUTIONARY NOTE IN RESPECT   OF THE OFFER                             | 3  |
| CURRENCY AND EXCHANGE RATES                                           | 4  |
| OTHER IMPORTANT INFORMATION                                           | 4  |
| CORPORATE STRUCTURE                                                   | 4  |
| Incorporation   and Registered Office                                 | 4  |
| Intercorporate   Relationships                                        | 5  |
| DEVELOPMENT OF OUR BUSINESS                                           | 5  |
| Strategy                                                              | 5  |
| Three   Year History                                                  | 5  |
| DESCRIPTION OF OUR BUSINESS                                           | 8  |
| General                                                               | 8  |
| Material   Mineral Projects                                           | 9  |
| Other   Assets                                                        | 14 |
| Other   Information                                                   | 16 |
| CORPORATE SOCIAL   RESPONSIBILITY                                     | 18 |
| RISK FACTORS                                                          | 20 |
| DESCRIPTION OF CAPITAL   STRUCTURE                                    | 31 |
| Common   Shares                                                       | 31 |
| Preference   Shares                                                   | 31 |
| Senior   Unsecured Notes                                              | 32 |
| Credit   Ratings                                                      | 32 |
| DIVIDENDS                                                             | 34 |
| MARKET FOR SECURITIES                                                 | 34 |
| Price   Range and Trading Volume                                      | 34 |
| Prior   Sales                                                         | 35 |
| DIRECTORS AND OFFICERS                                                | 35 |
| Board   of Directors                                                  | 35 |
| Executive   Officers                                                  | 36 |
| Corporate   Cease Trade Orders, Bankruptcies, Penalties and Sanctions | 38 |
| Conflicts   of Interest                                               | 39 |
| AUDIT COMMITTEE DISCLOSURE                                            | 39 |
| LEGAL PROCEEDINGS AND   REGULATORY ACTIONS                            | 41 |
| INTEREST OF MANAGEMENT AND   OTHERS IN MATERIAL TRANSACTIONS          | 43 |
| TRANSFER AGENT AND REGISTRAR                                          | 43 |
| MATERIAL CONTRACTS                                                    | 43 |
| QUALIFIED PERSONS                                                     | 43 |
| INTERESTS OF EXPERTS                                                  | 43 |
| ADDITIONAL INFORMATION                                                | 44 |
| SCHEDULE A   GLOSSARY OF MINING TERMS                            | 1  |
| SCHEDULE   B MATERIAL MINERAL PROJECTS                                | 1  |
| AUDIT   COMMITTEE CHARTER                                             | 1  |

 

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**FORWARD-LOOKING INFORMATION**

 

This annual information form (“**AIF**”) contains “forward-looking statements” and “forward-looking information” (collectively, “**forward-looking information**”) within the meaning of applicable Canadian and United States securities legislation. All information contained in this AIF, 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 AIF is qualified by this cautionary note.

 

Forward looking information includes, but is not limited to, statements with respect to the anticipated timing, mechanics, completion and settlement of the Offer (as defined below) to acquire all of the issued and outstanding shares of Augusta Resource Corporation (“**Augusta**”), the market for and listing of the common shares we may issue pursuant to the Offer, the value of our common shares that may be received as consideration under the Offer, our ability to complete the transactions contemplated by the Offer, the permitting, development and financing of Augusta’s Rosemont copper project (the “**Rosemont Project**”), the purpose of the Offer, the completion of any compulsory acquisition or subsequent acquisition transaction in connection with the Offer and any commitment to acquire outstanding shares of Augusta, our objectives, strategies, intentions, expectations and guidance and future financial and operating performance and prospects, our expectation as to the use of proceeds from the recently completed equity offering, production at our 777, Lalor and Reed mines and initial production from the Constancia project, continued processing at our Flin Flon concentrator, Snow Lake concentrator and Flin Flon zinc plant, our ability to complete the development of our Lalor, Constancia and Reed projects and the anticipated scope and cost of any development plans for these projects, anticipated timing of our projects and events that may affect our projects, including the anticipated issue of required licenses and permits, our expectation that we will receive the remaining deposit amount under our amended precious metals stream transaction with Silver Wheaton Corp. (“**Silver Wheaton**”) and additional funding under our equipment financing transaction with Caterpillar Financial Services Corporation (“**CAT Financial**”), expectations with respect to additional credit facilities, the anticipated effect of external factors on revenue, such as commodity prices, anticipated exploration and development expenditures and activities and the possible success of such activities, estimation of mineral reserves and resources, mine life projections, timing and amount of estimated future production, reclamation costs, 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 accuracy of geological, mining and metallurgical estimates;

·                  the costs of production;

·                  the supply and demand for metals we produce;

·                  no significant and continuing adverse changes in financial markets, including commodity prices and foreign exchange rates;

·                  the supply and availability of concentrate for our processing facilities;

·                  the supply and availability of reagents for our concentrators;

·                  the availability of third party processing facilities for our concentrate;

·                  the supply and availability of all forms of energy and fuels at reasonable prices;

·                  the availability of transportation services at reasonable prices;

 

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·                  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 financing for our exploration and development projects and activities;

·                  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;

·                  our ability to secure required land rights to complete our Constancia project;

·                  maintaining good relations with the communities in which we operate, including the communities surrounding our Constancia project and First Nations communities surrounding our Lalor and Reed projects;

·                  no significant unanticipated challenges with stakeholders at our various projects;

·                  no significant unanticipated events or changes relating to regulatory, environmental, health and safety matters;

·                  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;

·                  no significant and continuing adverse changes in general economic conditions or conditions in the financial markets; and

·                  the accuracy of Augusta’s public disclosure.

 

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, the impact of the issuance of our common shares as consideration under the Offer on the market price of our common shares, the development of the Rosemont Project not occurring as planned, the exercising of dissent and appraisal rights by Augusta shareholders should a compulsory acquisition or subsequent acquisition transaction be undertaken in connection with the Offer, Augusta becoming a minority-owned or majority-owned subsidiary of Hudbay after consummation of the Offer, the possibility that Hudbay may remain a minority shareholder of Augusta after consummation of the Offer without the ability to control the management or direction of Augusta, the inaccuracy of Augusta’s public disclosure upon which the Offer is predicated, the triggering of change of control provisions in Augusta’s agreements leading to adverse consequences, the failure to obtain the required approvals or clearances from government authorities on a timely basis, 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 the impact on project cost and schedule of construction delays and unforeseen risks and other factors beyond our control), depletion of our reserves, risks related to political or social unrest or change and those 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, dependence on key personnel and employee relations, volatile financial markets that may affect our ability to obtain financing on acceptable terms, 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 or other material contracts, tax refunds, hedging transactions, as well as the risks discussed under the heading “Risk Factors”.

 

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 AIF

 

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or to explain any material difference between subsequent actual events and any forward-looking information, except as required by applicable law.

 

**INFORMATION CONCERNING AUGUSTA**

 

Except as otherwise expressly indicated herein, the information concerning Augusta contained in this AIF has been taken from and is based solely upon Augusta’s public disclosure on file with the relevant securities regulatory authorities. Augusta has not reviewed this document and has not confirmed the accuracy and completeness of the information in respect of Augusta contained in this AIF. Although we have no knowledge that would indicate that any information or statements contained in this AIF concerning Augusta taken from, or based upon, such public disclosure contain any untrue statement of a material fact or omit to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made, none of our directors or officers have verified the accuracy or completeness of such information or statements or are aware of any failure by Augusta to disclose events or facts which may have occurred or which may affect the significance or accuracy of any such information or statements. We have no means of verifying the accuracy or completeness of any of the information contained herein that is derived from Augusta’s publicly available documents or records or whether there has been any failure by Augusta to disclose events that may have occurred or may affect the significance or accuracy of any information. Except as otherwise indicated, information concerning Augusta is given based on information in Augusta’s public disclosure available as of the date of the Offer.

 

**NOTE TO UNITED STATES INVESTORS**

 

This AIF 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 U.S. issuers.

 

Information concerning our mineral properties has been prepared in accordance with the requirements of Canadian securities laws, which differ in material respects from the requirements of the Securities and Exchange Commission (the “**SEC**”) set forth in Industry Guide 7. Under the SEC’s Industry Guide 7, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time of the reserve determination, and the SEC does not recognize the reporting of mineral deposits which do not meet the SEC Industry Guide 7 definition of “Reserve”. In accordance with National Instrument 43-101 — Standards of Disclosure for Mineral Projects (“**NI 43-101**”) of the Canadian Securities Administrators, the terms “mineral reserve”, “proven mineral reserve”, “probable mineral reserve”, “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in the Canadian Institute of Mining, Metallurgy and Petroleum (the “**CIM**”) Definition Standards for Mineral Resources and Mineral Reserves adopted by the CIM Council on December 11, 2005. While the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are recognized and required by NI 43-101, the SEC does not recognize them. You are cautioned that, except for that portion of mineral resources classified as mineral reserves, mineral resources do not have demonstrated economic value. Inferred mineral resources have a high degree of uncertainty as to their existence and as to whether they can be economically or legally mined. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Therefore, you are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be economically or legally mined, or that it will ever be upgraded to a higher category. Likewise, you are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be upgraded into mineral reserves. You should consider closely the disclosure on the mining industry technical terms in Schedule A “Glossary of Mining Terms” of this AIF.

 

**CAUTIONARY NOTE IN RESPECT OF THE OFFER**

 

The full details of the Offer are set out in the takeover bid circular and accompanying offer documents (collectively, the “**Offer Documents**”), which we filed with the Canadian securities regulatory authorities. We also filed with the SEC a registration statement on Form F-10 (the “**Registration Statement**”), which contains a prospectus relating to the Offer (the “**Prospectus**”), and a tender offer statement on Schedule TO (the “**Schedule TO**”). The disclosure related to the Offer in this AIF is not a substitute for the Offer Documents, the

 

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Prospectus, the Registration Statement or the Schedule TO. AUGUSTA SHAREHOLDERS AND OTHER INTERESTED PARTIES ARE URGED TO READ THESE DOCUMENTS, ALL DOCUMENTS INCORPORATED BY REFERENCE, ALL OTHER APPLICABLE DOCUMENTS AND ANY AMENDMENTS OR SUPPLEMENTS TO ANY SUCH DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE EACH WILL CONTAIN IMPORTANT INFORMATION ABOUT HUDBAY, AUGUSTA AND THE OFFER. Materials filed with the Canadian securities regulatory authorities are available electronically without charge at www.sedar.com. Materials filed with the SEC are available electronically without charge at the SEC’s website at www.sec.gov. All such materials may also be obtained without charge at Hudbay’s website, www.hudbayminerals.com or by directing a written or oral request to the information agent for the Offer, Kingsdale Shareholder Services at 1-866-229-8874 (North American Toll Free Number) or 1-416-867-2272 (outside North America), or by email at contactus@kingsdaleshareholder.com or to the Vice President, Legal and Corporate Secretary of Hudbay at 25 York Street, Suite 800, Toronto, Ontario, telephone (416) 362-8181.

 

This AIF does not constitute an offer to buy or the solicitation of an offer to sell any of the securities of Hudbay or Augusta, and the Offer does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which such offer or solicitation is unlawful.

 

**CURRENCY AND EXCHANGE RATES**

 

This AIF contains references to both United States dollars and Canadian dollars. All dollar amounts referenced, unless otherwise indicated, are expressed in Canadian dollars, and United States dollars are referred to as “United States dollars” or “US$”.  For Canadian dollars to United States dollars, the average exchange rate for 2013 and the closing exchange rate at December 31, 2013, as reported by the Bank of Canada, were one Canadian dollar per 0.9402 and 1.0299 United States dollars, respectively. On March 25**,** 2014 the Bank of Canada noon rate of exchange was 0.8948.

 

**OTHER IMPORTANT INFORMATION**

 

Certain scientific and technical terms and abbreviations used in this AIF are defined in the “Glossary of Mining Terms” attached as Schedule A.

 

Unless the context suggests otherwise, references to “we”, “us”, “our” and similar terms, as well as references to “Hudbay” and “Company”, refer to HudBay Minerals Inc. and its direct and indirect subsidiaries.

 

**CORPORATE STRUCTURE**

 

**Incorporation and Registered Office**

 

We were formed by the amalgamation of Pan American Resources Inc. and Marvas Developments Ltd. on January 16, 1996, pursuant to the *Business Corporations Act* (Ontario) and changed our name to Pan American Resources Inc. On March 12, 2002, we acquired ONTZINC Corporation, a private Ontario corporation, through a reverse takeover and changed our name to ONTZINC Corporation. On December 21, 2004, we acquired Hudson Bay Mining and Smelting Co., Limited (“**HBMS**”) and changed our name to HudBay Minerals Inc. In connection with the acquisition of HBMS, on December 21, 2004, we amended our articles to consolidate our common shares on a 30 to 1 basis. On October 25, 2005, we were continued under the *Canada Business Corporations Act* (“**CBCA**”).  On August 15, 2011, we completed a vertical short-form amalgamation under the CBCA with our subsidiary, HMI Nickel Inc.

 

Our registered office is located at 2200-201 Portage Avenue, Winnipeg, Manitoba R3B 3L3 and our principal executive office is located at 25 York Street, Suite 800, Toronto, Ontario M5J 2V5.

 

Our common shares are listed on the Toronto Stock Exchange (“**TSX**”), New York Stock Exchange (“**NYSE**”) and Bolsa de Valores de Lima under the symbol “HBM”.

 

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**Intercorporate Relationships**

 

The following chart shows our principal subsidiaries, their jurisdiction of incorporation and the percentage of voting securities we beneficially own or over which we have control or direction.

 

 

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Notes:

 

(1)            HBMS owns our 777 and Lalor mines and our 70% owned Reed mine and is a guarantor of our 9.50% senior unsecured notes.

(2)            Hudson Bay Exploration and Development Company Limited (“**HBED**”) holds our key exploration properties in Canada, acts as agent for HBMS and is a guarantor of our 9.50% senior unsecured notes.

(3)            HudBay Marketing & Sales Inc. markets and sells our copper concentrate and zinc metal produced in Manitoba and is a guarantor of our 9.50% senior unsecured notes.

(4)            HudBay Peru Inc. owns 99.98% of HudBay Peru S.A.C. (“**Hudbay Peru**”). The remaining 0.02% is owned by 6502873 Canada Inc., our wholly-owned subsidiary.

(5)            Hudbay Peru S.A.C. owns the Constancia project.

(6)            HudBay (BVI) Inc. (“**Hudbay BVI**”) was incorporated for the sole purpose of entering into and fulfilling our obligations under the precious metals stream agreement in respect of the Constancia project.

 

**DEVELOPMENT OF OUR BUSINESS**

 

**Strategy**

 

Our mission is to create sustainable value through increased commodity exposure on a per share basis, in high quality, long life deposits with exploration potential in mining friendly jurisdictions. 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.

 

We intend to grow Hudbay through exploration and development of properties we already control, such as our Lalor and Reed projects in northern Manitoba and our Constancia project in Peru, as well as through the acquisition of exploration and development properties, as demonstrated by our Offer to acquire the issued and outstanding common shares of Augusta and its Rosemont Project. We also intend to optimize the value of our producing assets through efficient and safe operations.

 

**Three Year History**

 

*Offer to Acquire Augusta*

 

On February 9, 2014, we announced our intention to commence an offer to acquire all of the issued and outstanding common shares of Augusta not already owned by us (the “**Offer**”). Augusta owns the Rosemont Project near Tucson, Arizona.

 

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Under the terms of the Offer, Augusta shareholders are entitled to receive 0.315 of a Hudbay common share for each Augusta common share held, representing approximately $2.96 per Augusta common share or an Augusta enterprise value of approximately $540 million (based on Hudbay’s closing share price on the TSX on February 7, 2014). The Offer represents a premium of approximately 62% based on the 20-day volume-weighted average share prices of Hudbay and Augusta on the TSX for the period ended February 7, 2014.

 

The Offer is currently open for acceptance until 5:00 p.m. (Toronto time) on April 2, 2014, unless further extended or withdrawn.

 

*Equity Financing*

 

On January 9, 2014, we announced that we had entered into an agreement with a syndicate of underwriters who agreed to purchase, on a bought deal basis, 18,200,000 of our common shares at a price of $8.25 per common share. The underwriters were also granted an over allotment option, which they exercised in full, for an additional 2,730,000 common shares. The transaction closed on January 30, 2014, and the aggregate gross proceeds from the offering were $172.7 million.

 

We intend to use the net proceeds of the offering for general corporate purposes, including providing us the flexibility to pursue opportunities to advance our growth strategy.

 

*Issuance of 9.50% Senior Unsecured Notes*

 

On September 13, 2012, we issued US$500 million aggregate principal amount of 9.50% senior unsecured notes due October 1, 2020 (the “**Initial Notes**”). The Initial Notes were priced at 100% of their face value, and yielded proceeds of US$484 million net of directly attributable transaction costs. On June 20, 2013 and December 9, 2013, we issued US$150 million and US$100 million aggregate principal amount, respectively, of our 9.50% senior unsecured notes due October 1, 2020 (the “**Additional Notes**” and together with the Initial Notes, the “**Notes**”). The Additional Notes issued in June 2013 were priced at 102% of the aggregate principal amount, resulting in gross proceeds of US$153 million and will yield 9.11% to maturity. The Additional Notes issued in December 2013 were priced at 100% of their face value and yielded gross proceeds of US$100 million. The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by substantially all of our existing and future subsidiaries other than our subsidiaries associated with the Constancia project. For additional information, see “Description of Capital Structure — Senior Unsecured Notes”.

 

*Amended and Restated Credit Facility*

 

In connection with completing the issuance of the Additional Notes, in June 2013, we amended and restated our revolving credit facility. The amended and restated credit facility matures on September 12, 2016 and has a maximum availability equal to the lesser of US$100 million and a borrowing base related to the accounts receivable and inventory of our Manitoba business unit, which was US$73 million at December 31, 2013. The amendments also included the removal of debt to EBITDA and EBITDA to interest maintenance covenants, such that the only remaining financial maintenance covenant is the requirement to maintain a tangible net worth. The amended and restated credit facility contains other customary covenants for a facility of this type. As at December 31, 2013, we were in compliance with our covenants under the credit facility. Also as at December 31, 2013, we had $64.1 million in outstanding letters of credit collateralized by cash and cash equivalents that would have been classified as restricted cash in the absence of the credit facility.

 

*Precious Metals Stream Transaction*

 

On August 8, 2012, we entered into a precious metals stream transaction with Silver Wheaton pursuant to a precious metals purchase agreement (the “**777 Stream Agreement**”) among Silver Wheaton, Hudbay and HBMS and a silver purchase agreement (the “**Constancia Stream Agreement**” and, together with the 777 Stream Agreement, the “**Stream Agreements**”) among Silver Wheaton (Caymans) Ltd. (“**SW Caymans**”), Hudbay and Hudbay BVI.

 

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Pursuant to the Stream Agreements, we agreed to receive aggregate upfront deposit payments of US$750 million against delivery of (i) 100% of payable gold and silver from our 777 mine until the later of December 31, 2016 and satisfaction of a completion test at Constancia, and thereafter 50% of payable gold and 100% of payable silver for the remainder of the 777 mine life, and (ii) 100% of payable silver from the Constancia project.

 

At closing, we received an upfront deposit payment of US$500 million and we have received two additional deposit payments of US$125 million each, upon incurrence of US$500 million and US$1 billion, respectively, in capital expenditures at our Constancia project.

 

On November 4, 2013, we amended and restated the Constancia Stream Agreement (the Constancia Stream Agreement, as amended, continues to be referred to herein as the “**Constancia Stream Agreement**”). The amendments provide that we will receive an additional US$135 million deposit against delivery of 50% of the payable gold from the Constancia project. Silver Wheaton has the option to make the deposit payment in cash or Silver Wheaton common shares, with the number of shares calculated at the time the payment is made. Gold recovery for purposes of calculating payable gold will be fixed at 55% for gold mined from Constancia and 70% for gold mined from Pampacancha. The US$135 million deposit will become payable following our incurrence of US$1.35 billion in capital expenditures at Constancia.

 

The stream transaction does not include precious metals production from our Lalor project or our land package in Peru outside of the Constancia and Pampacancha deposits or any other metals or minerals, including copper or zinc, from any of our properties.

 

In addition to the upfront payments, for gold and silver delivered in accordance with the Stream Agreements, we will receive cash payments equal to the lesser of (i) the market price and (ii) US$400 per ounce (for gold) and US$5.90 per ounce (for silver), subject to 1% annual escalation after three years. For additional information, refer to the complete copies of the Stream Agreements that have been filed on SEDAR and EDGAR and our Material Change Reports dated August 14, 2012 and November 13, 2013, also filed on SEDAR and EDGAR.

 

*Constancia Project*

 

On August 8, 2012, our board of directors approved a US$1.5 billion investment to fund the development and construction of our Constancia project in Peru. Following substantial completion of the detailed engineering in the third quarter of 2013, the board approved a revised capital cost estimate for the project of US$1.7 billion. As of the end of February 2014, the project was over 67% complete on a proportion spent basis; of the revised US$1.7 billion budget, we had incurred approximately US$1.15 billion in costs and had entered into an additional US$250 million in commitments as at that date. Construction activities remain on track for first production in late 2014 and commercial production in the second quarter of 2015.

 

We acquired the Constancia project through our acquisition of all of the outstanding shares of Norsemont Mining Inc. (“**Norsemont**”) pursuant to a support agreement dated January 9, 2011 and an offer dated January 24, 2011 (as extended by a notice of extension dated March 1, 2011, the “**Norsemont Offer**”). Pursuant to the Norsemont Offer, and subsequent compulsory acquisition, we issued 22,475,704 Hudbay common shares and paid an aggregate of $130 million in cash to former Norsemont shareholders. For additional information, see “Description of our Business — Material Mineral Projects — Constancia Project”.

 

*Reed*

 

On December 19, 2011, our board of directors approved the construction of the Reed mine. The capital construction budget for Reed is $72 million. Construction of the Reed mine is substantially completed and production commenced in the third quarter of 2013. Pursuant to our agreement with VMS Ventures Inc. (“**VMS Ventures**”), we have a 70% interest and VMS Ventures has a 30% interest in the project. For additional information, see “Description of Our Business — Other Assets — Joint Ventures — Reed”.

 

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*Closure of Trout Lake and Chisel North Mines*

 

We closed our Trout Lake mine on June 29, 2012 after more than 30 years of operation, and our Chisel North mine closed on September 30, 2012.

 

*Dispositions of Fenix Project and Zochem*

 

On September 9, 2011, we completed the sale of our interest in the Fenix ferronickel project in Guatemala to the Solway Group (“**Solway**”) for cash consideration of US$140 million. In the fourth quarter of 2012, we received an additional $1 million from Solway to settle contingent consideration amounts that would have otherwise been receivable upon the satisfaction of certain conditions during the course of Solway’s development of the Fenix project and agreed with Solway to amend the terms of the indemnity to release us from all obligations except in respect of certain litigation matters. For additional information regarding these litigation matters, see “Legal Proceedings and Regulatory Actions”. We acquired the Fenix project in August 2008 through our acquisition of all of the issued and outstanding common shares of Skye Resources Inc.

 

On November 1, 2011, we sold our interest in Zochem Inc. to a third party for cash consideration of US$15 million. Zochem Inc. owns and operates a zinc oxide production facility in Brampton, Ontario.

 

**DESCRIPTION OF OUR BUSINESS**

 

**General**

 

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. Through our subsidiaries, we own copper/zinc/gold mines, ore concentrators and a zinc production facility in northern Manitoba and Saskatchewan and a copper project in Peru. We also have equity investments in a number of junior exploration companies. 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 mission is to create sustainable value through increased commodity exposure on a per share basis for our shareholders.

 

We have three material mineral projects, all of which are 100% owned:

 

1.              777, an underground mine in Flin Flon, Manitoba, which has been producing since 2004;

 

2.              Lalor, a zinc, gold and copper project currently under construction near Snow Lake, Manitoba, which commenced initial ore production from the ventilation shaft in August 2012 and is expected to begin production from the main shaft in the second half of 2014; and

 

3.              Constancia, a copper project in Peru, which is expected to commence initial production in late 2014 and begin full production in the second quarter of 2015.

 

We also own a 70% interest in the Reed mine near Snow Lake, Manitoba, which commenced production in the third quarter of 2013, exploration properties in North and South America and minority equity investments in several junior exploration companies as part of our strategy to build a pipeline of projects with the potential for development.

 

In addition, we own and operate a portfolio of processing facilities in northern Manitoba, including our primary Flin Flon ore concentrator, which produces zinc and copper concentrates, our Snow Lake concentrator, which produces zinc and copper concentrates and our Flin Flon zinc plant, which produces high-grade zinc metal.

 

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The following map shows where our material mineral projects and certain of our other assets are located.

 

 

**Material Mineral Projects**

 

*777 Mine*

 

Our 100% owned 777 mine is an underground copper, zinc, gold and silver mine located within the Flin Flon Greenstone Belt, immediately adjacent to our principal concentrator and zinc pressure leach plant in Flin Flon, Manitoba. Development of the 777 mine commenced in 1999 and commercial production began in 2004. The anticipated mine life is until 2020.

 

In 2012, we completed the 777 North expansion, which involved driving a ramp from surface to the existing workings at the 440 metre level of 777 to enable access to ore zones and to additional underground exploration at 777. Full production from the 777 North expansion zones began in early 2013.

 

Ore produced at the 777 mine is transported to our Flin Flon concentrator for processing into copper and zinc concentrate. Copper concentrate is sold to third party purchasers and zinc concentrate is sent to our Flin Flon zinc plant where it is further processed into special high grade zinc before being sold to third party purchasers. For additional information, see “Description of our Business — Other Information — Processing Facilities” and “Description of our Business — Other Information — Products and Marketing”.

 

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Pursuant to the 777 Stream Agreement, we received a US$455 million upfront deposit payment for a portion of the precious metals stream at our 777 mine (see “Development of our Business — Three Year History — Precious Metals Stream Transaction).

 

On November 6, 2012, we filed a NI 43-101 technical report titled “Technical Report, 777 mine, Flin Flon, Manitoba, Canada”, dated effective October 15, 2012 (the “**777 Technical Report**”), a copy of which is available under our profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. For additional details on our 777 mine refer to Schedule B of this AIF.

 

Production

 

The following table sets forth our production from the 777 Mine for the years ended December 31, 2013, 2012 and 2011.

 
| ** **          | ** ** | **December 31** | ** ** |
|---------------------|------------|----------------------|------------|
| ** **          | ** ** | **Units**            | ** ** | **2013** | ** ** | **2012** | ** ** | **2011** | ** ** |
| Ore mined           |       | tonnes               |       | 1,625,532 |   | 1,529,103 |   | 1,491,722 |   |
| Copper grade in ore |       | %                    |       | 1.85 |   | 2.32 |   | 3.18 |   |
| Zinc grade in ore   |       | %                    |       | 3.81 |   | 4.16 |   | 3.71 |   |
| Gold grade in ore   |       | grams/tonne          |       | 2.02 |   | 2.18 |   | 2.37 |   |
| Silver grade in ore |       | grams/tonne          |       | 23.01 |   | 25.77 |   | 26.78 |   |

 

Operating costs are expected to be similar to costs experienced in the past several years, as a result of ongoing productivity efforts. As in past years, costs in the first and fourth quarters are expected to be higher due to additional heating and other seasonal costs.

 

Mineral Reserves and Resources

 

The following tables set forth our estimates of the mineral reserves and resources at the 777 mine.

 

In-Mine Mineral Reserves — January 1, 2014(1)(2)(3)

 
| ** **                | ** ** | **Tonnes**     | ** ** | **Cu (%)** | ** ** | **Zn (%)** | ** ** | **Au (g/t)** | ** ** | **Ag (g/t)** | ** ** |
|---------------------------|------------|----------------|------------|-----------------|------------|-----------------|------------|-------------------|------------|-------------------|------------|
| **777 Mine**              |       |           |       |            |       |            |       |              |       |              |       |
| Proven                    |       | 4,893,000      |       | 2.27            |       | 4.01            |       | 1.84              |       | 24.71             |       |
| Probable                  |       | 5,707,000      |       | 1.34            |       | 4.24            |       | 1.79              |       | 24.69             |       |
| **Total Mineral Reserve** | ** ** | **10,600,000** | ** ** | **1.77**        | ** ** | **4.14**        | ** ** | **1.81**          | ** ** | **24.70**         | ** ** |

 

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Notes:

(1)            This table shows the estimated reserves at our 777 mine, including the 777 North expansion, in Manitoba.

(2)            The zinc price used for mineral reserve estimation was US$1.06 per pound (includes premium), the copper price was US$3.00 per pound, the gold price was US$1,250.00 per ounce and the silver price was US$25.00 per ounce using an exchange of 1.05 C$/US$.

(3)            For additional details relating to the estimates of mineral reserves and resources at our 777 mine, including data verification and quality assurance / quality control processes, refer to Schedule B and our technical report titled “Technical Report, 777 mine, Flin Flon, Manitoba, Canada” dated effective October 15, 2012, a copy of which is available on SEDAR at www.sedar.com and EDGAR at www.sec.gov.

 

10

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In-Mine Inferred Mineral Resources — September 30, 2013(1)(2)(3)

 
| ** **     | ** ** | **Tonnes**  | ** ** | **Cu (%)** | ** ** | **Zn (%)** | ** ** | **Au (g/t)** | ** ** | **Ag (g/t)** | ** ** |
|----------------|------------|-------------|------------|-----------------|------------|-----------------|------------|-------------------|------------|-------------------|------------|
|           |       |        |       |            |       |            |       |              |       |              |       |
| **777   Mine** | ** ** | **784,000** | ** ** | **1.05**        | ** ** | **4.49**        | ** ** | **1.77**          | ** ** | **30.61**         | ** ** |

 

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Notes:

(1)         This table shows our estimated inferred mineral resources at our 777 mine, including the 777 North expansion, in Manitoba.  Mineral resources that are not mineral reserves do not have demonstrated economic viability. The above mineral resources are exclusive of mineral reserves.

(2)         The zinc price used for mineral resource estimation was US$1.06 per pound (includes premium), the copper price was US$3.00 per pound, the gold price was US$1,250.00 per ounce and the silver price was US$25.00 per ounce using an exchange of 1.05 C$/US$.

(3)         For additional details relating to the estimates of mineral reserves and resources at our 777 mine, including data verification and quality assurance / quality control processes, refer to Schedule B and our technical report titled “Technical Report, 777 mine, Flin Flon, Manitoba, Canada” dated effective October 15, 2012, a copy of which is available on SEDAR at www.sedar.com and EDGAR at www.sec.gov**.**

 

*Lalor Project*

 

Our 100% owned Lalor project is a zinc, gold and copper project currently under construction near the town of Snow Lake in the province of Manitoba. Lalor is located approximately 210 kilometres by road east of Flin Flon, Manitoba.

 

In 2013, we hoisted 400,590 tonnes of ore from the ventilation shaft at our Lalor project at a copper grade of 0.84% and a zinc grade of 9.44%. Underground development is ongoing and it is expected that the main production shaft will be commissioned during the second half of 2014. In the first quarter of 2014, we received the *Environment Act* licence for Lalor, which will enable full production via the main shaft.

 

Of the total mine construction budget of $441 million, we have invested approximately $386 million to February 28, 2014 and have entered into an additional $36 million in commitments.

 

We are also investing US$9 million at our Snow Lake concentrator to refurbish existing equipment and facilities and to double production capacity to approximately 2,700 tonnes per day by mid-2014, when the production shaft at Lalor is being commissioned. This investment will allow for the deferral of the construction of the new Lalor concentrator until 2015. We have allocated $10.5 million of Lalor’s $75 million capital budget to continue with engineering and optimization work for the new concentrator during 2014.

 

In January and March of 2013, members of the Mathias Colomb Cree Nation (“**MCCN**”) staged two separate blockades that impeded access to our Lalor site for part of a business day. After the two blockades, we successfully applied to the Manitoba Court of Queen’s Bench for an interlocutory injunction to prevent any further blockades at our Manitoba operations. On January 20, 2014, the Court of Appeal of Manitoba upheld the injunction order. We felt we had a responsibility to seek this injunction as any actions that prohibit access to our sites and operations present an unsustainable safety risk to our employees, contractors and others. Notwithstanding the court process, we remain committed to continued consultation and cooperation with the MCCN.

 

On March 30, 2012, we filed a NI 43-101 technical report titled “Pre-Feasibility Study Technical Report, on the Lalor Deposit, Snow Lake, Manitoba, Canada”, dated March 29, 2012 (the “**Lalor Technical Report**”), a copy of which is available under our profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. For additional details on our Lalor project, refer to Schedule B of this AIF.

 

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Production

 

The following table sets forth actual production from the ventilation shaft for the years ended December 31, 2013 and 2012. Production from the 985 metre production shaft is anticipated to commence in the second half of 2014.

 
| ** **          | ** ** | ** **  | ** ** | **December 31** | ** ** |
|---------------------|------------|-------------|------------|----------------------|------------|
| ** **          | ** ** | **Units**   | ** ** | **2013**             | ** ** | **2012** | ** ** |
| Ore mined           |       | Tonnes      |       | 400,590              |       | 72,293 |   |
| Copper grade in ore |       | %           |       | 0.84                 |       | 0.63 |   |
| Zinc grade in ore   |       | %           |       | 9.44                 |       | 11.83 |   |
| Gold grade in ore   |       | grams/tonne |       | 1.21                 |       | 1.67 |   |
| Silver grade in ore |       | grams/tonne |       | 19.39                |       | 19.29 |   |

 

Mineral Reserves and Resources

 

Lalor Mineral Reserves — January 1, 2014(1)(2)

 
| ** **                    | ** ** | **Tonnes**     | ** ** | **Cu (%)** | ** ** | **Zn (%)** | ** ** | **Au (g/t)** | ** ** | **Ag (g/t)** | ** ** |
|-------------------------------|------------|----------------|------------|-----------------|------------|-----------------|------------|-------------------|------------|-------------------|------------|
| **Lalor   — Base Metal** |       |           |       |            |       |            |       |              |       |              |       |
| Proven                        |       | 1,332,000      |       | 0.73            |       | 8.99            |       | 1.53              |       | 17.49             |       |
| Probable                      |       | 11,334,000     |       | 0.68            |       | 7.81            |       | 1.56              |       | 23.77             |       |
| **Lalor   — Gold Zone**  | ** ** | ** **     | ** ** | ** **      | ** ** | ** **      | ** ** | ** **        | ** ** | ** **        | ** ** |
| Proven                        |       | —         |       |            |       |            |       |              |       |              |       |
| Probable                      |       | 2,530,000      |       | 0.37            |       | 0.42            |       | 4.28              |       | 24.45             |       |
| **Total   Mineral Reserve**   | ** ** | **15,196,000** | ** ** | **0.63**        | ** ** | **6.69**        | ** ** | **2.01**          | ** ** | **23.34**         | ** ** |

 

----

Notes:

(1)                     The zinc price used for mineral reserve estimation was US$1.06 per pound (includes premium), the copper price was US$3.00 per pound, the gold price was US$1,250.00 per ounce and the silver price was US$25.00 per ounce using an exchange of 1.05 C$/US$.

(2)                     For additional details relating to the estimates of mineral reserves at our Lalor project, including data verification and quality assurance / quality control processes, refer to Schedule B and our technical report titled “Pre-Feasibility Study Technical Report, on the Lalor Deposit, Snow Lake, Manitoba, Canada” dated effective March 29, 2012, a copy of which is available on SEDAR at www.sedar.com and EDGAR at www.sec.gov.

 

Lalor Inferred Mineral Resources — September 30, 2013(1)(2)(3

 
| ** **                            | ** ** | **Tonnes**     | ** ** | **Cu (%)** | ** ** | **Zn (%)** | ** ** | **Au (g/t)** | ** ** | **Ag (g/t)** | ** ** |
|---------------------------------------|------------|----------------|------------|-----------------|------------|-----------------|------------|-------------------|------------|-------------------|------------|
| **Lalor   — Base Metal**(4)      |       |           |       |            |       |            |       |              |       |              |       |
| Inferred                              |       | 3,832,000      |       | 2.04            |       | 5.77            |       | 3.47              |       | 21.24             |       |
| **Lalor   — Gold Zone**          | ** ** | ** **     | ** ** | ** **      | ** ** | ** **      | ** ** | ** **        | ** ** | ** **        | ** ** |
| Inferred                              |       | 6,281,000      |       | 0.42            |       | 0.49            |       | 4.70              |       | 31.48             |       |
| **Total   Inferred Mineral Resource** | ** ** | **10,113,000** | ** ** | **1.04**        | ** ** | **2.49**        | ** ** | **4.24**          | ** ** | **27.60**         | ** ** |

 

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Notes:

(1)                                 Mineral resources that are not mineral reserves do not have demonstrated economic viability. The above mineral resources are exclusive of mineral reserves.

(2)                                 The zinc price used for mineral resource estimation was US$1.06 per pound (includes premium), the copper price was US$3.00 per pound, the gold price was US$1,250.00 per ounce and the silver price was US$25.00 per ounce using an exchange of 1.05 C$/US$.

(3)                                 For additional details relating to the estimates of mineral reserves at our Lalor project, including data verification and quality assurance / quality control processes, refer to Schedule B and our technical report titled “Pre-Feasibility Study Technical Report, on the Lalor Deposit, Snow Lake, Manitoba, Canada” dated effective March 29, 2012, a copy of which is available on SEDAR at www.sedar.com and EDGAR at www.sec.gov.

(4)                                 Includes the copper-gold zone.

 

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*Constancia Project*

 

Constancia is our 100% owned copper project in Peru, which we acquired through our acquisition of Norsemont in 2011. It is located in the Province of Chumbivilcas in southern Peru and consists of the Constancia and Pampacancha deposits.

 

On August 8, 2012, our board of directors approved a US$1.5 billion investment to fund the development and construction of our Constancia project. Following substantial completion of the detailed engineering in the third quarter of 2013, the board approved a revised capital cost estimate for the project of US$1.7 billion. As of the end of February 2014, the project was over 67% complete on a proportion spent basis; of the revised US$1.7 billion budget, we had incurred approximately US$1.15 billion in costs and had entered into an additional US$250 million in commitments as at that date. Construction activities remain on track for first production in late 2014 and commercial production in the second quarter of 2015.

 

We have received approval of all required construction permits. In the third quarter of 2013, we received approval of our Environmental and Social Impact Assessment (“**ESIA**”) Modification 1 and submitted an application for a second amendment to the ESIA in December 2013 in respect of the final project configuration and to permit the incorporation of Pampacancha into the mine plan. We have received the first round of observations from the Ministry on ESIA Modification 2 and are addressing them with no critical items noted. All permitting remains on schedule. We have also obtained approval for the early refund of value added tax on purchases with retroactive effect to December 2012 and have received refunds of US$55 million to date from the tax authorities. Also in December 2013, we entered into a 15-year tax and fiscal stability agreement with the government of Peru. Pursuant to the agreement, the increase in the applicable income tax rate from 30% to 32% is expected to be largely offset by the accelerated depreciation that the agreement provides.

 

Pursuant to the Constancia Stream Agreement, we have received US$295 million in upfront deposit payments against delivery of 100% of the payable silver at Constancia. We are entitled to receive an additional deposit amount of US$135 million against delivery of 50% of the payable gold at Constancia following our incurrence of US$1.35 billion in capital expenditures. Gold recovery for purposes of calculating payable gold will be fixed at 55% for gold mined from Constancia and 70% for gold mined from Pampacancha (see “Development of our Business — Three Year History — Precious Metals Stream Transaction).

 

On November 6, 2012, we filed a technical report titled “National Instrument 43-101, Technical Report, Constancia Project, Province of Chumbivilcas, Department of Cusco, Peru”, dated October 15, 2012 (the “**Constancia Technical Report**”), a copy of which is available under our profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. For additional details on our Constancia project, refer to Schedule B of this AIF.

 

Mineral Reserves and Resources

 

The following table sets forth our estimates of the mineral reserves at the Constancia project as at January 1, 2014.

 
| ** **                | ** ** | **Tonnes**      | ** ** | **Cu (%)** | ** ** | **Mo (g/t)** | ** ** | **Au (g/t)** | ** ** | **Ag (g/t)** | ** ** |
|---------------------------|------------|-----------------|------------|-----------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| **Constancia**            | ** ** | ** **      | ** ** | ** **      | ** ** | ** **        | ** ** | ** **        | ** ** | ** **        | ** ** |
| Proven                    |       | 483,000,000     |       | 0.32            |       | 93                |       | 0.040             |       | 3.04              |       |
| Probable                  |       | 94,000,000      |       | 0.22            |       | 61                |       | 0.036             |       | 2.77              |       |
| **Pampacancha**           | ** ** | ** **      | ** ** | ** **      | ** ** | ** **        | ** ** | ** **        | ** ** | ** **        | ** ** |
| Proven                    |       | 23,000,000      |       | 0.52            |       | 142               |       | 0.298             |       | 4.28              |       |
| Probable                  |       | 20,000,000      |       | 0.44            |       | 159               |       | 0.252             |       | 3.74              |       |
| **Total Mineral Reserve** | ** ** | **620,000,000** | ** ** | **0.32**        | ** ** | **92**            | ** ** | **0.056**         | ** ** | **3.07**          | ** ** |

 

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Notes:

(1)                     The above mineral reserves are based on a Peruvian Sole: US Dollar exchange rate of $2.85:1 and the following long term metals prices: Cu US$3.00/lb; Ag US$25.00/oz; Au US$1,250.00/oz; and Mo US$13.50/lb.

 

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The following table sets forth our estimates of the mineral resources at the Constancia project as at September 30, 2013.(1)(2)

 
| ** **                              | ** ** | **Tonnes**      | ** ** | **Cu (%)** | ** ** | **Mo (g/t)** | ** ** | **Au (g/t)** | ** ** | **Ag (g/t)** | ** ** |
|-----------------------------------------|------------|-----------------|------------|-----------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| **Constancia****(3)**                   | ** ** | ** **      | ** ** | ** **      | ** ** | ** **        | ** ** | ** **        | ** ** | ** **        | ** ** |
| Measured                                |       | 68,000,000      |       | 0.22            |       | 59                |       | 0.036             |       | 2.17              |       |
| Indicated                               |       | 293,000,000     |       | 0.20            |       | 58                |       | 0.033             |       | 1.96              |       |
| Inferred                                |       | 200,000,000     |       | 0.19            |       | 51                |       | 0.031             |       | 1.86              |       |
| **Pampacancha****(4)**                  | ** ** | ** **      | ** ** | ** **      | ** ** | ** **        | ** ** | ** **        | ** ** | ** **        | ** ** |
| Measured                                |       | 5,000,000       |       | 0.41            |       | 69                |       | 0.243             |       | 5.46              |       |
| Indicated                               |       | 6,000,000       |       | 0.34            |       | 98                |       | 0.211             |       | 4.68              |       |
| **Total Measured & Indicated** | ** ** | **372,000,000** | ** ** | **0.20**        | ** ** | **59**            | ** ** | **0.039**         | ** ** | **2.09**          | ** ** |
| **Total Inferred**                      | ** ** | **200,000,000** | ** ** | **0.19**        | ** ** | **51**            | ** ** | **0.031**         | ** ** | **1.86**          | ** ** |

 

----

Notes:

(1)                                 Mineral resources that are not mineral reserves do not have demonstrated economic viability. The above mineral resources are exclusive of mineral reserves.

(2)                                 The resources shown in the table above correspond to a resources pit shell. In compliance with NI 43-101 requirements for the disclosure of mineral resources, a pit optimization to delimit the portion of the block model having reasonable prospects for economic extraction was performed.

(3)                                 The Constancia resource pit consists of a non-operational pit of Measured, Indicated and Inferred resources diluted to a 10x10x15m full block size using a 0.12% copper cut-off based on a copper price of US$2.88 per pound and a molybdenum price of US$16.00 per pound, copper recovery of 89%, molybdenum recovery of 60%, processing costs of US$5.50 per tonne and mining costs of US$1.30 per tonne.

(4)                                 The Pampacancha resource pit consists of a non-operational pit of Measured, Indicated and Inferred resources diluted to a 10x10x15m full block size using a 0.1% copper cut-off based on a copper price of US$3.00 per pound, a molybdenum price of US$13.50 per pound, silver price of US$25.00 per ounce, gold price of US$1,250 per ounce, copper recovery of 85%, molybdenum recovery of 40%, gold and silver recovery of 65%; processing costs of US$4.72 per tonne and mining costs of US$1.90 per tonne.

 

**Other Assets**

 

*Reed*

 

During the third quarter of 2013, our 70% owned Reed mine near Flin Flon, Manitoba, received its *Environment Act* licence from the Manitoba government and commenced initial production. The licence permits the operation of a 1,300 tonne per day underground copper mine and supporting infrastructure. Of our $72 million estimated capital construction budget for the project, we have invested approximately $64.9 million to February 28, 2014. As of that date, project development had advanced 2,927 metres with the mine producing 82,062 tonnes of ore from a combination of drift development in ore and longhole stope mining. The Reed mine is expected to reach commercial production by the second quarter of 2014.

 

Our estimates of mineral reserves and resources for Reed are set out below.

 

14

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Reed — Probable Mineral Reserves — January 1, 2014 (1)(2)

 
| **Tonnes** | ** ** | **Cu   (%)** | ** ** | **Zn   (%)** | ** ** | **Au   (g/t)** | ** ** | **Ag   (g/t)** | ** ** |
|------------|------------|--------------|------------|--------------|------------|----------------|------------|----------------|------------|
| 2,121,000  |       | 3.80         |       | 0.50         |       | 0.42           |       | 5.28           |       |

 

----

Notes:

(1)                     The zinc price used for the mineral reserve estimations was US$1.06 per pound (includes premium), the copper price used for the mineral reserves estimation was US$3.00 per pound, the gold price was US$1,250.00 per ounce and the silver price was US$25.00 per ounce using an exchange rate of 1.05 C$/US$.

 

(2)                     For additional details relating to the estimates of mineral reserves and resources at the Reed mine, including data verification and quality assurance/quality control processes refer to the “Pre-Feasibility Study Technical Report on the Reed Copper Deposit, Central Manitoba, Canada” as filed on SEDAR by VMS Ventures Inc. on May 14, 2012.

 

Reed — Inferred Mineral Resources — September 30, 2013(1)

 
| **Tonnes** | ** ** | **Cu   (%)** | ** ** | **Zn   (%)** | ** ** | **Au   (g/t)** | ** ** | **Ag   (g/t)** | ** ** |
|------------|------------|--------------|------------|--------------|------------|----------------|------------|----------------|------------|
| 233,000    |       | 4.31         |       | 0.52         |       | 0.38           |       | 4.57           |       |

 

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Notes:

(1)                                 Mineral resources that are not mineral reserves do not have demonstrated economic viability. The above mineral resources are exclusive of reserves and were estimated using the same metals prices as were used for the estimate of mineral reserves at Reed.

 

*Exploration Properties*

 

Our exploration properties are key to our strategy of pursuing organic growth. Over the past 87 years, we and our predecessors have brought into production 26 ore bodies on our lands and continue to pursue brownfield opportunities near our existing deposits. A key component of this will be the development of the 955-1025 metre level exploration drifts at Lalor during the second half of 2014, which is expected to enable tighter-spaced drilling to upgrade known inferred resources and to test the down plunge exploration potential of the gold and copper gold zones. Underground exploration drilling at 777 will also continue with the objective of extending the mine life beyond 2020, and in Peru we plan to drill newly discovered geophysical anomalies on our large land position around Constancia. For 2014, our board of directors has approved total exploration expenditures of approximately $20 million.

 

We hold a land position of approximately 370,000 hectares in Manitoba and Saskatchewan, primarily in the highly prolific Flin Flon Greenstone Belt. Since much of this property is within 100 kilometres of our two ore concentrators in the region, and given that we have available capacity at our processing facilities from time to time, we are in a good position to economically exploit mineral deposits that a mining company without such proximate facilities may not be able to develop profitably due to higher costs of transportation and processing. This, along with our 22,000 hectare land package in Peru, aligns well with our focus in 2014 on brownfield opportunities.

 

In addition, we will continue to look for greenfield opportunities in North and South America.

 

Our other exploration properties include our wholly-owned Tom and Jason zinc-lead properties in the Yukon, which contain mineral resources. On January 17, 2014 we completed the sale of our 51% interest in the Back Forty project in Michigan’s Upper Peninsula to our former joint venture partner Aquila Resources Inc.

 

*Processing Facilities*

 

Concentrators

 

Our primary ore concentrator is located in Flin Flon, Manitoba. The concentrator, which is directly adjacent to our metallurgical zinc plant, produces zinc and copper concentrates from ore mined at our 777 mine. Its capacity is approximately 2.18 million tonnes of ore per year. The concentrator can handle ore from

 

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more than one mine separately, and blending is done at the grinding stage. As a result, ore mined from our Lalor and Reed projects may be transported to the Flin Flon concentrator for processing. The Flin Flon concentrator facility includes a paste backfill plant and associated infrastructure such as maintenance shops and laboratories. Tailings from the concentrator are pumped to the Flin Flon tailings impoundment immediately adjacent to the concentrator.

 

Our concentrator in Snow Lake, Manitoba was re-started in late 2009 and a new copper recovery circuit was installed in the third quarter of 2012 to facilitate processing of early Lalor ore. The concentrator currently processes ore from Lalor and produces zinc and copper concentrates. The zinc concentrate is shipped by truck for further processing at our zinc plant in Flin Flon. The concentrator, which has crushing, grinding, flotation, thickening, filtering and drying capabilities, has a design capacity of approximately 1.1 million tonnes of ore per year. We are refurbishing equipment and facilities at the concentrator to double production capacity to approximately 2,700 tonnes per by day by mid-2014, at a capital cost of $9 million.Tailings generated by the Snow Lake concentrator are deposited in our Anderson Lake tailings facility, which we believe mitigates environmental impacts, as the tailings are deposited in a subaqueous manner, minimizing the potential for generation of acid rock drainage.

 

Zinc Plant

 

Our zinc plant located in Flin Flon, Manitoba produces special high-grade metal in three cast shapes from zinc concentrate. Our plant is one of four primary zinc producers in North America. We produced 96,305 tonnes of cast zinc in 2013.  The capacity of the zinc plant is approximately 115,000 tonnes of cast zinc per year.  Included in the zinc plant are an oxygen plant, concentrate handling, storage and regrinding facility, a zinc pressure leach plant, a solution purification plant, a modern electro-winning cellhouse, a casting plant and a zinc storage area with the ability to load trucks or rail cars.  The zinc plant has a dedicated leach residue disposal facility.  The bulk of the waste material is gypsum, iron and elemental sulphur.  Wastewater is treated and recycled through the zinc plant.

 

Domestic concentrates produced from our mines and concentrate purchased from third parties are processed at the zinc plant.  Purchased concentrate accounted for approximately 7% of zinc metal produced at our zinc plant in 2013, and is expected to account for 15-20% of zinc production in 2014.  Domestic zinc concentrate production and purchased zinc concentrate are expected to support capacity utilization of approximately 95% in 2014.  Upon full production from Lalor, domestic zinc concentrate production is expected to utilize fully the available capacity of the zinc plant.

 

*Strategic Investments*

 

As at December 31, 2013, we held minority equity positions in 15 junior exploration companies, representing investments with a fair market value of approximately $48 million, as part of our strategy to populate a pipeline of projects with the potential for development following the construction of Lalor and Constancia. Our early stage opportunity pipeline consists of projects in Canada, the United States, Chile, Peru and Colombia and includes our investment in, and proposed Offer for, Augusta. We are continuing to evaluate new projects and potential investments to add to our portfolio and will seek to dispose of investments when the underlying projects are no longer consistent with our strategy.

 

*Cash and Cash Equivalents*

 

Our cash and cash equivalents as of December 31, 2013 were $631 million, and are held in low risk liquid investments and deposit accounts pursuant to our investment policy.

 

**Other Information**

 

*Products and Marketing*

 

Our principal products are copper concentrate and zinc. In 2013, we produced 127,909 tonnes of copper concentrate and 96,305 tonnes of cast zinc. In 2013 copper concentrate sales represented

 

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approximately 59% (2012 68%) and zinc metal sales represented approximately 40**%**(2012 31%) of our total gross consolidated revenue, respectively.

 

In 2013, we sold approximately 72% of our copper concentrate production to third party purchasers in North America and Europe on benchmark terms and in 2014 we expect to sell approximately the same percentage. We sell the remainder of our copper concentrate production pursuant to shorter-term contracts as opportunities arise.

 

We sell gold and silver produced from our 777 mine and contained in our copper concentrate to Silver Wheaton pursuant to the terms of the 777 Stream Agreement. For additional information, see “Three Year History”.

 

We ship cast zinc metal produced at our Flin Flon zinc plant to third party customers in North America by rail and truck. Following the sale of our Zochem Inc. subsidiary in November 2011, we have been selling approximately 20% of our zinc production to Zochem Inc. at market terms.

 

*Commodity Markets*

 

Over the course of 2013, prices for our key metals traded within a relatively narrow range when compared to the previous four years. However, average prices in 2013 generally were lower than average prices in 2012. For additional information refer to our market analysis of copper, zinc, gold and silver prices during this period on pages 21 and 22 of our management’s discussion and analysis for the year ended December 31, 2013, a copy of which has been filed on SEDAR at www.sedar.com and EDGAR at www.sec.gov.

 

*Specialized Skill and Knowledge*

 

The success of our operations depends in part on our ability to attract and retain geologists, engineers, metallurgists and other personnel in the geographic areas in which we operate with specialized skill and knowledge about the mining and mineral processing industries. For additional information, see “Risk Factors — Human Resources”.

 

*Competitive Conditions*

 

The mining industry is intensely competitive and we compete with many companies in the search for and the acquisition of attractive mineral properties. In addition, we also compete for the technical expertise to find, develop, and operate such properties, the labour to operate the properties, and the capital for the purpose of funding such properties. For additional information, see “Risk Factors — Competition”.

 

*Economic Dependence*

 

We do not have any contracts upon which our business is substantially dependent, as our principal products, copper concentrate and zinc, are widely traded commodities and we may enter into contracts for the sale of such products with a variety of potential purchasers.

 

*Environmental Protection*

 

Our activities are subject to environmental laws and regulations. Environmental laws and regulations are evolving in a manner that will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. For additional information, see “Risk Factors — Governmental and Environmental Regulation”.

 

Our goal is to continually improve our environmental performance. We have established an environmental management program directed at environmental protection and compliance to achieve our goal and address these regulatory changes. For additional information, see “Corporate Social Responsibility”.

 

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*Employees*

 

As at December 31, 2013, we had 52 employees at our Toronto head office, 1,365 employees in Flin Flon and Snow Lake, Manitoba and 157 employees in Peru. In addition, we had 20 employees elsewhere in North and South America.

 

Of our 1,365 employees in Flin Flon and Snow Lake, approximately 1,047 were unionized as at December 31, 2013. In 1998, we entered into a labour stability agreement in respect of our existing Flin Flon/Snow Lake collective bargaining agreements, whereby we agreed with the unions that any collective agreement expiring prior to July 1, 2012 would be settled by way of binding arbitration in the event that the parties could not otherwise agree to a negotiated contract settlement. Ourcurrent collective bargaining agreements at HBMS expire December on 31, 2014 and subsequent collective bargaining agreements will not be subject to the labour stability agreement.

 

HBMS maintains a profit sharing plan pursuant to which 10% of its after-tax profit (excluding provisions or recoveries for deferred income and mining tax) for any given year is distributed among eligible employees in the Flin Flon/Snow Lake operations, with the exception of executive officers and key management personnel.

 

*Continuous Improvement*

 

In early 2012, we began the process of formalizing our approach to continuous improvement in order to enhance our overall performance and contain costs. We refer to this approach as Continuous Improvement Process Optimization or CIPO.  The key objectives of our CIPO program are to:

 

·                  establish a standard process to manage continuous improvement activities;

·                  establish targets and accountabilities related to continuous improvement projects;

·                  maintain our competitive edge, reduce our costs and enhance our growth potential; and

·                  enhance our company culture by incorporating continuous improvement into the normal course of business.

 

CIPO is not a project with a start and end date, but rather it is a structure that defines how projects are managed. Under the CIPO governance structure, Project Champions have been identified in each of the functional areas of our company. Their activities are overseen by a CIPO Steering Committee whose main focus is to ensure that CIPO projects are aligned with our overall strategy and objectives. The governance structure provides a formal means by which any employee can submit a continuous improvement idea and receive feedback as to its status. Typically, employees who suggest projects are involved in the implementation. As well, CIPO governance is structured to ensure that all ideas are captured, evaluated consistently, and prioritized — with the goal of maintaining a high value project pipeline and a sustainable program.

 

Since inception of the formal CIPO program, we have completed approximately 82 projects, which are expected, and in some cases have begun, to deliver financial as well as health and safety benefits. We currently have approximately 53 active CIPO projects underway as well as a robust pipeline of new ideas for the next generation of projects.

 

**CORPORATE SOCIAL RESPONSIBILITY**

 

At Hudbay, we view our responsible corporate behaviour as integral to the successful execution of our business strategy, particularly in maintaining a good reputation with our regulators and communities — and being able to bring that good reputation to new communities and jurisdictions when we embark on new projects.  We therefore commit to our stakeholders to work to create benefits and opportunities that contribute to their economic and social sustainability, and to protect our natural environment. We also commit to our employees to maintain a safe and healthy work environment.  As described below, we have adopted a number of voluntary codes and other external instruments that we consider particularly relevant to our business, including ISO 14001, Occupational Health and Safety Assessment Series (“**OHSAS**”) 18001 and our Human Rights Policy.

 

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**Health, Safety and Environmental Policies**

 

Among our core values are protecting the health and welfare of our employees and contractors and reducing the impact of our operations on the environment. All of our producing operations have management systems certified to OHSAS 18001 and Environmental Management System Standard ISO 14001. In addition, the production and supply of our cast zinc products are registered to the ISO 9001 quality standard.

 

We believe that ongoing improvements in the safety of our workplace assists in maintaining healthy labour relations and that our ability to minimize lost-time injuries and environmental regulatory violations is a significant factor in maintaining and realizing opportunities to improve overall operational efficiency. Oursafety management systems include the Positive Attitude Safety System (“**PASS**”), which is in use at our Manitoba operations. The PASS system is based on facilitated discussions at all levels of the organization to increase each person’s involvement in recognizing and managing workplace risks. In 2013, our lost time accident frequency per 200,000 hours worked was 0.4. This is higher than our frequency of 0.3 in 2012, in part due to a number of lost time accidents at our exploration sites in Colombia in 2013.  While the severity of these injuries was low, we nevertheless take seriously our commitment to reducing such incidents and have taken steps to better oversee our exploration activities. We remain committed to continuously improving the safety of our workplace.

 

We have established an environmental management program directed at environmental protection and compliance. The program consists of an environmental policy, codes of practice, regular audits, the integration of environmental procedures with operating procedures, employee training and emergency prevention and response procedures. We have dedicated teams which are charged with managing our environmental activities and our compliance with all applicable environmental standards and regulations. We did not have any material environmental non-compliances in 2013.

 

**Human Rights Policy**

 

In May 2011, we adopted a formal Human Rights Policy. The policy is intended to capture and clearly state our commitments to human rights. Key aspects include our commitment to:

 

·                  Ethical business practices — further articulated in our Code of Business Conduct and Ethics;

·                  Labour practices and labour relations — including fair labour practices at our workplaces and a commitment to the health and safety of our employees;

·                  Community participation — including community consultation, contributing to long-term and sustainable opportunities for communities, respecting communities’ legal rights, and participating in a common effort to promote respect for human rights as they relate to our business; and

·                  Security measures that respect human rights — including our adoption of the Voluntary Principles on Security and Human Rights, and the United Nations Code of Conduct for Law Enforcement Officials.

 

**Sustainability Reporting**

 

We publish an annual corporate social responsibility report that further presents and discusses our environmental, social, health and safety performance. This report is prepared pursuant to the Global Reporting Initiative guidelines, which is the world’s most widely used sustainability framework. We also subscribe to the Mining Association of Canada’s “Toward Sustainable Mining” initiative, which was designed to help mining companies evaluate the quality, comprehensiveness and robustness of their management systems under key performance elements, including tailings management, energy use and emissions, external outreach and crisis management planning. Our 2012 Corporate Social Responsibility Report is available on our website at www.hudbayminerals.com and our 2013 report is expected to be released in the second quarter of 2014.

 

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**RISK FACTORS**

 

An investment in our securities is speculative and involves significant risks that should be carefully considered by investors and prospective investors. In addition to the risk factors described elsewhere in this AIF, the risk factors that impact us and our business include, but are not limited to, those set out below. Any one or more of these risks could have a material adverse effect on our business, results of operations, financial condition and the value of our securities.

 

**Metals Prices and Foreign Exchange**

 

Our profit or loss and financial condition depend upon the market prices of metals, which are cyclical and which can fluctuate widely with demand for our metals. Demand is affected by numerous factors beyond our control, including the overall state of the economy, general level of industrial production, interest rates,rate of inflation, foreign exchange rates and investment demand for commodities. Such external economic factors are in turn influenced by changes in international investment patterns, monetary systems and political developments. Prices are also affected by the overall supply of the metals we produce, which can be affected by the start-up of major new mines, production disruptions and closures of existing mines.

 

Future price declines may, depending on hedging practices, materially reduce our profitability and could cause us to reduce output at our operations (including, possibly, closing one or more of our mines or plants), all of which could reduce our cash flow from operations. During August and September 2013, Hudbay entered into copper and zinc hedging transactions intended to manage the risk of adverse changes to operating cash flow as it approaches the expected completion of the Lalor and Constancia projects in the second half of 2014. For further details, see the risk factor, “Hedging Transactions” below.

 

In addition, since our core operations are located in Canada, our costs are incurred primarily in Canadian dollars. However, our revenue is tied to market prices for copper, zinc and other metals we produce, which are typically denominated in United States dollars. If the Canadian dollar appreciates in value against the United States dollar, our results of operations and financial condition could be materially adversely affected. Also, once our Constancia project reaches production, a substantial part of our operating costs will be incurred in Peruvian new soles, and future appreciation of the new sole relative to the United States dollar could adversely impact our future profitability. Although we may use hedging strategies to limit exposure to currency fluctuations, there can be no assurance that such hedging strategies will be successful or that they will mitigate the risk of such fluctuations.

 

**Development of Key Projects**

 

Our ability to develop our key mineral projects, including our Lalor and Constancia projects, is subject to many risks and uncertainties, including: our ability to upgrade estimates of mineral resources into mineral reserves; completion of feasibility studies; the ability to secure adequate financing to fund such projects; obtaining and maintaining various permits and approvals from governmental authorities; construction risk; securing required surface and other land rights; finding or generating suitable sources of power and water; developing and maintaining good relationships with communities, local government and other stakeholders and interested parties; political and social risk; and confirming the availability and suitability of appropriate local area infrastructure.

 

We have negotiated life-of-mine community agreements with two communities directly affected by the Constancia project to secure required land rights for the project and efforts to relocate 36 families pursuant to one of the community agreements are underway. However, any inability to enforce these agreements, successfully relocate such families or maintain good relations with these and other nearby communities and other stakeholders could impair our ability to successfully develop or operate the project. At Lalor, we still require a permit under Manitoba’s *The Environment Act* in order to operate the new concentrator that is planned at the site. While we believe that such permit will be forthcoming, it is possible that it may be delayed or not granted, which could prevent us from building the new concentrator.

 

Significant amounts of capital will be required to bring each of Lalor and Constancia projects to full production. Our capital and operating costs for such projects may be affected by a variety of factors, including

 

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project scope changes, local currency appreciation and general cost escalation common to mining projects globally. While we believe that we will have sufficient liquidity to satisfy spending requirements to complete our key capital projects and meet our debt service obligations (including obligations under our Notes and the equipment financing facility with CAT Financial), to the extent that capital costs are higher than currently forecast, metal prices decline materially from current levels or we have another unanticipated demand on our liquidity, we may need to raise additional financing to complete our capital projects or seek other sources of liquidity or pursue other corporate initiatives. Given current economic circumstances and other factors, there can be no certainty that sufficient financing or other transactions will be available on acceptable terms. If such financing or transactions are not available, we may not be able to fund the development of one or both the Constancia and Lalor projects or other projects we intend to develop.

 

The capital expenditures and timeline needed to develop a new mine are considerable and the economics of and ability to complete a project can be affected by many factors, including: inability to completeconstruction and related infrastructure in a timely manner; changes in the legal and regulatory environment; general cost escalation; currency fluctuations; industrial disputes; availability of parts, machinery or operators; delays in the delivery of major process plant equipment; inability to obtain, renew or maintain the necessary permits, licenses or approvals; unforeseen natural events; and political, social and other factors. Factors such as changes to technical specifications, failure to enter into agreements with contractors or suppliers in a timely manner, including contracts in respect of Constancia project infrastructure, and shortages of capital, may also delay the completion of construction or commencement of production or require the expenditure of additional funds. Many major mining projects constructed in the last several years, or under construction currently, have experienced cost overruns that substantially exceeded the capital cost estimated during the basic engineering phase of those projects, sometimes by as much as 50% or more. There can be no assurance that our current development projects or other projects we intend to develop will be able to be developed successfully or economically or that they will not be subject to the other risks described in this section.

 

**Substantial Indebtedness**

 

We have a significant amount of indebtedness.  As of December 31, 2013, our total debt was approximately US$750 million (consisting of the Notes). In addition, we have subsequently incurred additional indebtedness pursuant to the equipment financing facility we have entered into with CAT Financial. We may also incur indebtedness under our credit facilities and would have additional indebtedness in the event the Offer to acquire the issued and outstanding common shares of Augusta is successful.

 

Subject to the limits contained in the indenture governing the Notes and any limits under our other debt instruments existing from time to time, we may incur substantial additional debt (including an offtake related financing in Peru) to finance working capital, capital expenditures, investments or acquisitions or for other purposes. If we do so, the risks related to our high level of indebtedness could intensify. Specifically, our substantial level of indebtedness could have important consequences, including:

 

·                  limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

·                  requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;

·                  increasing our vulnerability to general adverse economic and industry conditions;

·                  exposing the company to the risk of increased interest rates as certain of our borrowings are at variable rates of interest;

·                  limiting our flexibility in planning for and reacting to changes in the industry in which we compete;

·                  placing the company at a disadvantage compared to other less leveraged competitors; and

·                  increasing our cost of borrowing.

 

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**Depletion of Reserves**

 

Subject to any future expansion or other development, production from existing operations at our mines will typically decline over the life of the mine. As a result, our ability to maintain our current production or increase our annual production of base and precious metals and generate revenues therefrom will depend significantly upon our ability to discover or acquire and to successfully bring new mines into production and to expand mineral reserves at existing mines. Exploration and development of mineral properties involves significant financial risk. Very few properties that are explored are later developed into operating mines. Whether a mineral deposit will be commercially viable depends on a number of factors, including: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which are highly cyclical; political and social stability; and government regulation, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. Even if we identify and acquire an economically viable ore body, several years may elapse from the initial stages of development. We may incur significant expenses to locate and establish mineral reserves, todevelop metallurgical processes and to construct mining and processing facilities. As a result, we cannot provide assurance that our exploration or development efforts will result in any new commercial mining operations or yield new mineral reserves to replace or expand current mineral reserves.

** **

**Political and Social Risks**

 

The implementation of new, or the modification of existing, laws and regulations affecting our operations and other mineral properties could have a material adverse impact on us and our projects. Such laws or events could involve the expropriation of property, implementation of exchange controls and price controls, increases in production royalties and income and mining taxes, refusal to grant or renew required permits, licenses, leases or other approvals or requiring unfavourable amendments to or revoking current permits and licenses, and enacting environmental or other laws that would make contemplated operations uneconomic or impractical. The risk exists that further government limitations, restrictions or requirements, not presently foreseen, will be implemented. In addition, changes in policy that alter laws regulating the mining industry could have a material adverse effect on us.

 

There can be no assurance that industries which are deemed to be of national or strategic importance in countries in which we have operations or assets will not be nationalized. There also can be no assurance that our assets in these countries will not be subject to nationalization, requisition or confiscation, whether legitimate or not, by a government authority or other body.

 

In situations where we have acquired mineral rights, we may not be able to secure required surface rights. In addition, in situations where we possess surface rights, our land may be illegally occupied. Any inability to secure required surface rights or take possession of areas for which we hold surface rights could render us unable to carry out planned exploration, development and mining activities.

 

Notwithstanding the expressed intention of the current national government in Peru to support mining as a driver for the continued growth and future development of the country, other mining projects—like the Conga project in northern Peru and projects in the Cusco region in southern Peru—have been the target of initiatives that have delayed and disrupted project development and operations. Such initiatives, as well as political or social unrest or instability, could adversely affect our ability to develop and operate the Constancia project. Such adverse effects could result from positions or actions that may be taken by the national government or at the regional, community or local levels including encroaching on our land, challenging the boundaries of such land or our rights to possess and operate on such land, protesting against our project (including the environmental or social impacts of our project), impeding project activities through roadblocks or other public manifestations and attacking project assets or personnel. During the last several years, certain mining projects in Peru have been the target of political and community protests. By way of example, in late 2011, construction activities at the Conga project in northern Peru were suspended at the request of the central government following increasing protests by anti-mining activists led by the regional president. While there have been some initiatives in respect of the Constancia project, including an attempt to restrict access by workers, those initiatives have been limited and have not significantly disrupted the project’s development. There is the risk that more significant opposition may be mounted that may affect our ability to develop and operate the Constancia project.

 

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**Aboriginal Rights and Title**

 

Claimed rights of aboriginal peoples, including the MCCN, may affect our ability to develop our Lalor and Reed projects and other mineral properties or may materially delay the development of such properties. For example, in January and March of 2013, members of the MCCN staged two separate blockades that impeded access to our Lalor site for part of a business day. After the two blockades, we successfully applied to the Manitoba Court of Queen’s Bench for an interlocutory injunction to prevent any further blockades at our Manitoba operations. The Court’s decision in respect of the injunction at the Lalor project was recently upheld by the Manitoba Court of Appeal. While the Court of Appeal removed the injunction application to our Reed project, it left open the possibility of extending the injunction to the Reed project should similar blockades occur in the future. There can be no assurance that other disruptions will not be initiated, which initiatives may affect our ability to explore and develop our properties and conduct our operations.

 

**Community Relations**

 

Our relationships and reputation, particularly with the communities in which we operate, are critical to the future success of our existing operations and the construction and development of our projects, including the Constancia project in Peru and the ability to explore and develop additional properties. There is an increasing level of public concern relating to the perceived effect of mining activities on the environment and on communities impacted by those activities. Publicity adverse to us, our operations, or extractive industries generally, including as a result of anti-mining protests in Peru, could have an adverse effect on us and may impact our reputation and relationship with the communities in which we operate, including the communities surrounding the Constancia project and other stakeholders. For example, while we have entered into life-of-mine agreements with two local communities directly affected by the Constancia project, there can be no assurance that disputes will not arise with other communities in the area or that we will be able to secure the agreements required to ensure we have the necessary surface rights to successfully complete the project. There is a risk that relations with local communities may be strained by real or perceived detrimental effects associated with our activities or those of other mining companies and that those strains may impact our ability to enforce these agreements or obtain necessary permits and approvals to develop and operate the Constancia project. While we are committed to operating in accordance with applicable laws and in a socially responsible manner, there can be no assurance that our efforts in this respect will mitigate this potential risk.

 

**Hedging Transactions**

 

During August and September 2013, we entered into copper and zinc hedging transactions intended to manage the risk of adverse changes to operating cash flow as we approach the expected completion of the Lalor and Constancia projects in the second half of 2014. The hedging transactions do not address all of the risk to revenues associated with fluctuations in our realized revenues, including foreign exchange rates, treatment and refining charges and refined metal premiums, and the notional volume of the hedging is less than our anticipated production during the hedged time period. Also, although we have entered into the hedging transactions with counterparties whom we believe to be creditworthy, non-performance by those counterparties could render our hedging ineffective.

 

**Mining and Processing**

 

Mining operations, including exploration, development and production of mineral deposits, generally involve a high degree of risk and are subject to conditions and events beyond our control. Our operations are subject to all of the hazards and risks normally encountered in the mining industry including: adverse environmental conditions; industrial and environmental accidents; metallurgical and other processing problems; unusual or unexpected rock formations; ground or slope failures; structural cave-ins or slides; flooding or fires; seismic activity; rock bursts; equipment failures; and periodic interruptions due to weather conditions. These risks could result in significant damage, including destruction of mines, equipment and other operations, resulting in partial or complete shutdowns, personal injury or death, environmental or other damage to our properties or the properties of others, delays in mining, monetary losses and potential legal liability. In addition, although we conduct extensive maintenance and incur significant costs to maintain and upgrade our fixed and mobile equipment and infrastructure, failures may occur that cause injuries or production loss.

 

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Failure to achieve production, cost or life-of-mine estimates could have an adverse impact on our future cash flows, profitability, results of operations and financial condition. Our actual production, costs and the productive life of a mine may vary from estimates for a variety of reasons, including actual ore mined varying from estimates of grade, tonnage, dilution and metallurgical and other characteristics, short-term operating factors relating to the mineral reserves, such as the need for sequential development of ore bodies and the processing of new or different ore grades, revisions to mine plans, risks and hazards relating to mining and availability of and cost of labour and materials.

 

Production of zinc concentrate from our mines has not been sufficient to operate our zinc plant at full capacity, which has had an impact on our profitability. Any inability to provide adequate feed to our processing facilities could adversely impact our profitability or impair the viability of our processing facilities.

 

**Governmental and Environmental Regulation**

 

Our activities are subject to various laws and regulations governing prospecting, development, production, taxes, labour standards, occupational health, mine safety, toxic substances, protection of the environment and other matters. Environmental regulation is evolving in a manner that will require stricter standards and enforcement, increased fines and penalties for non-compliance, and more stringent environmental assessments of proposed projects. There can be no assurance that existing or future environmental regulation will not materially adversely affect our business, financial condition and results of operations. There is contamination on properties that we own or owned or for which we have or have had care, management or control and, in some cases on neighbouring properties, that may result in a requirement to remediate, which could involve material costs. We could be held responsible for investigative-cleanup cost relating to presently unknown contamination on our properties. We may also acquire properties with environmental risks. Any investigative and remediation costs for known or unknown contamination, or for future releases of hazardous or toxic substances at our properties or related to our activities, could be material.

 

Although we believe that our activities are currently carried out in material compliance with applicable laws and regulations, no assurance can be given that new laws and regulations will not be enacted or that existing laws and regulations will not be amended or applied in a manner that could have a material adverse effect on our business, financial condition and results of operations. Any failure to comply with such laws and regulations may result in enforcement actions, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. We may be required to compensate those suffering loss or damage relating to mining activities, and we may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.

 

**Government Approvals and Permits**

 

Government approvals and permits are currently required in connection with all of our operations, and further approvals and permits will be required in the future, including in respect of our key development projects. The success of our efforts to obtain and maintain permits is contingent upon many variables outside of our control. Obtaining and complying with governmental permits may increase costs and cause delays. There can be no assurance that all necessary permits will be obtained and, if obtained, that the costs involved will not exceed our estimates or that we will be able to maintain such permits. To the extent such approvals are required and not obtained or maintained, our operations may be curtailed or we may be prohibited from proceeding with planned exploration, development, or operation of mineral properties.

 

**Human Resources**

 

The success of our operations and development projects depend in part on our ability to attract and retain geologists, engineers, metallurgists and other personnel with specialized skill and knowledge about the mining industry in the geographic areas in which we operate. Our development plans for our Lalor project in Snow Lake, Manitoba and our Constancia project in southern Peru, in particular, depend in part on our ability to attract new skilled personnel to work for us in these geographic areas. Challenges in recruiting employees

 

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to work at our Snow Lake operations has led to a higher reliance on contractor labour than expected and correspondingly higher costs.

 

We also are dependent on a number of key management and operating personnel, and our success will depend in large part on the efforts of these individuals and our ability to retain them. We do not have any key person insurance on any of these individuals.

 

There can be no assurance that our business will not suffer from a work stoppage at any location where we operate and there can be no assurance that we will be able to successfully negotiate new collective agreements with our employees at our Flin Flon and Snow Lake operations before the existing agreements expire in December 2014. From time to time we may temporarily suspend or close certain of our operations and we may incur significant labour and severance costs as a result of a suspension or closure. Further,temporary suspensions and closures may adversely affect our future access to skilled labour, as employees who are laid off may seek employment elsewhere.

 

**Energy Prices and Availability**

 

Our mining operations and facilities are intensive users of electricity and carbon based fuels. Energy prices can be affected by numerous factors beyond our control, including global and regional supply and demand, political and economic conditions, and applicable regulatory regimes. The prices of various sources of energy we rely on may increase significantly from current levels and any such significant increase could have an adverse effect on our profitability.

 

**Access to Capital**

 

There is no assurance that sufficient funding or financing will be available to us on acceptable terms, or at all, for further exploration or development of our properties or to fulfill our outstanding obligations. Global financial conditions have been subject to increased volatility and turmoil in recent years. This may affect our ability to obtain equity or debt financing on acceptable terms, or at all, in the future. Failure to obtain such additional funding or financing could result in the delay or indefinite postponement of the exploration and development of our properties, including Lalor and Constancia.

 

**The Notes and Other Indebtedness**

 

Our ability to make scheduled payments on or refinance our debt obligations, including the Notes, depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, including the Notes.

 

If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness, including the Notes. We may not be able to effect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternatives may not allow us to meet our scheduled debt service obligations. The indenture governing the Notes restricts our ability to dispose of assets and use the proceeds from those dispositions and may also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due.

 

If we cannot make scheduled payments on our debt, we will be in default and holders of the Notes could declare all outstanding principal and interest to be due and payable, causing a cross-acceleration or cross-default under certain of our other debt agreements, if any, and our other creditors could foreclose against the collateral securing our obligations and we could be forced into bankruptcy or liquidation.

 

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In addition, the indenture governing the Notes contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including restrictions on our ability to:

 

·                  incur additional indebtedness;

·                  pay dividends or make other distributions or repurchase or redeem capital stock;

·                  prepay, redeem or repurchase certain debt;

·                  make loans and investments;

·                  sell assets;

·                  incur liens;

·                  enter into transactions with affiliates;

·                  alter the businesses we conduct;

·                  enter into agreements restricting our subsidiaries’ ability to pay dividends; and

·                  consolidate, amalgamate, merge or sell all or substantially all of our assets.

 

A breach of the covenants under the indenture governing the Notes or our other debt instruments from time to time could result in an event of default under the applicable indebtedness. Such a default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies. In the event the holders of our Notes or our lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. These restrictions may affect our ability to grow in accordance with our strategy. As a result of these restrictions, we may be:

 

·                  limited in how we conduct our business;

·                  unable to raise additional debt or equity financing to operate during general economic or business downturns; or

·                  unable to compete effectively or to take advantage of new business opportunities.

 

**Transportation and Infrastructure**

 

At our mines in northern Manitoba and Saskatchewan, we are dependent upon a single railway and certain short-line rail networks to transport purchased concentrate to our Flin Flon metallurgical complex and to transport products from the Flin Flon metallurgical complex for further processing or to our customers. In addition, the Constancia project will require transportation improvements and access, which will require the cooperation of local government and other third parties. We may have similar dependencies at future mining and processing operations. Inability to secure reliable and cost-effective transportation and other infrastructure, or disruption of these services due to weather-related problems, strikes, lock-outs or other events could have a material adverse effect on our operations. If transportation for our products is or becomes unavailable, our ability to market our products could suffer. In addition, increases in our transportation costs, relative to those of our competitors, could make our operations less competitive and could adversely affect our profitability.

 

**Title to Mineral Properties**

 

Although we believe we have taken reasonable measures to ensure valid title to our properties, there can be no assurance that title to any of our properties will not be challenged or impaired. Third parties may have valid claims underlying portions of our interests, including prior unregistered liens, agreements, transfers or claims, and aboriginal land claims, and title may be affected by, among other things, undetected defects or unforeseen changes to the boundaries of our properties by governmental authorities.

 

**Competition**

 

The mining industry is intensely competitive and we compete with many companies possessing greater financial and technical resources than us. Since mines have a limited life, we must compete with others who seek mineral reserves for attractive, high quality mining assets. In addition, we also compete for the technical expertise to find, develop, and operate such properties, the labour to operate the properties and 

 

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the capital for the purpose of funding such properties. Existing or future competition in the mining industry could materially adversely affect our prospects for mineral exploration and success in the future.

 

**Mineral Resource and Reserve Estimates**

 

There are numerous uncertainties inherent in estimating mineral reserves and mineral resources and the future cash flows that might be derived from their production. Estimates of mineral reserves and mineral resources, and future cash flows necessarily depend upon a number of variable factors and assumptions, including, among other things, ability to achieve anticipated tonnages and grade, geological and mining conditions that may not be fully identified by available exploration data or that may differ from experience in current operations, historical production from the area compared with production from other producing areas, the assumed effects of regulation by governmental agencies and assumptions concerning metal prices, exchange rates, interest rates, inflation, operating costs, development and maintenance costs, reclamation costs, and the availability and cost of labour, equipment, raw materials and other services required to mineand refine the ore. In addition, there can be no assurance that mineral recoveries in small scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production. For these reasons, estimates of our mineral reserves and mineral resources in our public disclosure, and any estimates of future cash flows may vary substantially from our actual results.

 

**Reclamation and Mine Closure Costs**

 

The ultimate timing of, and costs for, future removal and site restoration could differ from current estimates. Our estimates for this future liability are subject to change based on amendments to applicable laws and legislation, the nature of ongoing operations and technological innovations.

 

In addition, regulatory authorities in various jurisdictions require us to post financial assurances to secure, in whole or in part, future reclamation and restoration obligations in such jurisdictions. Changes to the amounts required, as well as the nature of the collateral to be provided, could significantly increase our costs, making the maintenance and development of existing and new mines less economically feasible, and any capital resources we utilize for this purpose will reduce the resources available for our other operations and commitments. Although we accrue for future closure costs, we do not necessarily reserve cash in respect of these obligations or otherwise fund these obligations in advance. As a result, we will have significant cash costs when we are required to close and restore mine sites.

 

**Post-Retirement Obligations**

 

We have assets in defined benefit pension plans which arise through employer contributions and returns on investments made by the plans. The returns on investments are subject to fluctuations depending upon market conditions and we are responsible for funding any shortfall of pension assets compared to our pension obligations under these plans. Our liabilities under defined benefit pension plans are estimated based on actuarial and other assumptions. These assumptions may prove to be incorrect and may change over time and the effect of these changes can be material. We also have substantial commitments for post-retirement health and other benefits for which no specific funding arrangements are in place.

 

**Anti-Bribery Legislation**

 

We are subject to the *U.S. Foreign Corrupt Practices Act*(“**FCPA**”), which prohibits corporations and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect their transactions and to devise and maintain an adequate system of internal accounting controls. We are also subject to *Canada’s Corruption of Foreign Public Officials Act* (“**CFPOA**”), which prohibits corporations and individuals from giving or offering to give a benefit of any kind to a foreign public official, or any other person for the benefit of the foreign public official, where the ultimate purpose is to obtain or retain a business advantage.

 

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Our international activities, including our Constancia project and exploration activities elsewhere in South America, create the risk of unauthorized payments or offers of payments by our employees, consultants or agents. While we have implemented safeguards to prevent these practices, our existing safeguards and any future improvements to such safeguards may not be completely effective, and our employees, consultants or agents may engage in conduct for which we might be held responsible. Any failure to comply with the FCPA, the CFPOA and applicable laws and regulations in foreign jurisdictions could result in substantial penalties or restrictions on our ability to conduct business in certain foreign jurisdictions, which may have a material adverse impact on us and our share price.

 

**Tax Refunds**

 

We expect to receive substantial tax refunds in the next twelve months of previously paid income and value added taxes from the Canadian and Peruvian governments, respectively. Although we believe we are following the appropriate process to obtain the refunds and have started to receive payments of these refunds, there is no assurance that all amounts owing to us will be received on a timely basis or at all.

 

**Credit Risk**

 

We mitigate credit risk relating to customers of our copper, zinc and precious metals by carrying out credit evaluations on our customers, making a significant portion of sales on a cash basis and maintaining insurance on trade receivables. If customers default on the credit extended to them and our loss is not covered by insurance, results of operations could be materially adversely affected. Further, we may enter into offsetting derivative contracts for which we do not obtain collateral or other security. In the event of non-performance by counterparties in connection with such derivative contracts, we are further exposed to credit risk.

 

**Insurance**

 

Our insurance will not cover all the potential risks associated with our operations. In addition, although certain risks are insurable, we may be unable to maintain insurance to cover these risks at economically feasible premiums. Insurance against risks such as environmental pollution or other hazards as a result of exploration and production is not generally available to us on acceptable terms. Losses from uninsured events may cause us to incur significant costs.

 

**Dividend Payments**

 

The Notes impose certain restrictions on our ability to make restricted payments, including common dividends. Our ability to make subsequent dividend payments at current levels will be subject to compliance with the covenants contained in our debt agreements along with other liquidity considerations. At all times, the declaration of dividends is subject to the discretion of our board of directors.

 

**Market Price of Common Shares**

 

Our share price may be significantly affected by short-term changes in commodity prices or in our financial condition or results of operations. Other factors unrelated to our performance that may have an effect on the price of our common shares include a lessening in trading volume and general market interest in our securities and the size of our public float. As a result of any of these factors, the market price of our common shares, at any given point in time, may not accurately reflect our long-term value. Securities class action litigation has been brought against companies following periods of volatility in the market price of their securities and issuers listed on U.S. stock exchanges (as we are), in particular, have been subject to increasing shareholder litigation. We may in the future be the target of similar litigation.

 

**“Passive foreign investment company” under the U.S. Internal Revenue Code**

 

We do not believe we are a “passive foreign investment company” under Section 1297(a) of the U.S. Internal Revenue Code (“**PFIC**”) for the current taxable year. If we derive 75% or more of our gross income from certain types of “passive” income (such as rents, royalties, interest, dividends, and other similar types of 

 

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income), or if the quarterly average value during a taxable year of our “passive assets” (generally, assets that generate passive income) is 50% or more of the average value of all assets held by us, then the PFIC rules may apply to U.S. taxpayers that hold our common shares (regardless of the extent of their ownership interest in us). Several “look-through” rules apply in determining PFIC status, including that a 25% or more owned subsidiary corporation’s income and assets will be deemed those of its parent for purposes of the PFIC rules. Thus, a sufficiently active subsidiary may allow a parent corporation to avoid PFIC status, depending on the circumstances. Whether we are considered a PFIC for a specific taxable year is a factual determination that must be made annually at the end of that taxable year. As a result, our status in the current and future years will depend on the composition our gross income, our assets and activities in those years and our market capitalization as determined on the end of each calendar quarter, and there can be no assurance that we will or will not be considered a PFIC for any taxable year.

 

If we are classified as a PFIC during any portion of a U.S. taxpayer’s holding period for our common shares, as determined for U.S. federal income tax purposes, such taxpayer would be subject to adverse U.S. federal income tax consequences under the PFIC rules.  In such case (except as discussed below), any excess distribution (generally a distribution in excess of 125% of the average distribution over a three-year

 

period or shorter holding period for our common shares) and realized gain on the sale, exchange or other disposition of our common shares will be treated as ordinary income and generally will be subject to tax as if (a) the excess distribution or gain had been realized ratably over the U.S. taxpayer’s holding period, (b) the amount deemed realized in each year had been subject to tax in each such year at the highest marginal rate for such year (other than income allocated to the current period or any taxable period before we became a PFIC, which would generally be subject to tax at the U.S. taxpayer’s regular ordinary income rate for the current year and would not be subject to the interest charge discussed in (c) below), and (c) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years. Where a company that is a PFIC meets certain reporting requirements, a U.S. taxpayer may be able to mitigate certain adverse PFIC consequences described above by making a “qualified electing fund” (“**QEF**”) election to be taxed currently on its proportionate share of the PFIC’s ordinary income and net capital gains.  If we determine that we are a PFIC for any taxable year, we will determine at that time whether we will comply with the necessary accounting and record keeping requirements that would allow a U.S. taxpayer to make a QEF election with respect to us.  We have no obligation to determine whether we are a PFIC and may not make any such determination.

 

**Growth Strategy**

 

We evaluate growth opportunities and continue to consider the acquisition and disposition of exploration and development properties and mineral assets to achieve our strategy. We, from time to time, engage in discussions in respect of both acquisitions and dispositions, and other business opportunities, but there can be no assurance that any such discussions will result in a successfully completed transaction.

 

**Fluctuations in the Value of Equity Investments**

 

We are exposed to market risk from the share prices of our equity investments in listed junior exploration companies. These investments are made to foster strategic relationships, in connection with joint venture agreements and for investment purposes. The share prices of these equity investments may be significantly affected by short-term changes in capital markets, commodity prices or in their financial condition or results of their operations, and as a result, will affect the value of our investments.

 

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**Risks Related to the Offer**

 

*Development of the Rosemont Project*

 

The Offer to acquire Augusta has been made with the expectation that its successful completion will result in increased copper and precious metals production and enhanced growth opportunities for us. These anticipated benefits will primarily depend on whether and when the Rosemont Project receives the permits required to commence construction and operate the mine. While we believe the permits will be granted, there may be a delay in their issuance and once the permits are issued they may be challenged which could cause further delays. In addition, most operational, strategic and staffing decisions with respect to the Rosemont Project have not yet been made. These decisions and the ability to successfully bring the Rosemont Project into production will present challenges to management, including possible unanticipated costs and liabilities, the possibility that we will not be able to retain key employees, officers and contractors of Augusta, the ability to complete construction and related infrastructure in a timely manner, changes in the legal and regulatory environment, currency fluctuations, industrial disputes and community relations, unavailability of parts, machinery or operators and other personnel, delays in the delivery of major process plant equipment, unforeseen natural events, and political, social and other factors. Factors such as changes to technical specifications, failure to enter into agreements with contractors or suppliers in a timely manner, and shortage of capital, may also delay the completion of construction or commencement of production or require the expenditure of additional funds. Many major mining projects constructed in the last several years, or under construction currently, have experienced cost overruns that substantially exceeded the capital cost estimated during the basic engineering phase of those projects, and it is possible that cost overruns could occur during the construction of the Rosemont Project.

 

*Issuance of Hudbay Common Shares as Consideration under the Offer*

 

If all of the outstanding Augusta common shares are tendered to the Offer, 41,921,758 additional Hudbay common shares will be available for trading in the public market (assuming the exercise of only Augusta’s in-the-money convertible securities). The overall increase in the number of our common shares may lead to sales of such shares or the perception that such sales may occur, either of which may adversely affect the market for, and the market price of, our common shares. The perceived risk of substantial sales of our common shares, as well as any actual sales of such our common shares in the public market, could adversely affect the market price of our common shares.

 

*Dissent and Appraisal Rights*

 

In order for Hudbay to acquire all of the issued and outstanding Augusta common shares, it will likely be necessary, following consummation of the Offer, to effect a second step transaction. A second step transaction may result in Augusta shareholders having the right to dissent and demand payment of the fair value of their Augusta common shares. If the statutory procedures governing dissent rights are available and are complied with, this right could lead to judicial determination of the fair value required to be paid to such dissenting Augusta shareholders for their Augusta common shares that is different from the consideration to be paid pursuant to the Offer. There is no assurance that a second step transaction can be completed without Augusta shareholders exercising dissent rights in respect of a substantial number of Augusta common shares, which could result in the requirement to make a substantial cash payment that could have an adverse effect on our financial position and liquidity.

 

*Augusta’s Public Disclosure*

 

All information regarding Augusta contained in the Offer Documents, including Augusta financial information and all pro forma financial information reflecting the pro forma effects of a combination of Augusta and Hudbay that are derived in part from Augusta’s financial information, has been derived from Augusta’s public disclosure. Although we have no reason to doubt the accuracy or completeness of Augusta’s public disclosure, any inaccuracy or material omission in Augusta’s public disclosure, including the information about or relating to Augusta and its business, prospects, condition (financial or otherwise) and assets contained in the Offer Documents, could result in unanticipated liabilities or expenses, increase the cost of integrating the 

 

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two companies or adversely affect the operational plans or prospects of the two companies and its results of operations and financial condition.

 

*Change of Control Provisions*

 

Augusta may be a party to agreements (including in respect of its debt obligations) that contain change of control provisions that may be triggered following completion of the Offer, since we would hold Augusta common shares representing a majority of the voting rights of Augusta. The operation of these change of control provisions, if triggered, could result in unanticipated expenses and/or cash payments following consummation of the Offer or adversely affect Augusta’s results of operations and financial condition. Unless these change of control provisions are waived by the other party to any such agreements, the operation of any of these provisions could adversely affect the results of operations and financial condition of the combined company.

 

**DESCRIPTION OF CAPITAL STRUCTURE**

 

**Common Shares**

 

We are authorized to issue an unlimited number of common shares, of which there were 193,008,376 common shares issued and outstanding as of March 25, 2014.

 

Holders of common shares are entitled to receive notice of any meetings of our shareholders, to attend and to cast one vote per common share at all such meetings. Holders of common shares do not have cumulative voting rights with respect to the election of directors and, accordingly, holders of a majority of the common shares entitled to vote in any election of directors may elect all directors standing for election.

 

Holders of common shares are entitled to receive, on a pro-rata basis, such dividends, if any, as and when declared by our board of directors at its discretion from funds legally available therefor. Upon our liquidation, dissolution or winding up, holders of common shares are entitled to receive, on a pro-rata basis, our net assets after payment of debts and other liabilities, in each case, subject to the rights, privileges, restrictions and conditions attaching to any other series or class of shares ranking senior in priority to or on a pro-rata basis with the holders of common shares with respect to dividends or liquidation. The common shares do not carry any pre-emptive, subscription, redemption or conversion rights, nor do they contain any sinking or purchase fund provisions.

 

**Preference Shares**

 

We are authorized to issue an unlimited number of preference shares, none of which were issued and outstanding as of the date of this AIF.

 

Preference shares may from time to time be issued and the directors may fix the designation, rights, privileges, restrictions and conditions attaching to any series of preference shares.  Preference shares shall be entitled to preference over the common shares and over any other of our shares ranking junior to the preference shares with respect to the payment of dividends and the distribution of assets or return of capital in the event of our liquidation, dissolution or winding up or any other return of capital or distribution of our assets among our shareholders for the purpose of winding up our affairs.  Preference shares may be convertible into common shares at such rate and upon such basis as the directors in their discretion may determine. No holder of preference shares will be entitled to receive notice of, attend, be represented at or vote at any annual or special meeting, unless the meeting is convened to consider our winding up, amalgamation or the sale of all or substantially all of our assets, in which case each holder of preference shares will be entitled to one vote in respect of each preference share held. Holders of preference shares will not be entitled to vote or have rights of dissent in respect of any resolution to, among other things, amend our articles to increase or decrease the maximum number of authorized preference shares, increase or decrease the maximum number of any class of shares having rights or privileges equal or superior to the preference shares, exchange, reclassify or cancel preference shares, or create a new class of shares equal to or superior to the preference shares.

 

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**Senior Unsecured Notes**

 

On September 13, 2012, we issued US$500 million aggregate principal amount of Initial Notes pursuant to a private placement offering.  Interest is payable on the Initial Notes semi-annually on April 1 and October 1 of each year, beginning on April 1, 2013. The Initial Notes were priced at 100% of their face value, and yielded proceeds of US$484 million net of directly attributable transaction costs. On June 20, 2013 and December 9, 2013, we issued US$150 million and US$100 million aggregate principal amount, respectively, of Additional Notes. The Additional Notes issued in June 2013 were priced at 102% of the aggregate principal amount, resulting in gross proceeds of US$153 million and will yield 9.11% to maturity. The Additional Notes issued in December 2013, were priced at 100% of their face value and yielded gross proceeds of US$100 million. The Additional Notes are incremental to the US$500 million aggregate principal amount of the Initial Notes.

 

The Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by substantially all of our existing and future subsidiaries other than our subsidiaries associated with the Constancia project. The Notes also contain certain customary covenants and restrictions for a financing instrument of this type. Although there are no maintenance covenants with respect to our financial performance, there are transaction-based restrictive covenants that limit our ability to incur additional indebtedness in certain circumstances. In addition, our ability to make restricted payments, including dividend payments, is subject to our compliance with certain covenants which require either the generation of sufficient net earnings or, in the case of semi-annual dividend payments in an amount not exceeding US$20 million, the maintenance of a ratio of consolidated debt to earnings before interest, tax, depreciation and amortization of 2.50 to 1.00 or less.

 

At any time prior to October 1, 2016, we may redeem the Notes, in whole but not in part, at a redemption price equal to 100.00% of the aggregate principal amount of the Notes plus an amount equal tothe greater of (i) 1% of the principal amount of the Notes to be redeemed and (ii) the excess, if any, of (a) the present value as of the date of redemption of the October 1, 2016 redemption price of the Notes (as described below) plus required interest payments through October 1, 2016 over (b) the then outstanding principal amount of such Notes, plus, in either case, accrued and unpaid interest.

 

On or after October 1, 2016, we may redeem the Notes, at our option in whole or in part, at the redemption prices (expressed as percentages of the principal amount of the Notes to be redeemed) set forth below, plus accrued and unpaid interest, if redeemed during the twelve-month period beginning on October 1 of each of the years indicated below:

 
| **Year**            | ** ** | **Percentage** | ** ** |
|---------------------|------------|----------------|------------|
| 2016                |       | 104.750        | %          |
| 2017                |       | 102.375        | %          |
| 2018 and thereafter |       | 100.000        | %          |

 

In addition, we may redeem up to 35% of the Notes prior to October 1, 2015 with the net cash proceeds from certain equity offerings at a redemption price equal to 109.500% of the aggregate principal amount thereof, plus accrued and unpaid interest.

 

**Credit Ratings**

 

The following table sets out the credit ratings we received from Standard and Poor’s Ratings Services (“**S&P**”) and Moody’s Investors Services (“**Moody’s**”) on December 4, 2013 in connection with the offering of an additional US$100 million aggregate principal amount of Notes due October 1, 2020. These notes are additional to the US$650 million aggregate principal amount of Notes that we issued in September 2012 and June 2013.

 

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| ** **                     | ** ** | **Credit Rating Organization** | ** ** |
|--------------------------------|------------|--------------------------------|------------|
| ** **                     | ** ** | **S&P**                    | ** ** | **Moody’s** | ** ** |
| Corporate Credit   Rating      |       | B-                             |       | B3 |   |
| 9.50% Senior   Unsecured Notes |       | B-                             |       | B3 |   |

 

As at December 4, 2013, S&P has maintained its ‘B-’ issue-level rating, and ‘3’ recovery rating, to the Notes and has maintained its ‘B-’ long-term corporate credit rating on us, with a stable outlook. S&P’s credit ratings are on a rating scale that ranges from AAA (highest quality) to D (lowest quality). The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories. According to S&P’s rating system, an obligor rated ‘B’ currently has the capacity to meet its financial commitments, but adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitments. A ‘B’ rating is the sixth highest of ten categories in S&P’s rating system.

 

S&P’s issue credit ratings are based, in varying degrees, on its analysis of the following considerations: (i) likelihood of payment; (ii) nature of and provisions of the obligation; and (iii) protection afforded by, and relative position of, the obligation in the event of bankruptcy. S&P’s recovery ratings focus solely on expected recovery in the event of a payment default of a specific issue, and utilize a numerical scale that runs from 1+ to 6. The recovery rating is not linked to, or limited by, the issuer credit rating or any other rating, and provides a specific opinion about the expected recovery. A ‘3’ recovery rating indicates S&P’s expectations of meaningful (50%-70%) recovery in the event of default.

 

S&P’s issuer credit rating is a forward-looking opinion about an obligor’s overall creditworthiness in order to pay its financial obligations. This opinion focuses on the obligor’s capacity and willingness to meet its financial commitments as they come due. It does not apply to any specific financial obligation.

 

As at December 4, 2013, Moody’s has maintained its ‘B3’ corporate family rating, its ‘B3’ probability of default rating and its SGL-4 speculative grade liquidity rating on us; it has assigned the Notes a ‘B3’ rating. Moody’s ratings outlook is negative.

 

Moody’s credit ratings are on a rating scale that ranges from Aaa (highest quality) to C (lowest quality). Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. Moody’s speculative grade liquidity ratings are on a rating scale that ranges from SGL-1 (best liquidity) to SGL-4 (weakest liquidity).

 

According to Moody’s credit rating system, obligations rated ‘B’ are considered speculative and are subject to high credit risk. A ‘B’ rating is the sixth highest of nine categories in Moody’s rating system.

 

According to Moody’s speculative grade liquidity rating system, an issuer with an ‘SGL-4’ rating possesses weak liquidity and is expected to rely on external sources of financing whose availability is highly uncertain in Moody’s opinion.

 

Moody’s corporate family ratings are long-term ratings that reflect the likelihood of a default on a corporate family’s contractually promised payments and the expected financial loss suffered in the event of default. A corporate family rating is assigned to a corporate family as if it had and a single class of debt and a single consolidated legal entity structure. A probability of default rating is a corporate family-level opinion of the relative likelihood that any entity within a corporate family will default on one or more of its long-term debt obligations.

 

Moody’s long-term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of a default on contractually promised payments and the expected financial loss suffered in the event of default.

 

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Moody’s speculative grade liquidity ratings are opinions of an issuer’s relative ability to generate cash from internal resources and the availability of external sources of committed financing, in relation to its cash obligations over the coming 12 months.

 

The credit ratings and stability ratings we received from S&P and Moody’s are not a recommendation to buy, sell or hold our securities and may be subject to revision or withdrawal at any time by either such credit rating organization. S&P and Moody’s each charged us a fee in respect of the credit ratings service they provided.

 

**DIVIDENDS**

 

We paid an inaugural semi-annual dividend of $0.10 per common share on September 30, 2010 and have continued to pay a semi-annual dividend in March and September of each year of $0.10 per share until the dividend paid on September 30, 2013, which was set at $0.01 per share. On February 19, 2014, our board of directors approved the payment of a dividend of $0.01 per common share payable on March 31, 2014 to shareholders of record on March 14, 2014. At all times, the declaration of dividends is subject to the discretion of our board of directors.

 

**MARKET FOR SECURITIES**

 

**Price Range and Trading Volume**

 

Our common shares are listed on the TSX and the NYSE under the symbol “HBM”. The volume of trading and the high and low trading price of our common shares on the TSX and NYSE during the periods indicated are set forth in the following table.

 
| ** **                  | ** ** | **Trading of Common Shares on TSX** | ** ** | **Trading of Common Shares on NYSE** | ** ** |
|-----------------------------|------------|--------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| **Period - 2013** | ** ** | **High   ($)**                                               | ** ** | **Low   ($)**                                                 | ** ** | **Volume   (common shares)** | ** ** | **High   (US$)** | ** ** | **Low   (US$)** | ** ** | **Volume   (common shares)** | ** ** |
| ** **                  | ** ** | ** **                                                   | ** ** | ** **                                                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **January**                 |       | 12.10                                                        |       | 10.06                                                         |       | 15,984,459 |   | 12.04 |   | 10.30 |   | 529,283 |   |
| ** **                  |       |                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| **February**                |       | 11.76                                                        |       | 9.12                                                          |       | 10,984,819 |   | 11.79 |   | 8.96 |   | 628,890 |   |
| ** **                  |       |                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| **March**                   |       | 10.50                                                        |       | 9.35                                                          |       | 12,940,154 |   | 10.21 |   | 9.05 |   | 968,515 |   |
| ** **                  |       |                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| **April**                   |       | 9.75                                                         |       | 7.53                                                          |       | 16,628,290 |   | 9.60 |   | 7.34 |   | 700,601 |   |
| ** **                  |       |                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| **May**                     |       | 8.87                                                         |       | 7.56                                                          |       | 14,862,907 |   | 8.60 |   | 7.51 |   | 601,213 |   |
| ** **                  |       |                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| **June**                    |       | 8.46                                                         |       | 6.55                                                          |       | 14,267,383 |   | 8.22 |   | 6.32 |   | 1,017,431 |   |
| ** **                  |       |                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| **July**                    |       | 7.77                                                         |       | 6.55                                                          |       | 10,706,968 |   | 7.56 |   | 6.21 |   | 1,308,568 |   |
| ** **                  |       |                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| **August**                  |       | 7.46                                                         |       | 6.02                                                          |       | 15,524,369 |   | 7.10 |   | 5.78 |   | 859,181 |   |
| ** **                  |       |                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| **September**               |       | 9.09                                                         |       | 6.92                                                          |       | 15,682,990 |   | 8.90 |   | 6.58 |   | 922,849 |   |
| ** **                  |       |                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| **October**                 |       | 9.02                                                         |       | 7.68                                                          |       | 11,735,394 |   | 8.76 |   | 7.39 |   | 691,862 |   |
| ** **                  |       |                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| **November**                |       | 8.97                                                         |       | 7.46                                                          |       | 14,311,647 |   | 8.57 |   | 7.04 |   | 526,508 |   |
| ** **                  |       |                                                         |       |                                                          |       |   |   |   |   |   |   |   |   |
| **December**                |       | 8.89                                                         |       | 7.30                                                          |       | 8,646,509 |   | 8.36 |   | 6.87 |   | 461,649 |   |

 

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On March 25, 2014, the closing prices of our common shares on the TSX and NYSE were $8.57 and US$7.62 per common share, respectively.

 

**Prior Sales**

 

On September 13, 2012, we issued US$500 million aggregate principal amount of Initial Notes pursuant to a private placement offering.  Interest is payable on the Initial Notes semi-annually on April 1 and October 1 of each year, beginning on April 1, 2013. The Initial Notes were priced at 100% of their face value, and yielded proceeds of US$484 million net of directly attributable transaction costs. The Additional Notes are incremental to the US$500 million aggregate principal amount of the Initial Notes. On June 20, 2013 and December 9, 2013, we issued US$150 million and US$100 million aggregate principal amount, respectively, of Additional Notes. The Additional Notes issued in June 2013 were priced at 102% of the aggregate principal amount, resulting in gross proceeds of US$153 million and will yield 9.11% to maturity. The Additional Notes issued in December 2013, were priced at 100% of their face value and yielded gross proceeds of US$100 million.

 

**DIRECTORS AND OFFICERS**

 
| **Board of Directors**                           |       |                                                                                                                                                                                                                    |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
|------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **David Garofalo**Richmond Hill, Ontario, Canada           | ** ** | **Director since**: August 4, 2010                                                                                                                                                                                 |   | Mr. Garofalo has been Hudbay’s President   and Chief Executive Officer since July 2010. Previously, he served as   Senior Vice President, Finance and Chief Financial Officer and a director   with Agnico-Eagle Mines Limited.                                                                                                                                                                                  |
| **Igor Gonzales**Lima, Peru                                | ** ** | **Director since:**July 31, 2013

 

**Committee memberships:**

  · Compensation   Committee

  · Technical Committee                                                |   | Mr. Gonzales has more than 30 years of   experience in the mining industry. He was with Barrick Gold Corporation from   1998 to 2013, most recently as Executive Vice President and Chief Operating   Officer. Between 1980 and 1996, Mr. Gonzales served in various roles   with Southern Peru Copper Corporation.                                                                                                   |
| **Tom A. Goodman**Denare Beach,    Saskatchewan,    Canada | ** ** | **Director since**: June 14, 2012

 

**Committee memberships:**

  · EHSS Committee (Chair)

  · Technical Committee                                                 |   | Mr. Goodman worked for Hudbay for over   34 years in a wide variety of operational, technical and management   positions, including his last two years as Senior Vice President and Chief   Operating Officer. He retired as an executive officer effective June 1,   2012.                                                                                                                                           |
| **Alan R. Hibben**   Toronto, Ontario,   Canada            | ** ** | **Director since:**March 23, 2009

 

**Committee memberships:**

  · Compensation Committee

  · Corporate Governance and Nominating Committee                       |   | Mr. Hibben has held several senior   positions with RBC Capital Markets, including his current role as Managing   Director, which he assumed on his return to RBC in March 2011. He was a   principal with Shakerhill Partners Ltd. from July 2007 to   January 2009. From January 2009 to February 2011 he was a   partner with Blair Franklin Capital Partners Inc., a financial advisory firm. |
| **W. Warren Holmes**   Stratford, Ontario,    Canada       | ** ** | **Director since:**March 23, 2009

 

**Committee memberships:**

  · Compensation Committee (Chair)

  · EHSS Committee

  · Technical Committee |   | From November 2009 to July 2010,   Mr. Holmes served as our Executive Vice Chairman and from   January 2010 to July 2010 served as our Interim Chief Executive   Officer. He is now a corporate director. Mr. Holmes is Lead Director of   Foraco International SA and a director of Atlanta Gold Inc. and Wallbridge   Mining Company Limited.                                                   |

 

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| **Board of Directors**                   |       |                                                                                                                                                                                       |   |                                                                                                                                                                                                                                                                                                                                                          |
|----------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Sarah B. Kavanagh**Toronto, Ontario,    Canada   | ** ** | **Director since**: July 31, 2013

 

**Committee memberships:**

  · Audit Committee (Chair)

  · EHSS Committee                        |   | Ms. Kavanagh is a corporate director who   has also been serving as a Commissioner at the Ontario Securities Commission   since 2011. Between 1999 and 2010, Ms. Kavanagh served in a number of   senior investment banking roles at Scotia Capital Inc. She has also held senior   financial positions in the corporate sector.                    |
| **John. L. Knowles**Winnipeg, Manitoba,    Canada  | ** ** | **Director since:**March 23, 2009

 

**Committee memberships:**

  · Audit Committee

  · Corporate Governance and Nominating Committee |   | Mr. Knowles is President and CEO of Wildcat   Exploration Ltd, a mining exploration company, and is also a corporate   director. He was Vice President and Chief Financial Officer of HBMS from 1996   to April 2005 and, following its acquisition by Hudbay, he was Vice   President and Chief Financial Officer of Hudbay until April 2005. |
| **Alan J. Lenczner**   Toronto, Ontario,    Canada | ** ** | **Director since:**March 23, 2009

 

**Committee memberships:**

  · Audit Committee

  · Corporate Governance and Nominating Committee |   | Mr. Lenczner has been a commercial   litigator for over 40 years. He is Founding Partner and now Counsel at   Lenczner Slaght Royce Smith Griffin LLP, a litigation-focused law firm. He is   also a Commissioner of the Ontario Securities Commission.                                                                                                  |
| **Kenneth G. Stowe**Oakville, Ontario,    Canada   | ** ** | **Director since**: June 24, 2010

 

**Committee memberships**:

  · Technical Committee (Chair)

  · EHSS Committee                    |   | Mr. Stowe was Chief Executive Officer of   Northgate Minerals Corporation from 2001 until his retirement in 2011. He is   currently a corporate director.                                                                                                                                                                                                |
| **G. Wesley Voorheis**Toronto, Ontario,    Canada  | ** ** | **Director since:**March 23, 2009

 

**Committee memberships:**

  · Corporate Governance and Nominating Committee   (Chair)                                |   | Mr. Voorheis is Chairman of Hudbay. He   is also Managing Director of VC & Co. Incorporated and a Partner of   Voorheis & Co. LLP, which act as strategic advisors to institutional   and other shareholders, including private equity and hedge funds.                                                                                |

 

The term of office for each director of the Company will expire upon the completion of the next annual meeting of shareholders of the Company. Our executive officers as at the date of this AIF are listed below.

 
| **Executive Officers**                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|-----------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **David Garofalo**Richmond Hill, Ontario,   Canada

 

**Position with Hudbay:** President and Chief Executive Officer |   | For biographical information for Mr. Garofalo,   refer above to the heading “Board of Directors”.                                                                                                                                                                                                                                                                                                                                         |
| **David S. Bryson**   Toronto, Ontario, Canada

**Position with Hudbay:**Senior Vice President and Chief Financial Officer  |   | Mr. Bryson has been with Hudbay since   August 2008. Prior to being appointed to his current role in   February 2009, he was Vice President, Finance and Chief Financial   Officer. Mr. Bryson held senior finance positions with Skye Resources   Inc. from March 2007 to August 2008 and prior to that worked for   Terasen Inc., a Vancouver-based energy infrastructure firm, in various   finance roles for 16 years. |

 

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| **Executive Officers**                                                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Ken Gillis**Toronto, Ontario, Canada

 

**Position with Hudbay**: Senior Vice President, Corporate Development                      |   | Mr. Gillis joined Hudbay in   August 2010, prior to which he served as Executive Director of Macquarie   Canada’s North American Mining Investment Banking practice. Mr. Gillis   has a 20 year history of corporate development and related activities in mining,   both with mining companies and financial and investment firms.                                                                                                                                                                                  |
| **Alan T.C. Hair**Toronto, Ontario, Canada

 

**Position with Hudbay:**Senior Vice President and Chief Operating Officer              |   | Mr. Hair has been with Hudbay and its   affiliates since 1996 and has held a number of senior operational and   business development positions. Prior to being appointed to his current role   in June 2012, he was Senior Vice President, Business Development and   Technical Services. From October 2008 to August 2010 he was Senior   Vice President, Development. Before joining Hudbay, Mr. Hair worked in   European base metals and African platinum group operations.                                 |
| **David Clarry**Toronto, Ontario, Canada

 

**Position with Hudbay:**Vice President, Corporate Social Responsibility                  |   | Mr. Clarry joined Hudbay in February 2011.   From June 2009 to January 2011 he worked through his own   firm, Innotain Inc., providing consulting services to the mining and   energy industries. Prior to that he spent 18 years with Hatch Ltd., an   international engineering and consulting firm, ultimately as Director —   Climate Change Initiatives.                                                                                                                                              |
| **Patrick Donnelly**Oakville, Ontario, Canada

 

**Position with Hudbay:**Vice President, Legal and Corporate Secretary               |   | Mr. Donnelly joined Hudbay in 2008 and   was appointed to his current role in December 2011. Prior to joining   Hudbay, he practiced corporate and securities law at Osler, Hoskin &   Harcourt LLP from 2002 to 2007. He also spent over a year in the legal   department of the TDL Group Corp.                                                                                                                                                                                                                     |
| **Brad W. Lantz**Flin Flon, Manitoba,   Canada

 

**Position with Hudbay:**Vice President, Manitoba Business Unit                     |   | Mr. Lantz has been Vice President,   Manitoba Business Unit since September, 2011. From 2007 to   September 2011 he was Vice President, Mining and from 2003 to   July 2007 he was Mine Manager of the 777 mine. He has also held   positions of progressively greater responsibility, at our Ruttan, Trout Lake   and Callinan mines.                                                                                                                                                                                    |
| **Cashel Meagher**Lima, Peru

 

**Position with Hudbay:**Vice President, South America Business Unit                                  |   | Mr. Meagher joined Hudbay in 2008 and   was appointed to his current role in September 2011. Prior to joining   Hudbay, Mr. Meagher held management positions with Vale Inco in   exploration, technical services, business analysis and mine operations.                                                                                                                                                                                                                                                                 |
| **Patrick Merrin**Toronto, Ontario, Canada

 

**Position with Hudbay:** Vice President, Business Development and Technical   Services |   | Mr. Merrin rejoined Hudbay in   July 2012 as Vice President, Business Development and Technical   Services. Over the past five years, he gained experience in a variety of   mining and metals environments, including as Chief Operating Officer of Adex   Mining from September 2011 to July 2012, owner of PJM Consulting, a   consulting firm for the mining industry, from December 2010 to   September 2011, and Managing Director of Lucas Milhaupt Europe from   July 2007 to July 2010. |
| **Mary-Lynn Oke**   Winnipeg, Manitoba, Canada

 

**Position with Hudbay:** Vice President, Finance                                   |   | Ms. Oke has been Vice President, Finance   since July 2013 and she is also Chief Financial Officer, Manitoba   Business Unit. Prior to this appointment in August 2012, she was   Director, Tax & Treasury. Before joining Hudbay in 2007,   Ms. Oke worked at Ernst & Young, LLP in various roles for 10   years.                                                                                                                                                                                 |

 

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| **Executive Officers**                                                                                 |   |                                                                                                                                                                                                                                                                                                                                                                                 |
|-------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Hernán Soza**Toronto, Ontario, Canada

 

**Position with Hudbay**: Vice President, Exploration |   | Mr. Soza joined Hudbay in early 2011 as   Director, South American Exploration and was appointed to his current role in   September 2011. He brings more than forty years of mining and mineral   exploration experience across South and Central America, most recently as an   independent geologist, providing consulting services to clients in the mining   industry. |

 

As of March 25, 2014, our directors and executive officers, as a group, beneficially owned, directly or indirectly, or exercised control or direction over 379,348 common shares, representing less than 1% of the total number of common shares outstanding.

 

**Corporate Cease Trade Orders, Bankruptcies, Penalties and Sanctions**

 

Mr. Garofalo was a director of Colossus Minerals Inc. (“**Colossus**”) from December 2012 until November 2013. Following his resignation from the board, and after having failed to cure its inability to make the December 31, 2013 interest payment on its outstanding convertible notes, in January 2014 Colossus filed a notice of intention to make a proposal under the *Bankruptcy and Insolvency Act* (Canada) (“**BIA**”) and Duff & Phelps Canada Restructuring Inc. was named as the proposal trustee. On February 25, 2014, Colossus announced that the requisite majority of its creditors approved an amended proposal under the BIA and that it intended to seek a court order approving the amended proposal.

 

Mr. Holmes was a director of Campbell Resources Inc. (“**Campbell**”) from 2006 to 2008. Mr. Holmes joined Campbell as a director while it was already under the protection of the Companies’ Creditors Arrangement Act (Canada) (the “**CCAA**”).  Mr. Holmes resigned from the board of directors of Campbell in November 2008.  On January 28, 2009, Campbell once again obtained creditor protection under the CCAA.  On December 10, 2009, a receiver was appointed over Campbell’s assets with power to solicit offers for the sale of the assets.

 

From September 2003 until June 24, 2004, Mr. Voorheis was a director of Atlas Cold Storage Holdings Inc. (“**Atlas**”), the entity through which Atlas Cold Storage Income Trust (“**Atlas Income Trust**”) carried on its business.  As a result of Atlas Income Trust not having filed its 2003 third quarter financial statements by the required deadline, the OSC issued a cease trade order relating to any trading in securities of Atlas Income Trust against the trustees of Atlas Income Trust, certain members of the board of directors of Atlas and certain other then-current and former officers of Atlas.  The cease trade order remained in effect until May 11, 2004, following the remediation of the filing default, and related to conduct that occurred before Mr. Voorheis became a director.

 

Mr. Voorheis was a director of Hollinger Inc. (“**Hollinger**”) from May 2006 to June 2008 and its Chief Executive Officer from April 2007 to June 2008. Mr. Voorheis agreed to join the Hollinger board at the request of a shareholder to deal with certain management misconduct. On August 1, 2007, Hollinger obtained an initial court order granting it creditor protection under the CCAA and made a concurrent application for a companion order under Chapter 15 of the United States Bankruptcy Code. On May 14, 2008, Hollinger announced that it had reached an agreement with its two principal creditors addressing the various principal matters in dispute among those parties and that, upon Court approval of that agreement, Mr. Voorheis would resign as an officer and director of Hollinger. The Court formally approved that agreement on May 26, 2008, and Mr. Voorheis resigned as a director and officer of Hollinger effective June 17, 2008.

 

Hollinger was the subject of several cease trade orders issued between 2004 and 2008, due to its failure to file financial statements on a timely basis, and Mr. Voorheis became subject to certain such orders as a result of his appointment as Chief Executive Officer. On August 5, 2008, the OSC issued a permanent cease trade order against Hollinger which remains in effect. Hollinger has stated that the cease trade order was issued as a result of its determination, in the interests of reducing its costs for the benefit of its stakeholders, not to prepare and file annual audited financial statements and other annual disclosure documents in respect of Hollinger’s financial year ended March 31, 2008.

 

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Mr. Voorheis was a director of Sun Times Media Group, Inc. (“**Sun Times**”), a subsidiary of Hollinger, from August 2007 to June 2008. Mr. Voorheis agreed to join the Sun Times board at the request of a Hollinger shareholder to deal with certain management misconduct. On March 31, 2009, Sun Times and its domestic subsidiaries filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code.

 

Mr. Voorheis was appointed as a director of Coventree Inc. (“**Coventree**”) in April 2008. On December 7, 2009, the OSC commenced proceedings against Coventree and certain of its officers in connection to events which occurred prior to Mr. Voorheis’ involvement with Coventree. The proceedings related to whether Coventree complied with its disclosure obligations in its prospectus relating to the initial public offering of its shares, and its timely disclosure obligations in 2007 prior to the market for certain asset-backed commercial paper freezing up on August 13, 2007 (collectively “**Coventree Proceedings**”). On November 8, 2011, the OSC issued orders in connection with the Coventree Proceedings which included (i) an order that Coventree pay an administrative penalty of $1,000,000; and (ii) an order that until its winding up is completed, trading in any securities by Coventree cease and that any Ontario securities law exemptions not apply to Coventree, provided that such order will not prevent the winding up of Coventree or trades in securities reasonably related to that winding up. Coventree appealed the OSC order at the Ontario Divisional Court in late 2012 but the Divisional Court dismissed the appeal.

 

On June 30, 2010, the shareholders of Coventree approved a special resolution authorizing the winding up of Coventree and the distribution of its remaining assets, if any, to shareholders pursuant to the plan of liquidation and distribution. On February 15, 2012, the liquidation plan commenced, a liquidator was appointed for the purposes of winding up Coventree’s affairs, Mr. Voorheis resigned as a director, and Mr. Voorheis became an inspector of the company’s liquidation on that date.

 

**Conflicts of Interest**

 

To the best of our knowledge, there are no known existing or potential conflicts of interest among or between us, our subsidiaries, our directors, officers or other members of management, as a result of their outside business interests, except that certain of our directors, officers, and other members of management serve as directors, officers, promoters and members of management of other entities and it is possible that a conflict may arise between their duties as a director, officer or member of management of Hudbay and their duties as a director, officer, promoter or member of management of such other entities.

 

Our directors and officers are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and we will rely upon such laws in respect of any directors’ and officers’ conflicts of interest or in respect of any breaches of duty by any of our directors or officers. All such conflicts are required to be disclosed by such directors or officers in accordance with the CBCA, and such individuals are expected to govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law. In addition, our Code of Business Conduct and Ethics requires our directors and officers to act with honesty and integrity and to avoid any relationship or activity that might create, or appear to create, a conflict between their personal interests and our interests.

 

**AUDIT COMMITTEE DISCLOSURE**

 

The Audit Committee is responsible for monitoring our systems and procedures for financial reporting and internal control, reviewing certain public disclosure documents and monitoring the performance and independence of our external auditors. The Audit Committee is also responsible for reviewing our annual audited consolidated financial statements, unaudited consolidated quarterly financial statements and management’s discussion and analysis of results of operations and financial condition for annual and interim periods prior to their approval by the full board of directors.  There was no instance in 2013 where our board of directors declined to adopt a recommendation of the Audit Committee.

 

The Audit Committee’s charter sets out its responsibilities and duties, qualifications for membership, procedures for committee appointment and reporting to our board of directors. A copy of the current charter is attached hereto as Schedule C.

 

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**Composition**

 

As at December 31, 2013, the Audit Committee consisted of Sarah B. Kavanagh (Chair), John L. Knowles and Alan J. Lenczner. Bruce Barraclough, the former Chair of the Audit Committee, passed away in March 2013. Following Mr. Barraclough’s passing, on the recommendation of the Corporate Governance and Nominating Committee, our board of directors appointed Alan R. Hibben as the Interim Chair of the Audit Committee. On July 31, 2013, Mr. Hibben stepped down from his role on the Audit Committee and on the recommendation of the Corporate Governance and Nominating Committee, our board of directors appointed Ms. Kavanagh as the Chair of the Audit Committee.

 

**Relevant Education and Experience**

 

Each member of the Audit Committee is independent and financially literate within the meaning of NI 52-110.  Set out below is a description of the education and experience of each Audit Committee member that is relevant to the performance of his responsibilities as an Audit Committee member.

 

**Sarah B. Kavanagh** has been serving as a Commissioner at the Ontario Securities Commission since 2011. She is also a director and Chair of the Audit Committee at American Stock Transfer and Canadian Stock Transfer and an independent trustee and Chair of the Audit Committee at WPT Industrial Real Estate Investment Trust. Between 1999 and 2010, Ms. Kavanagh served in a number of senior investment banking roles at Scotia Capital Inc. She has also held senior financial positions in the corporate sector. Ms. Kavanagh graduated from Harvard Business School with a Masters in Business Administration and received a Bachelor of Arts degree in Economics from Williams College in Williamstown, Massachusetts.

 

**Alan J. Lenczner** has been a commercial litigator for over 40 years.  During that time he has represented accounting firms with respect to accounting and auditing issues both in the Superior Court and before the Institute of Chartered Accountants of Ontario. He presently serves as a Commissioner of the Ontario Securities Commission.

 

**John L. Knowles** has over 25 years of experience in senior roles with Canadian and international resource companies.  He previously served as Executive Vice President and Chief Financial Officer of Aur Resources Inc. and was Vice President and Chief Financial Officer of HBMS from 1996 to April 2005 and, following its acquisition by Hudbay, he was Vice President and Chief Financial Officer of Hudbay until April 2005. He is a Chartered Accountant and holds a Bachelor of Commerce degree from Queen’s University.

 

**Policy Regarding Non-Audit Services Rendered by Auditors**

 

We have adopted a policy requiring Audit Committee pre-approval of non-audit services. Specifically, the policy requires that proposals seeking approval by the Audit Committee for routine and recurring non-audit services describe the terms and conditions and fees for the services and include a statement by the independent auditor and Chief Financial Officer that the provision of those services could not be reasonably expected to compromise or impair the auditor’s independence. The Audit Committee may pre-approve non-audit services without the requirement to submit a specific proposal, provided that any such pre-approval on a general basis shall be applicable for twelve months. The Chair of the Audit Committee has been delegated authority to pre-approve, on behalf of the Audit Committee, the provision of specific non-audit services by the independent auditor where (a) it would be impractical for the services to be provided by another firm; or (b) the estimated fees associated with such services are not expected to exceed $50,000. Any approvals granted under this delegated authority are to be presented to the Audit Committee at its next scheduled meeting.

 

**Remuneration of Auditor**

 

The following table presents, by category, the fees accrued by Deloitte LLP as external auditor of, and for other services provided to, the Company for the fiscal years ended December 31, 2013 and 2012.

 

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| **Category of Fees** | ** ** | **2013** | ** **    | **2012**   | ** ** |
|--------------------------------|------------|----------|---------------|------------|------------|
| Audit fees                     |       | $        | 1,471,503     |       | $          | 1,066,374 |   |
| Audit-related fees             |       | $        | 414,155       |       | $          | 372,076 |   |
| Tax fees                       |       | —   |          | —     |       |
| All other fees                 |       | $        | 230,884       |       | —     |   |
| **Total**                      | ** ** | **$**    | **2,041,467** | ** ** | **$**      | **1,438,450** | ** ** |

 

“Audit fees” include fees for auditing annual financial statements and reviewing the interim financial statements, as well as services normally provided by the auditor in connection with our statutory and regulatory filings. “Audit-related fees” are fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees”, including accounting advisory work, audit work related to our pension, benefit and profit sharing plans, audit work related to our NPI Agreement with Callinan (as described below) and work related to acquisitions and offerings. “Tax fees” are fees for services related to tax compliance, tax advice, and tax planning. “All other fees” are fees for services other than those described in the foregoing categories. Management presents regular updates to the Audit Committee of the services rendered by the auditors as part of the Audit Committee’s oversight regarding external auditor independence and pre-approved service authorizations.

 

**LEGAL PROCEEDINGS AND REGULATORY ACTIONS**

 

**Legal Proceedings**

 

In 1995 HBMS was named as a co-defendant in two actions before the Saskatchewan Court of Queen’s Bench challenging various wrongful actions committed in connection with the use and operation of the Whitesand Dam and the Island Falls Hydroelectric station (collectively, the “**Hydro Projects**”) in Saskatchewan. The plaintiffs have claimed for an aggregate of $1 billion in compensatory damages and in excess of $100 million in punitive damages. One of Hudbay’s former subsidiaries constructed and operated the dam until it was transferred to Saskatchewan Power Corporation (“**SaskPower**”) in 1981. The plaintiffs in both actions claim that the lands on which the hydroelectric facilities were built are subject to aboriginal rights. As this matter has not been progressed since 1995, any potential liabilities are not reasonably determinable. The principal parties to this litigation are:

 

1.                                      In the Court of Queen’s Bench for Saskatchewan, Action No. 489 dated February 9, 1995

 

·                  Plaintiffs: Cornelius Ballantyne of Deschambault Lake, and Eileen Ballantyne Linklater of The Peter Ballantyne Indian Reserve #184, and Richard Highway of The Peter Ballantyne Indian Reserve #184, representing the inheritors and followers and members of the Peter Ballantyne Band and tribes of Indians who are traditional uses of land and water.

 

·                  Defendants: SaskPower, HBMS and Churchill River Power Company Limited (“**CRP”**).

 

2.                                      In the Court of Queen’s Bench for Saskatchewan, Action No. 505 dated February 10, 1995

 

·                  Plaintiffs: Gordon Bear of the Wapaskokimow Reserve, and Catherine Wapaskokimow Ballantyne, Emil Bear and Gary Morin of Sandy Bay, representing themselves and the inheritors and followers of the Chief Cornelius White Bear Band and tribes of Indians who are traditional users of land and water.

 

·                  Defendants: SaskPower, HBMS and CRP.

 

SaskPower has been named as a defendant in two other actions, one filed in Manitoba’s Court of Queen’s Bench in 1992 and one filed in Saskatchewan’s Court of Queen’s Bench in 2004. The plaintiffs in the Saskatchewan action are the Peter Ballantyne Cree Nation and its members (“**PBCN**”). Both actions claim damages alleged as a result of the operation and use of the Hydro Projects. HBMS has been named as a 

 

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third party in the Saskatchewan action, but has not been named as a party in the Manitoba action. SaskPower has also added CRP, formerly a wholly-owned subsidiary of HBMS, which was dissolved, as a third party in the Saskatchewan action. SaskPower revived CRP for the purpose of taking action for alleged breaches by CRP of its obligation under a certain Purchase and Sale Agreement made in 1981. HBMS has filed a Statement of Defence to the Third Party Claim and served same on counsel for the other parties. The Statement of Claim does not specify the amount of damages being claimed but during the course of mediation sessions, legal counsel for the plaintiffs have indicated that the claim being advanced on behalf of PBCN is in the range of $100,000,000. SaskPower is seeking contribution and/or indemnity as well as a separate damage claim from CRP and HBMS but has not specified the amount claimed in the Third Party Claim or during the mediation sessions. HBMS believes the action is statute-barred under the *Limitations*Act Manitoba. Given the number of parties and the early stages of the proceedings, the resolution of the claim against CRP and HBMS is not reasonably determinable.

 

In March 2007, a statement of claim was issued in Manitoba’s Court of Queen’s Bench by Callinan Mines Limited (“**Callinan”**) against HBMS (“**Manitoba Action**”) seeking declaratory relief, an accounting and an undisclosed amount of damages relating to an alleged breach of a Net Profits Interest and Royalty Agreement (“**NPI Agreement**”) between HBMS and Callinan dated January 1, 1988. HBMS has filed an amended statement of defence denying liability to Callinan. Callinan is seeking to amend its Statement of Claim to, among other things, claim additional damages for alleged destruction of documents. The likelihood of success and potential liability of this claim are not reasonably determinable; however, HBMS does not believe that any material liability will result from the action.

 

Hudbay is subject to three claims in the Ontario Superior Court in connection with its previous ownership of the Fenix project in Guatemala through its subsidiary at the time, Compañía Guatemalteca de Níquel S.A. (“**CGN”**).

 

The first action was served in September 2010. The plaintiff, Angelica Choc, asserts a claim of negligence against Hudbay and wrongful death, among other claims, against CGN in connection with the death of her husband Adolfo Ich Chaman on September 27, 2009. The plaintiff claims that the head of CGN security shot and killed Mr. Chaman during a confrontation between members of local communities who were unlawfully occupying CGN property and CGN personnel. The aggregate amount of the claim is $12 million.

 

In the second action, served in March 2011, eleven plaintiffs claim that they were victims of sexual assault committed by CGN security and members of the Guatemalan police and army during court ordered and state implemented evictions in January 2007 (before the project was acquired by Hudbay). These claims are asserted against Hudbay and its subsidiary at the time HMI Nickel Inc. The aggregate amount of the claims is $55 million.

 

The plaintiff in the third action, German Chub Choc, claims that he was shot and permanently injured by the head of CGN security during the same events that gave rise to the claim brought by Ms. Choc. This action was served in October 2011. The aggregate amount of the claim is $12 million.

 

We believe that all of the claims with respect to the Fenix project are without merit. In March 2013, we argued motions to dismiss the three actions against Hudbay on the bases that the claims pleaded do not give rise to a reasonable cause of action. In July 2013 the Court dismissed our motions and the actions will now proceed to trial.

 

Except as noted above, we are not aware of any litigation outstanding, threatened or pending against us as of the date hereof that would reasonably be expected to be material to our financial condition or results of operations.

 

**Regulatory Actions**

 

We have not: (a) received any penalties or sanctions imposed against us by a court relating to securities legislation or by a securities regulatory authority during the financial year; (b) received any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a

 

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reasonable investor in making an investment decision; and (c) entered any settlement agreements with a court relating to securities legislation or with a securities regulatory authority during the financial year.

 

**INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS**

 

Since January 1, 2011, none of our directors, executive officers or 10% shareholders and no associate or affiliate of the foregoing persons has or has had any material interest, direct or indirect, in any transaction that has materially affected or is reasonably expected to materially affect us.

 

**TRANSFER AGENT AND REGISTRAR**

 

The transfer agent and registrar for our common shares is TMX Equity Transfer Services at its principal office in Toronto, Ontario.

 

**MATERIAL CONTRACTS**

 

Except for those contracts entered into in the ordinary course of our business, the following are the material contracts we entered into (i) within the last financial year or (ii) between January 1, 2002 and the beginning of the last financial year, which are still in effect:

 

1.                                      the Precious Metals Purchase Agreement dated August 8, 2012 with Silver Wheaton, whereby we agreed to sell a portion of the precious metals production from our 777 mine to Silver Wheaton. For additional details, refer above to the heading “Development of our Business — Three Year History — Precious Metals Stream Transaction”;

 

2.                                      the Amended and Restated Precious Metals Purchase Agreement dated November 4, 2013 with SW Caymans, whereby we agreed to sell 100% of the silver production and 50% of the gold production from our Constancia project to SW Caymans. For additional details, refer above to the heading “Development of our Business — Three Year History — Precious Metals Stream Transaction”;

 

3.                                      the Indenture dated September 13, 2012 with U.S. Bank National Association, as trustee, governing the Notes as supplemented by the First Supplemental Indenture dated June 20, 2013 and Second Supplemental Indenture dated December 9, 2013. For additional details, refer above to the heading “Development of our Business — Three Year History — Issuance of 9.50% Senior Unsecured Notes”; and

 

4.                                      the Amended and Restated Credit Facility with the lender’s party thereto from time to time and The Bank of Nova Scotia, as administrative agent, dated as of September 12, 2013, as amended, providing for a four year US$100 million revolving credit facility.

 

**QUALIFIED PERSONS**

 

The scientific and technical information contained in this AIF related to the Constancia project has been prepared by or under the supervision of Cashel Meagher, P.Geo., our Vice President, South America Business Unit. The scientific and technical information related to all other sites and projects contained in this AIF has been prepared by or under the supervision of Robert Carter, P.Eng., our Director, Technical Services.  Messrs. Meagher and Carter are Qualified Persons for the purposes of 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 may be affected by any known environmental, permitting, legal title, taxation, sociopolitical, marketing or other relevant factors, please see the technical reports for each of our properties as filed on SEDAR at www.sedar.com.

 

**INTERESTS OF EXPERTS**

 

Cashel Meagher, P.Geo. and Robert Carter, P.Eng. are experts who have prepared certain technical and scientific reports for us. As at the date hereof, to our knowledge, the aforementioned persons beneficially 

 

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own, directly or indirectly, less than 1% of our outstanding securities and have no other direct or indirect interest in our company or any of its associates or affiliates.

 

Deloitte LLP are the auditors of Hudbay and are independent within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of Ontario and the Public Company Accounting Oversight Board (United States).

 

**ADDITIONAL INFORMATION**

 

Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of our securities and securities authorized for issuance under equity compensation plans, as applicable, is contained in our management information circular dated April 5, 2013. Additional financial information is provided in our financial statements and management’s discussion and analysis for the fiscal year ended December 31, 2013.

 

Additional information relating to the Company may be found on SEDAR at www.sedar.com and in the United States on EDGAR at www.sec.gov.

 

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**SCHEDULE A GLOSSARY OF MINING TERMS**

 

The following is a glossary of certain mining terms used in this annual information form.

 
| “**mineral reserves**”             |   | That part of a measured or indicated mineral   resource which could be economically mined, demonstrated by at least a   preliminary feasibility study that includes adequate information on mining,   processing, metallurgical, economic and other relevant factors that   demonstrate, at the time of reporting, that economic extraction can be   justified. A mineral reserve includes diluting materials and allowances for   losses that may occur when the material is mined. Mineral reserves are those   parts of mineral resources which, after the application of all mining   factors, result in an estimated tonnage and grade which, in the opinion of   the qualified person(s) making the estimates, is the basis of an   economically viable project after taking account of all relevant processing,   metallurgical, economic, marketing, legal, environment, socio-economic and   government factors. Mineral reserves are inclusive of diluting material that   will be mined in conjunction with the mineral reserves and delivered to the   treatment plant or equivalent facility. The term “mineral reserve” need not   necessarily signify that extraction facilities are in place or operative or   that all governmental approvals have been received. It does signify that   there are reasonable expectations of such approvals. Mineral reserves are   subdivided into proven mineral reserves and probable mineral reserves.   Mineral reserves fall under the following categories: |
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| “**proven mineral reserves**”      |   | That part of a measured mineral resource that   is the economically mineable part of a measured mineral resource,   demonstrated by at least a preliminary feasibility study that includes adequate   information on mining, processing, metallurgical, economic, and other   relevant factors that demonstrate, at the time of reporting, that economic   extraction is justified.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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| “**probable mineral   reserves**”  |   | That part of an indicated and in some   circumstances a measured mineral resource that is economically mineable   demonstrated by at least a preliminary feasibility study that includes   adequate information on mining, processing, metallurgical, economic, and   other relevant factors that demonstrate, at the time of reporting, that   economic extraction can be justified.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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| “**mineral resources**”            |   | A concentration or occurrence of natural,   solid, inorganic or fossilized organic material in or on the Earth’s crust in   such form and quantity and of such a grade or quality that it has reasonable   prospects for economic extraction. The location, quantity, grade, geological   characteristics and continuity of a mineral resource are known, estimated or   interpreted from specific geological evidence and knowledge. Mineral resources   fall under the following categories:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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| “**measured mineral   resource**”  |   | That part of a mineral resource for which   quantity, grade or quality, densities, shape and physical characteristics are   so well established that they can be estimated with confidence sufficient to   allow the appropriate application of technical and economic parameters to   support production planning and evaluation of the economic viability of the   deposit. The estimate is based on detailed and reliable exploration, sampling   and testing information gathered through appropriate techniques from   locations such as outcrops, trenches, pits, workings and drill holes that are   spaced closely enough to confirm both geological and grade continuity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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| “**indicated mineral   resource**” |   | That part of a mineral resource for which   quantity, densities, shape and physical characteristics can be estimated with   a level of confidence sufficient to allow the appropriate application of   technical and economic parameters and to support mine planning and evaluation   of the economic viability of the deposit. The estimate is based on detailed   and reliable exploration and testing information gathered through appropriate   techniques from locations such as outcrops, trenches, pits, workings and   drill holes that are spaced closely enough for geological and grade   continuity to be reasonably assumed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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| “**inferred mineral   resource**”  |   | That part of a mineral resource for which   quantity and grade or quality can be estimated on the basis of geological   evidence and limited sampling and reasonably assumed, but not verified,   geological and grade continuity. The estimate is based on limited information   and sampling gathered through appropriate techniques from locations such as   outcrops, trenches, pits, workings and drill holes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

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**SCHEDULE B MATERIAL MINERAL PROJECTS**

 

***777 Mine***

 

*Project Description and Location*

 

The 777 mine is an underground copper and zinc mine with significant precious metals credits located in Flin Flon, Manitoba. Unless the context indicates otherwise references to the 777 mine include the 777 North expansion.

 

We own a 100% interest in the properties that comprise the 777 mine through mineral leases, Order in Council (“**OIC”**) leases and mineral claims in Manitoba and Saskatchewan. The properties cover approximately 3,800 hectares, including approximately 500 hectares in Manitoba and approximately 3,300 hectares in Saskatchewan. Annual lease rental payments are $7,186 and $1,600 to the Manitoba and Saskatchewan governments, respectively, and the annual work expenditure requirement for the Saskatchewan properties is $257,025.  Individual leases have different expiry dates that range from 2014 to 2034. Our surface rights and permits are sufficient for purposes of our current mining operations.

 

Liabilities associated with the 777 mine are addressed by the closure plans that have been submitted to regulators in both Saskatchewan and Manitoba and financial assurance has been provided to cover the demolition and remediation activities outlined in such closure plans. The closure and remediation liability in respect of the property is estimated at $1,222,121 in January 1, 2010 dollars. In addition, closure plans have been submitted and are backed with financial assurance for the associated Flin Flon Metallurgical Plant (FFMC) and Flin Flon Tailings Impoundment System (FFTIS) utilized by the 777 mine.

 

Mineral production from the 777 mine property is subject to a 6 2/3% net profit interest and a $0.25 per short ton royalty pursuant to our agreement with Consolidated Callinan Flin Flon Mines Limited (“**Callinan**”).

 

Precious metals production from the 777 mine is subject to our agreement with Silver Wheaton, as described in this AIF. For additional information, see “Three Year History”.

 

*Accessibility, Climate, Local Resources, Infrastructure and Physiography*

 

The 777 mine is located in Flin Flon, Manitoba, which has a population of approximately 6,000 people, and is accessible by paved highway. Flin Flon is the site of our principal concentrator and zinc plant and has well developed access to rail and air transportation. Personnel requirements for our 777 mine and processing facilities are largely drawn from the immediate area.

 

Electrical power is supplied from the Manitoba Hydro and Saskatchewan Power Corporation power grids, which are fed by three hydroelectric generating stations. No issues are foreseen for securing additional electrical power in the future if required.

 

Water for mining activities is supplied from a reservoir located adjacent to the 777 mine site and is sufficient for operations.

 

Tailings from milling are sent to the Paste Backfill Plant located at the lower level of the mill building. Mixed paste backfill is pumped to one of two lined boreholes adjacent to the mill, where paste is gravity fed to 1,082 metre level for distribution to mined out stopes. Tailings not used in paste production are pumped to the Flin Flon Tailings Impoundment System. The FFTIS is located in Saskatchewan approximately 500m to the west of our Flin Flon Metallurgical Complex.

 

The 777 mine site is 311 metres above sea level. The geographical area has cool summers and very cold winters with a mean annual temperature of 0.6° C. Operating costs in the first and fourth 

 

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quarters are typically higher due to additional heating and other seasonal costs. The predominant vegetation is closed stands of black spruce and jack pine with a shrub layer of ericaceous shrubs and ground cover of mosses and lichens.

 

*History*

 

In 1993, the 777 deposit was first indicated by an underground exploration hole that intersected the mineralization at a depth of 1,000 metres.  In 1995, a drilling program delineated the ore body and by 1997, this ore body was defined.  In 1999, development of the 777 mine was commenced as part of the “777 Project” and commercial production from the mine commenced in January 2004.  By this time, Minorco S.A. had merged with Anglo American Corporation of South Africa to form Anglo American plc (“Anglo American”). In December 2004, we acquired HBMS and the 777 mine from Anglo American.

 

HBMS took a working option on the 777 property in 1967 from Callinan. In 1988, HBMS acquired Callinan’s remaining interest in the property and in return granted Callinan the net profit interest and royalty described above.

 

*Geological Setting*

 

The 777 deposit lies in the western portion of the Paleoproterozoic Flin Flon Greenstone Belt. The Greenstone Belt is interpreted to be comprised of a variety of distinct 1.92 to 1.87Ga tectonostratigraphic assemblages including juvenile arc, back-arc, ocean floor and ocean island, and evolved volcanic arc assemblages that were amalgamated to form an accretionary collage prior to the emplacement of voluminous intermediate to granitoid plutons and generally subsequent deformation.  The volcanic assemblages consist of mafic to felsic volcanic rocks with intercalated volcanogenic sedimentary rocks. The younger plutons and coeval successor arc volcanics, volcaniclastic, and sedimentary successor basin rocks include the older, largely marine turbidites of the Burntwood Group and the terrestrial metasedimentary sequences of the Missi Group (which includes the Flin Flon formation).

 

The Flin Flon formation is subdivided into three mappable members containing units of heterolithic and monolithic breccias, rhyolite flows and domes, and massive and pillowed basalt flows and flow-top breccias. It is comprised of the Millrock member, which contains the 777 and Callinan mineralization, and the footwall to it with the Blue Lagoon and Club members.

 

A complex succession of felsic and basalt-dominated heterolithic volcaniclastic rocks host the Flin Flon Main, Callinan and 777 volcanogenic massive sulphide (VMS) deposits within the Greenstone Belt. The north-trending, VMS-hosting, 30 to 700 metre thick volcanic/volcaniclastic succession is recognized for at least 5 kilometres along strike and has an average dip of 60°E. The volcaniclastic rocks have been interpreted to occupy a volcano-tectonic depression within a basaltic footwall succession.

 

*Exploration*

 

*Drilling*

 

Diamond drilling is the only drilling type carried out for the purposes of exploration, ore zone definition and sampling of our 777 mine. The modern 777 drilling program began in the early 2000’s and, as at September 30, 2013, a total of 2,069 holes and 287,191 metres had been drilled. All holes, except a geotechnical shaft pilot hole and surface North expansion exploration holes, were drilled from underground by a contractor using AW-34, AQTK, BQ and NQ core sizes. Drill hole spacing along the 777 deposit is generally 30 to 50 metres. Core recovery is near 100% for all holes. Drilling was categorized as definition, exploration, or geotechnical. Geotechnical drilling was completed in areas of planned underground infrastructure to ensure competency.

 

Standard procedure is that the core is initially logged for lithology then descriptively for grain size, foliation, minor units, alteration minerals and intensity, faults, RQD, joints and contacts.  Sample intervals 

 

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are determined by both lithology and a visual estimate of the sulphide mineralization. As a general rule, sample intervals are approximately one metre, though the length varies depending on lithology or type of mineralization. It is likely that in no cases were samples taken from intervals less than 10 centimetres in length. However, as many of the assays are historic in nature, several were split when they overlapped lithological boundaries in the resource block model and resulted in sample intervals having lengths as low as one centimetre.

 

*Surveying*

 

We routinely conduct time-domain borehole electromagnetic surveys with three dimensional probes on drill holes. These probes used are induction coil probes which measure the secondary magnetic field induced by the primary field created by a loop. These electronic methods can generally detect off hole targets up to 150 metres or more from the hole depending on the size and conductivity of the target.  The sample quality can be affected by active mine workings and the proximity of the geophysical apparatus to a large ore body, such as 777, which can leave an imprint of the mine itself on the data.

 

After the initial aggressive exploration program that defined the 777 deposit, few holes had downhole geophysical surveys. The first modern exploration drill hole at the 777 mine, T7X-001, was pulsed in late 2004. Following that hole, little exploration work was conducted between 2005 and 2008 with only 56 holes being drilled during that four year period. Since 2009, exploration efforts have increased with the downhole geophysical surveying of approximately 30 holes, 20 of these using one of the underground footwall loops.  These were concentrated on deep footwall drilling, around the West Zone, and in the hanging wall.  Among these 30 holes, eight were surveyed in the hanging wall using a surface loop. All high priority targets have been followed up with drilling as well as most of the lesser category targets.

 

In 2007 a total of 75 kilometres of high resolution 2D seismic profiles as well as a 3D survey covering approximately 10 square kilometres was completed. Results were hampered by the significant challenges posed by the complex crystalline geology of the area, proximity to an active town, active mining operations, and the highly variable terrain.

 

The survey resulted in a greater understanding of the area geology. Also, the discovery of Zone 33 at the 777 Mine was attributed to this survey as it showed a seismic reflector in the footwall, which was later followed up with drilling and downhole pulsing. Previous downhole geophysical surveys had noted this anomaly, but it was previously discounted as a shadow effect from the 777 Mine.

 

*Mineralization*

 

The 777 and Callinan deposits occur within an east-facing sequence of volcanic rocks documented as tholeiitic and basalt-dominated, and dated around 1888 Ma. The rocks immediately hosting the mineralization, however, consist of quartz-phyric (QP) and quartzfeldspar-phyric (QFP) rhyolite flows and quartz-±feldspar crystal-lithic volcaniclastic rocks of rhyolitic composition.

 

The 777 deposit can be divided into two main southeast plunging trends, the North Limb and the South Limb, as well as the West Zone. All three zones lie within the same stratigraphic sequence with the same lithofacies as described above. The West Zone lies in the footwall in what is interpreted to be a lower thrust slice and both limbs have the same stratigraphic sequence. On average the lenses strike at 010° and dip to the east at 45°. All zones have a relatively shallow plunge trending at -35° towards 140°. Horizontal widths throughout the deposit range from 2.5 metres to 70 metres in thickness, and can be thicker when two or more zones overlap.

 

There are a total of nine distinct sulphide lenses contained within the 777 deposit. Each of the zones is distinguished based on grade and mineralization type as well as their spatial location. The 777 deposit encompasses an area approximately 1,300m downplunge by 550 metres across and varying in depth from approximately 870 to 1,600 metres below surface. Lenses in general are fairly continuous with the exception of scattered diorite intrusions.

 

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The Callinan deposit is subdivided into two rhyolite horizons termed the East-QP and the West-QP. The East-QP is host to the lenses of the North Zone (northern portion), and the East Zone (southeast portion), and is on the same horizon as the 777 mineralization. The West-QP hosts the South Zone (southwest portion) and its associated lenses. Each of these zones is further subdivided into a number of mineralized lenses. The subdivision of Zones into lenses was based on the spatial distribution of the mineralization. The South Zone lenses generally strikes to the north and dips at 50° to the east with a plunge trending at -50° towards 135°. The North and East Zones generally strike at 020° with a 50° dip to the east with a shallow plunge trending at -30° towards 145°.

 

There are a total of 20 sulphide lenses contained within the three broad zones of the Callinan deposit. The Callinan mineralization is a distal deposit that has a matrix supported breccia with variable amounts of wallrock fragments in a fine to medium grained sulphide matrix. The wallrock fragments are intensely altered with chlorite, talc and sericite with some degree of pyritization and carbonation. These lenses contain variable amounts of pyrite, sphalerite, chalcopyrite and minor pyrrhotite.

 

Mineralization is generally medium to coarse grained disseminated to solid sulphides consisting of pyrite, chalcopyrite, sphalerite, pyrrhotite, and magnetite. The principle gangue minerals are chlorite and quartz. Alteration minerals include biotite, epidote and actinolite.

 

*Sampling and Analysis*

 

*Sampling Methods*

 

The majority of sample intervals from definition and exploration drilling were whole rock sampled with the core placed in a plastic bag with its unique sample identification tag. Typically when exploration drilling in new areas, all samples are either split or cut in half with a diamond saw.

 

The bagged samples were placed in either a burlap bag or a plastic pail with a submittal sheet that was prepared by the geologist or technician. Samples were delivered to the Flin Flon assay laboratory, located in the Flin Flon Metallurgical Complex, which is owned and operated by us. Samples are checked by laboratory personnel to ensure that they match the submittal sheet.

 

The samples were analyzed for the following elements: gold, silver, copper, zinc, lead, iron, arsenic and nickel. Base metal and silver assaying was completed by aqua regia digestion and read by a simultaneous ICP unit. The gold analysis was completed on each sample by AAS after fire assay lead collection. Gold values greater than 10g/t were reassayed using a gravimetric finish. All analytical balances are certified annually by a third party. Check weights are used daily to verify calibration of balances. All metal standards used to make the calibration standards for the AAS and ICP are certified and traceable. Each is received with a certificate of analysis. The Flin Flon assay laboratory was recently certified, in December 2011, to the ISO 9001 quality management system to help ensure it meets our needs as well as those of other stakeholders

 

A total of 112,732 samples from 3,396 drill holes were submitted to the Flin Flon assay laboratory for analysis as of the date of the most recent technical report. The average length for these sample intervals was 1.62 metres.

 

Bulk density measurements were taken on 2,982 of the mineralized samples selected for assaying as of the date of the most recent technical report. The measurement methodology consisted of first weighing the core sample in air, then, the sample was suspended in a tub filled with water by a chain on the underside of the scale in such a way that it did not touch the sides of the water-filled tub and the weight of the submerged sample was recorded.

 

*Quality Assurance and Quality Control*

 

As part of our Quality Assurance and Quality Control (QAQC) measures, a portion of the pulp duplicates has been sent to Acme Analytical Laboratories Ltd. (“Acme”) in Vancouver, British Columbia 

 

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for comparison and verification purposes since early 2006. Our QAQC measures also involve the use of blank materials, reference standards, internal duplicates, and repeats.

 

During the drilling programs at 777 a total of four different types of blanks were inserted into the sample stream between early 2000 and September 2011. Blanks were inserted at a rate of 1 for every 20 assays until the fall of 2003, when this was reduced to 1 for every 50 assays as a means of cost reduction. Since our assay laboratory runs batches of 50-60 samples at a time this should place at least one blank in every batch.

 

The use of reference standards has become increasingly systematic and they are now inserted into the sample stream at every 20th assay interval.

 

Duplicates are used as a check to verify the repeatability of the assay data. Duplicates are run at our laboratory at a frequency of one in twenty samples, and also at Acme as an independent check. Samples were selected by Acme at a minimum frequency of one sample per every five internal duplicates, which equates to at least one sample per every 100 samples.

 

Repeats, typically referred to as ‘blinds’, are run on a monthly basis on one sample out of every four or five duplicates that were analyzed during that month. The results are considered an internal independent check on our assay laboratory results.

 

*Data Verification*

 

Examination and mapping of the underground drifting visually confirmed the geology and VMS style of mineralization. As well, the examination of drill core for several holes has also confirmed the mineralization and geology and compared well to underground mapping with drill logs and assays.

 

A visit was conducted to the 777 core logging and storage area, exploration core storage facility, and our assay facility and each was deemed to be secure and in reasonable condition. In addition, the qualified person has had several discussions with current and former geologists as well as other personnel that have worked at the deposit to verify various details of the mining, infrastructure, geology, drilling and sampling.

 

Full verification of the data was not able to be completed as a small portion of the data from the Callinan portion of the deposit is considered historic in nature.

 

*Security of Samples*

 

For security purposes, all sample preparation, splitting, handling, and storage was in the control of our personnel at all times in accordance with then applicable chain of custody policies which were consistent with industry standards at the time. We implemented a documented full chain of custody procedure in August 2011. This involves the creation of a submittal sheet with all batches of drill core sent for assay by the geologist daily. The sheet is signed both by the geologist, to verify the samples were stored securely, and by the laboratory personnel, to verify it was in their control from the time it left the core shack and is consistent with the current industry standards.

 

*Mineral Resource and Mineral Reserve Estimates*

 

*Mineral Resources*

 

Mineral resources were separated into the 777 and Callinan portions of the deposit. This was done for mining and planning purposes as the Callinan lenses represent the upper, and more historic, portion of the mineralization and the 777 zones represent the lower more recently drilled and identified mineralization. The interpreted lenses of the 777 zones and certain Callinan lenses were built by digitizing polylines around the mineralization. Polylines were then linked with tag strings and triangulated in order to create three dimensional wireframe solids. The remainder of the mineralization was interpreted by 

 

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digitizing polylines in a 2D plane around mineralized intercepts. The average strike and dip of the zone was estimated and utilized to calculate the horizontal width of the mineralization for both the 2D Gridded Seam Model and the polygonal interpretations.

 

The mineral resource estimate, effective as of a September 30, 2013 cut-off date for diamond drilling, was completed using MineSight 6.5 software in mine coordinates, and for the Callinan lenses, the current version of MineSight at the time of estimation. The block model was constrained by interpreted 3D wireframes of the mineralization. Gold, silver, copper, zinc, iron, specific gravity and in some cases dilution variables and horizontal width were estimated into blocks using either ordinary kriging or relative co-ordinate kriging for most lenses. Lens intersections were generally selected based on a metal grade of greater than 1% copper or 2.5% zinc, or a combination thereof. Intersections were modelled as low as 0.3m to provide additional information for statistical and mine planning purposes.

 

A zinc or copper equivalency was not used in the determination of the resource.

 

*Mineral Reserves*

 

Mining, processing and economic parameters were applied to the block model to form the basis of the reserve estimate with an effective date of January 1, 2014. The measured resources were used to estimate the proven mineral reserves and the indicated resources were used to estimate the probable mineral reserves. For mining purposes, there are eight active mining areas in the mine to allow for a blended product with the end goal to send a blended grade to the mill. Mining methods were established for each mining area and a net smelter return (NSR) was calculated to determine the economic viability. NSR revenues were calculated for each mining area comprised of blocks from the block model assuming metallurgical recoveries and long term metals prices. To determine the economic viability and NSR margin of each mining block, onsite operating costs, capital development and offsite costs were estimated and applied against copper and zinc concentrate produced for each mining block. The final step of the reserving process involved developing an annualized life-of-mine production plan and supporting cash flow analysis to determine the mineral reserves.

 

***Reconciliation of Reserves and Resources***

 

A year over year reconciliation of our estimated mineral reserves and resources at the 777 mine is set out below.

 

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*Mining Operations*

 

The 777 mine is a multi-lens orebody with shaft access down to the 1508 metre level. The mine consists of an internal ramp that provides access to each mining level. Mobile tired diesel equipment is utilized. Load haul dump (LHD) units vary from 6.1m3 to 7.6m3. Trucks are 40 to 50 ton units feeding an ore pass system or direct to rock-breakers which feed an underground crusher and ore is skipped to surface via the shaft.

 

Long-hole open stope is the mining method used at the 777 mine. Primary stopes are mined and filled with paste backfill, while secondary stopes are mined and filled with unconsolidated loose waste rock. Long-hole stopes are mined at 15 metre to 17 metre vertical sill to sill intervals. Stope strike lengths are generally 16 metres with widths of 2 to 100 metres, with an average of approximately 20 metres. The ore is undercut at the top and bottom of the block, providing access for drilling and mucking. Drilling is done by top hammer long-hole drills with holes varying in length between 10 metres and 20 metres long and a hole diameter of 3 inches. Mucking is accomplished by remote LHD units and then loaded to haul trucks.

 

Retreat long-hole open stope and cut and fill are the mining methods planned for the 777 North expansion. Long-hole stopes will be mined using a similar method as at 777 mine.

 

Ore at 777 mine is loaded by LHDs to underground haul trucks, which dump to a series of ore passes that feed three chutes on 1412 metre level. Haul trucks are loaded from the chutes and haul the ore on the 1412 metre level haulage drift directly to the ore grizzly / rock-breaker at 1412 metres to properly size the muck. The ore is temporarily stored in a 1,725 tonne coarse ore bin that feeds the crusher. From the crusher it is conveyed to a 1,600 tonne fine ore bin, where it is conveyed to a loading pocket at the 1508 metre level and placed into two 15 tonne skips and hoisted to surface. The ore on surface is hauled by 53 to 63 tonne haulage trucks directly to the Flin Flon concentrator or is dumped on a stockpile close to the concentrator.

 

Ore from 777 North expansion is loaded onto haul trucks by LHDs and transported up the ramp to surface. The ore is dumped on the ground prior to being sent through a surface crusher operated by a contractor. The ore is then loaded and transported for processing at the Flin Flon concentrator or stockpiled nearby.

 

Our Flin Flon concentrator processes 777 ore into copper and zinc concentrates. Copper concentrate is sold to third party purchasers and zinc concentrate is sent to our Flin Flon zinc plant where it is further processed into special high grade zinc before being sold to third party purchasers. See “Description of our Business — Other Assets — Processing Facilities” and “Description of our Business — Other Information — Products and Marketing”.

 

Current production rates are expected to be approximately 4,000 tonnes per day for the 777 mine and 330 tonnes per day at the 777 North expansion based on 363 days of production per year. This yields an expected mine life through to 2020 for the 777 mine, while 777 North expansion is expected to end production mid-2018. Production from 777 is subject to federal and provincial income taxes, as well as the Manitoba mining tax. The combined federal and provincial tax rates are assumed to be approximately 27% for the life of the mine.

 

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The 777 mine has been in commercial production since 2004 and the original project capital has already been paid back and ongoing capital is defined as sustaining capital.

 

*Exploration and Development*

 

2011 marked the first year that a concentrated effort on exploration drilling was conducted from underground at the 777 mine. Much of the drilling to that date had been focused on converting resources to reserves. In excess of 108,000 metres of underground exploration drilling has been drilled at the 777 mine targeting additional resources in the hanging wall, footwall, along strike and in upgrading inferred resources. Significant knowledge was gained on the stratigraphy and the focus for 2014 is to test the mine horizon north of the deposit with a budget of 24,000 metres of exploration drilling.

 

***Lalor Project***

 

*Project Description and Location*

 

Lalor is a zinc, gold and copper project currently under construction near the town of Snow Lake in the province of Manitoba. Lalor is located approximately 210 kilometres by road east of Flin Flon, Manitoba of which 197 kilometres is paved highway.

 

We own a 100% interest in the property through nine mineral leases that total approximately 947 hectares with annual rental payments payable to the Manitoba government of $10,040. The mineral leases terminate in April and September of 2023 and March of 2033. There are no royalties payable other than those potentially payable to the province. Surface rights are held under general permits with total annual rental payments of $1,212 and are sufficient for purposes of our development plans.

 

The Lalor project was envisaged to utilize, to the greatest extent possible, existing infrastructure in the Snow Lake area from previous mining activities and currently operating facilities. As such, liabilities associated with each operational area, have been addressed by the closure plans previously submitted to the regulators, and financial assurance has been provided to cover total closure and remediation costs. The project plan contemplated by the Advanced Exploration Project (AEP), which was approved by regulators, includes a closure plan for demolition and remediation of the AEP site. Financial assurance was also provided to cover costs detailed in the approved AEP closure plan.

 

As the Lalor project is in close proximity to our current operations in the Snow Lake area, it is possible for it to utilize existing facilities and infrastructure that have already been licensed and permitted. These licences and permits are tied to the recently closed Chisel North mine, Chisel Water Treatment Plant (WTP), Anderson Tailings Impoundment Area (TIA), and the Snow Lake concentrator.

 

*Accessibility, Climate, Local Resources, Infrastructure and Physiography*

 

The current project infrastructure includes a four kilometre main access road that was constructed in 2010 from provincial road 395 and provides access from the Chisel North mine site to the Lalor site. This access road includes a corridor with freshwater/discharge pipelines and a main hydro line. Access to the site is off of paved provincial highway 392 which runs between Snow Lake and Flin Flon.

 

The Snow Lake area has a typical mid-continental climate, with short summers and long, cold winters. Climate generally has only a minor effect on local exploration and mining activities.  The project area is approximately 300 metres above sea level, consisting of ridged to hummocky sloping rocks with depressional lowlands, and has gentle relief that rarely exceeds 10 metres. The area of Lalor and surrounding water bodies (Snow, File, Woosey, Anderson and Wekusko lakes) are located in the Churchill River Upland Ecoregion in the Wekusko Ecodistrict. The dominant soils are well to excessively drained dystic brunisols that have developed on shallow, sandy and stony veneers of water-worked glacial till overlying bedrock. Significant areas consist of peat-filled depressions with very poorly drained typic and terric fibrisolic and mesisolic organic soils overlying loamy to clayey glaciolacustrine sediments.

 

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Tailings production associated with the Lalor project will be impounded in the currently permitted Anderson TIA. Waste rock from the underground development permitted under the Lalor AEP and Lalor mine is deposited into and stored in the Chisel Open Pit mine. Mine discharge water from the Lalor mine is treated in the Chisel WTP along with water from the Chisel Open Pit.

 

We operate a mine water pump station at the north end of Chisel Lake approximately eight kilometres from Lalor. In addition, we commissioned a 2,000 US gpm water treatment plant in the spring of 2008 at Chisel Lake, approximately seven kilometres by road from Lalor.

 

Power for the site is being transmitted at 25 kV from the Lalor substation located at the Chisel North minesite via 4 km transmission line.

 

Process water required for the construction phase of the project is estimated to be 45 to 50 m3/hr.  The process water will be drawn through existing pump stations located at Chisel Lake. Each pump station has a capacity of supplying 68 m3/hr.

 

Work on the project components of shaft sinking and site construction is currently being done by specialized contractors and there is a 198 person temporary construction camp in the town of Snow Lake to accommodate the Lalor project construction crew.

 

Personnel requirements for the Lalor project will largely be drawn from the immediate area where there is a history of operating mines. We believe there are sufficient skilled operating, maintenance and technical personnel available to bring Lalor to its planned full production. The Lalor mine in full operation will require approximately 300 employees and the new concentrator will require approximately 75 employees.

 

*History*

 

The Lalor deposit is situated in the Chisel Basin. Exploration in the Chisel Basin has been active since 1955. The Chisel Basin area has hosted three producing mines, namely, Chisel Lake, Chisel Open Pit and Chisel North. All three mines have very similar lithological and mineralogical features.

 

A Crone Geophysics survey in 2003 indicated a highly conductive shallow-dipping anomaly at a vertical depth of 800 metres. In early 2007, drill hole DUB168 was drilled almost vertically to test the anomaly and intersected a band of conductive mineralization between 781.74 metres and 826.87 metres (45.13 metres). Assay results include 0.30% Cu and 7.62% Zn over the 45.13 metres, including 0.19% Cu and 17.26% Zn over 16.45 metres.

 

*Geological Setting*

 

The Lalor property lies in the eastern (Snow Lake) portion of the Paleoproterozoic Flin Flon Greenstone Belt and is overlain by a thin veneer of Pleistocene glacial/fluvial sediments. Located within the Trans-Hudson Orogen, the Flin Flon Greenstone Belt consists of a variety of distinct 1.92 to 1.87 Ga tectonostratigraphic assemblages including juvenile arc, back-arc, ocean-floor and ocean-island and evolved volcanic arc assemblages that were amalgamated to form an accretionary collage (named the Amisk Collage) prior to the emplacement of voluminous intermediate to granitoid plutons and generally subsequent deformation. The volcanic assemblages consist of mafic to felsic volcanic rocks with intercalated volcanogenic sedimentary rocks. The younger plutons and coeval successor arc volcanics, volcaniclastic, and sedimentary successor basin rocks include the older, largely marine turbidites of the Burntwood Group and the terrestrial metasedimentary sequences of the Missi Group.

 

The Snow Lake arc assemblage that hosts the producing and past-producing mines in the Snow Lake area is a 20 kilometres wide by 6 kilometres thick section that records a temporal evolution in geodynamic setting from ‘primitive arc’ (Anderson sequence to the south) to ‘mature arc’ (Chisel Basin sequence) to ‘arc-rift’ (Snow Creek sequence to the northeast). The ‘mature arc’ Chisel Basin sequence 

 

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that hosts the zinc rich Chisel, Ghost, Chisel North, and Lalor deposits typically contains thin and discontinuous volcaniclastic deposits and intermediate to felsic flow-dome complexes.

 

The Lalor deposit is similar to other massive sulphide bodies in the Chisel Basin sequence (Chisel Lake, Ghost Lake and Chisel North), and lies along the same stratigraphic horizon as the Chisel Lake and Chisel North deposits. It is interpreted that the top of the zone is near a decollement contact with the overturned hanging wall rocks.

 

*Exploration and Drilling*

 

Exploration in the Lalor deposit area is conducted by Hudbay personnel. Time-domain borehole electromagnetic surveys with three dimensional probes are routinely conducted on drill holes. The survey results identify any off-hole conductors that have been missed and indicate direction to the target as well as the dimensions and the attitude of the conductor. The survey also may detect any possible conductors which lie past the end of the hole allowing the geologist to know whether or not the hole should be deepened.

 

Diamond drilling is the only type of drilling carried out at Lalor. Definition drilling is ongoing for purposes of mine planning and exploration drilling near the deposit has been deferred until we have underground access, which is expected in late 2014.

 

As of September 30, 2013, 121 parent and 101 wedge holes, amounting to 198,399 metres of drilling, was completed from surface. A further 330 holes for 29,586 metres of definition drilling was completed from underground.

 

All diamond drilling completed from surface or underground retrieved whole core sizes of BQ and NQ. Wedge offsets and associated directional drilling were completed on parent holes, resulting in time and cost savings over drilling a new hole from surface. Wedging and directional drilling were used at Lalor to acquire metallurgical samples and delineate the ore body. For delineation purposes, wedge offsets are oriented towards specific targets selected by the geologists along a path calculated by the directional drilling technicians. In metallurgical sampling, wedge offsets are not oriented and the wedge is set just above the zone that is to be sampled such that the core sample collected is generally within 10 to 20 metres of the parent hole intersection.

 

Core recovery at Lalor is near 100% on all holes.

 

*Mineralization*

 

Lalor is interpreted as a VMS deposit that precipitated at or near the seafloor in association with contemporaneous volcanism, forming a stratabound accumulation of sulphide minerals. VMS deposits typically form during periods of rifting along volcanic arcs, fore arcs, and in extensional back arc basins.  Rifting causes extension and thinning of the crust, providing the high heat source required to generate and sustain a high-temperature hydrothermal system.

 

The location of VMS deposits is often controlled by synvolcanic faults and fissures, which permit a focused discharge of hydrothermal fluids. A typical deposit will include the massive mineralization located proximal to the active hydrothermal vent, footwall stockwork mineralization, and distal products, which are typically thin but extensive. Footwall, and less commonly, hanging wall semi-conformable alteration zones are produced by high temperature water-rock interactions.

 

The depositional environment for the mineralization at Lalor is similar to that of present and past producing base metal deposits in felsic to mafic volcanic and volcaniclastic rocks in the Snow Lake mining camp. The deposit appears to have an extensive associated hydrothermal alteration pipe.

 

The Lalor VMS deposit is flat lying, with zinc mineralization beginning at approximately 570 metres from surface and extending to a depth of approximately 1,160 metres. The mineralization trends 

 

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about 270° to 310° azimuth and dips between 15° and 30° to the north. It has a lateral extent of about 900 metres in the north-south direction and 700 metres in the east-west direction.

 

Sulphide mineralization is pyrite, sphalerite and chalcopyrite. In the near solid (semi-massive) to solid (massive) sulphide sections, pyrite occurs as fine to coarse grained crystals ranging one to six millimetres and averaging two to three millimetres in size. Sphalerite occurs interstitial to the pyrite. A crude bedding or lamination is locally discernable between these two sulphide minerals. Near solid coarse grained sphalerite zones occur locally as bands or boudins that strongly suggest that remobilization took place during metamorphism. Disseminated blebs and stringers of pyrrhotite and chalcopyrite occur locally within the massive sulphides, adjacent to and generally in the footwall of the massive sulphides.

 

Notable gold and silver rich zones have also been intersected in the footwall of the zinc rich base metal mineral resources on the property. The precious metal mineralization begins at approximately 750 metres from surface and extends to a depth of approximately 1,480 metres. Their general shape is similar to the base metals. However, the current interpretation suggests the deeper copper-gold lens tends to have a much more linear trend to the north than the rest of the zones.

 

Gold and silver enriched zones occur near the margins of the sulphide lenses and in local silicified footwall alterations. These silicified areas often correlate with disseminated to stringer chalcopyrite and galena, whether together or independent of each other. This footwall gold mineralization is typical of VMS footwall feeder zones with copper-rich disseminated and vein style mineralization overlain by massive zinc-rich zones.

 

Six distinct stacked zinc rich mineralized zones, five stacked lens groups of gold mineralization of low sulphide either in contact with or entirely separate to the zinc rich base metal resources and one copper gold zone of mineralization were interpreted. The interpreted gold zones are generally co-paralleled and/or separate to the zinc rich base metal mineral resource zones. However, gold and potential gold zones locally merge, overlap and cut through zinc rich base metal resources.

 

The gold zones remain open down plunge to the north and northeast.

 

*Sampling and Analysis*

 

During the surface exploration drill program, bagged samples were delivered to our Flin Flon assay laboratory and after preparation the pulp samples are delivered to Acme for analysis. A total of 66,038 samples from 119 parent holes and 98 wedges were submitted for assay and analysis. Sampling methods are substantially the same as those used at our 777 mine, as described above.

 

The current underground definition drilling samples are bagged and delivered to our Flin Flon assay laboratory for SG analysis, crushing and pulping, and assay analysis. A total of 27,684 samples from 326 definition holes were submitted for assay and analysis.

 

*Security of Samples*

 

The measures taken to ensure the validity and integrity of samples taken at our Lalor project are substantially the same as those taken at our 777 mine, as described above.

 

*Mineral Resource Estimates*

 

The mineral resource estimate, effective as of a September 30, 2013 cut-off date for diamond drilling, for the zinc rich base metal, gold and copper-gold zones was completed using MineSight 6.5 block modeling software in UTM NAD83 coordinates.

 

The zinc rich base metal mineralized zones were constrained by interpreted 3D wireframes in the block model. Gold, silver, copper, zinc, lead, and iron grades and specific gravity were estimated into 

 

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blocks using Ordinary Kriging (OK) interpolation. Zone intersections were selected based on a minimum 4% Zinc Equivalency formula (ZNEQ) over a two metre core length. The ZNEQ was calculated from metal price and metal recovery assumptions, with economic contributions from gold, silver, copper and zinc. Each block was assigned a ZNEQ.

 

The gold and copper-gold mineralized zones were constrained by interpreted 3D wireframes in the block model. A 1.0 g/t gold cut-off over a two metre core length was used to determine the zone outlines for continuity purposes to build the 3D wireframes. Gold, silver, copper, zinc, lead, and iron grades and specific gravity were estimated into blocks using OK interpolation.

 

In order to avoid any disproportionate influence of random, anomalously high grade assays on the estimated average metal grade, histograms, cumulative frequency log probability charts, cutting curves, and decile analysis charts were created to examine the assay grade distribution and assess the need for grade capping.

 

The zinc rich, gold and copper gold mineral resources are classified on the basis of the model blocks to the nearest composite, minimum number of composites, and minimum number of drill holes.

 

*Mineral Reserve Estimates*

 

Mining, processing and economic parameters were applied to the block model to form the basis of the reserve estimate with an effective date of January 1, 2014. The measured resources were used to estimate the proven mineral reserves and the indicated resources were used to estimate the probable mineral reserves. Mining methods were established for each mining area and an NSR was calculated to determine the economic viability. NSR revenues were calculated for each mining area comprised of blocks from the block model assuming metallurgical recoveries and long term metals prices. To determine the economic viability and NSR margin of each mining block, onsite operating costs, capital development and offsite costs were estimated and applied against copper bulk and zinc concentrate produced for each mining block. The final step of the reserve process involved developing an annualized life of mine production plan and supporting cash flow analysis to determine the Lalor mineral reserves.

 

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#### ***Reconciliation of Reserves and Resources***

 

A year over year reconciliation of our estimated mineral reserves and resources at the Lalor project is set out below.

#### ****** 

#### ****

 

*Mining Operations*

 

*Mine Planning*

 

The economic analysis in the most recent technical report for the Lalor project was based on underground mining of 14.4 million tonnes of probable reserves and excludes the inferred resources. It contemplated a mine life of 15 years and an expected payback of project capital, based only on such probable reserves and the capital cost estimate at the time, in 2023.

 

The revised capital cost estimate for the project is based on our plan to develop the entire Lalor deposit. We are currently working on a revised mine plan to determine whether there are opportunities to optimize our expected ore production rate of 4,500 tonnes per day to better match the potential production shaft and concentrator grinding capacities.

 

Lalor reserves will be accessed from footwall access drifts off the main ramp. Mining is primarily by post pillar cut and fill and longhole methods with a combination of paste and unconsolidated waste backfill. The underground ore handling system will be done by truck to an ore pass with rock breaker and grizzly dump, hoisted to surface via a 6.7 metre diameter shaft and conveyed to the neighbouring surface crushing plant, then conveyed to the surface stockpile. The stockpile will feed a SAG mill and ball mill combination that has design capacity at 5,400 tonnes per day. The recovery process will be normal floatation producing a copper bulk concentrate and a zinc concentrate. The remaining tails will either provide feed to the paste plant or be sent to the Anderson Lake tailings impoundment area. Concentrates 

 

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will be shipped to Flin Flon where the zinc concentrates are processed at our zinc plant and copper bulk concentrate will be loaded onto rail cars and sent to third party smelters. The Lalor shaft is based on the 777 shaft design and is complete to the designed planned vertical depth of 985 metres, with the steel guide installation currently underway.

 

First production from the production shaft is still projected to be on schedule for mid-2014. Prior to completion of the new concentrator, production from the production shaft will be processed at the Snow Lake concentrator.

 

*Permitting and Environmental*

 

In April 2010, we received an AEP for the Lalor project from the Manitoba government which allows us to upgrade the existing exploration road, construct an exploration shaft and related facilities, develop an underground exploration platform, and extract up to a 10,000 tonne sample via the main production shaft from the gold and copper-gold zones for metallurgical testing. Current production via the ventilation shaft is permitted pursuant to the licence for the Chisel North mine.

 

In March 2014, we received the Environment Act Licence (EAL) for the Lalor mine which allows the mine to move into full production and approves usage of the Sewage Treatment Plant. In addition, an EAL is required for the new Lalor concentrator. The application was submitted in May 2013.

 

Improvements to the Anderson TIA will commence after the Notice of Alteration of its existing licence submitted to the regulatory authorities is approved.

 

A closure plan and financial assurance is currently in place for the Lalor AEP and will be updated for the Lalor mine as a requirement of the EAL. Closure plans and financial assurance for demolition and remediation will be developed as part of other EALs for the changes to the overall impact that the Lalor project will have on our operations in the Snow Lake area.

 

*Exploration and Development*

 

Underground project development is advancing alongside mine production. In 2013, we mined 400,590 tonnes of ore via the ventilation shaft at Lalor that was trucked to the Snow Lake concentrator for processing.

 

Underground project developed advanced in 2013, with the completion of the 955 metre level load out facility and shaft bottom access. The Lalor production shaft is complete to the planned vertical depth of 985 metres and the steel guide installation is underway. First production from the production shaft is still projected to be on schedule for mid-2014. Underground construction on the ore and waste handling systems and main dewatering is proceeding on schedule. We have now completed the final engineering for the surface exhaust fan installation which will be built after the main ventilation shaft hoist is dismantled. We have completed the final planning for the office/changehouse and final site layout.

 

***Constancia Project***

 

*Property Description and Location*

 

We currently hold a 100% interest in the Constancia project in southern Peru. The Constancia project includes the Constancia and Pampacancha deposits and is located approximately 600 kilometres southeast of Lima at elevations of 4000 to 4500 metres above sea level. Geographic coordinates at the centre of the property are longitude 71° 47’ west and latitude 14° 27’ south.

 

We acquired the Constancia project in March 2011 through our acquisition of all of the outstanding shares of Norsemont. We own a 100% interest in the 36 mining concessions (covering an area of 22,516 hectares) that comprise the Constancia project, all of which are duly registered in the name of our wholly-owned subsidiary, HudBay Peru S.A.C.; HudBay Peru S.A.C. also has the required 

 

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surface rights to develop the Constancia project. Most of the known mineralization is located in the claims Katanga J, Katanga O, Katanga K, and Peta 7, though small mineralized outcrops are common throughout the area. All the mining concessions are currently in good standing. The annual concession fee payments of US$3.00 per hectare are due on June 30 each year.

 

Most permits required for construction, including the ESIA and principal beneficiation concession, are now in place. The key permit required for operation is the mine permit. The mine permit was fully approved in December 2012 and we expect to receive other required permits in the ordinary course.

 

The Constancia project is subject to the following taxes, royalties and other agreements concerning mineral production:

 

*Peruvian Tax Regime*

 

The Constancia project is subject to the Peruvian tax regime, which includes the mining tax, mining royalty, 8% labour participation, corporate tax and IGV/VAT. The Special Mining Tax (SMT) and the Mining Royalty (MR) are recently introduced taxes (late-2011) for companies in the mineral extractive industries. Both the SMT and the MR are applicable to mining operating income based on a sliding scale with progressive marginal rates. The effective tax rate is calculated according to the operating profit margin of the company. Based on Constancia’s expected life-of-mine operating profit margin, the effective SMT and MR tax rates are projected to be 2.70% and 2.37% of operating income over the life of the project. The MR is subject to a minimum of 1% of sales during a given month.

 

*Precious Metals Stream Agreement*

 

100% of the Constancia project’s silver production and 50% of its gold production is subject to our agreement with Silver Wheaton, as described in this AIF.

 

*Legacy NSR*

 

We will be required to pay a net smelter return royalty (NSR) of 0.5% to a maximum of US$10.0 million to the previous owners of the property.

 

*Accessibility, Climate, Local Resources, Infrastructure and Physiography*

 

The Constancia project is accessible from Lima by flying to either Arequipa or Cusco and then proceeding by paved and gravel highway to the project site, which in each case takes approximately seven hours. The closest town is Yauri (population 23,000), which is approximately 80 kilometres by road from the project site. The road to Yauri (in the general vicinity of Xstrata’s Tintaya and Antapaccay mines) is expected to be upgraded in time to meet the construction and life-of-mine transportation requirements of the project. Copper concentrate is expected to be transported via Yauri to the Matarani port, which is approximately 460 kilometres by road from the project site.

 

The climate of the region is typical of the Peruvian altiplano in which the seasons are divided into the wet season between October and March with slightly higher temperatures and a dry season during April to September with colder temperatures. Temperatures can dip below -10° Celsius and rise to 20° Celsius. The sun can be very strong with high ultraviolet readings being common during the mid-day period. There is a climate monitoring station installed at the project site.

 

Elevations on the property range from 4,000 to 4,500 metres above sea level with moderate relief and grass-covered altiplano terrain. Slopes are typically covered with grasses at lower elevations. At higher elevations, talus cover is common with very little vegetation. The grasslands are used as pasture for animals and at lower elevations for some limited subsistence agriculture. Water resources 

 

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are readily available from a number of year-round streams near the project site.

 

The Constancia project’s maximum demand for electricity is estimated to be 96 MW with an average load of 85 to 90 MW in the first 5 years. It is expected that sufficient electricity will be available at the new 220 kV Tintaya substation (planned to be in operation in mid-2013) located about 70 kilometres from the mine site and we have executed a contract for integrated services to bring power from this substation to the Constancia project.

 

Other project infrastructure includes the tailings management facility, waste rock facility and water management systems.

 

We have entered into life-of-mine agreements with the neighbouring communities of Chilloroya and Uchuccarco. These agreements provide us the surface rights required for project construction and operations and specify our commitments to these local communities over the course of mine construction and operations. In particular, the community agreements contemplate cash payments for the land access rights, as well as funds for facilitation of development projects and investment for local enterprises. The agreements also outline ongoing annual investments in community development including medical, educational and agricultural services.

 

The nearby communities can provide unskilled labourers, but access to skilled mining talent must be obtained through training or enlisting personnel from outside the area.

 

*History*

 

The original Constancia property, consisting of 13 concessions, was obtained by Norsemont pursuant to an option agreement with Rio Tinto Mining and Exploration Ltd. (“Rio Tinto”). Norsemont acquired an initial 51% interest in the property from Rio Tinto in November 2007.Pursuant to the option agreement, in March, 2008 Norsemont acquired the remaining 19% interest in Constancia held by Rio Tinto. Norsemont acquired the remaining 30% interest in the project from Mitsui Mining and Smelting Company Limited Sucursal Del Peru (“Mitsui”) and 23 additional concessions were obtained by Norsemont in 2007 and 2008.

 

The San Jose prospect (which forms part of the Constancia deposit) was explored by Mitsui during the 1980s. Exploration consisted of detailed mapping, soil sampling, rock chip sampling, and ground magnetic and induced polarization surveys with several drill campaigns. Drilling was mainly focused on the western and southern sides of the prospect. Mitsui completed 24 drill holes (4,200 metres) and Minera Katanga completed 24 shallow close-spaced drill holes at San Jose (1,200 metres).

 

In 1995, reconnaissance prospecting by Rio Tinto identified evidence for porphyry style mineralization exposed over an area 1.4 x 0.7 kilometres, open in several directions, with some copper enrichment below a widespread leach cap developed in both porphyry and skarn.

 

In May 2003, Rio Tinto revisited the area and the presence of a leached cap and the potential for a significant copper porphyry deposit were confirmed. Negotiations with Mitsui, Minera Livitaca and Minera Katanga resulted in agreements being signed on October 31, 2003 with the underlying owners. Rio Tinto renamed the prospect “Constancia”.

 

The Rio Tinto exploration activities consisted of geological mapping, soil, and rock chip sampling, and surface geophysics (magnetics and induced polarization). Rio Tinto completed 24 diamond drill holes for a total of 7,500 metres.

 

*Geological Setting*

 

The Constancia deposit is a porphyry copper-molybdenum system which includes copper-bearing skarn mineralisation. This type of mineralisation is common in the Yauri-Andahuaylas metallogenic belt where several porphyry Cu-Mo-Au prospects have been described but not exploited. Multiple phases of monzonite and monzonite porphyry have intruded a sequence of sandstones, mudstones and micritic limestone of Cretaceous age. Structural deformation has played a significant role in preparing and 

 

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localising the hydrothermal alteration and copper-molybdenum-silver-gold mineralisation, including skarn formation.

 

The Pampacancha deposit is a porphyry related skarn system, with copper-bearing skarn mineralization. This type of mineralisation is common in the Yauri-Andahuaylas metallogenic belt where several skarn deposits have been developed, including Corocohuayco in the Tintaya District and Las Bambas.

 

*Exploration and Drilling*

 

Exploration is ongoing in the Constancia project area and is focused on the following:

 

*Surface mapping and sampling*

 

From 2007 to 2011, 11,444 hectares were mapped in the Constancia project area. Of this, 8,905 hectares were mapped on our mining concessions, which represents 39% of our mining rights in the area. Additionally, 2,595 rock samples and 41 stream sediments samples were collected during this period.

 

*Geophysical data*

 

An in-house interpretation of the geophysical data along with interpretation of available surface mapping and rock and stream sediment geochemistry helped identify several targets within the project area. The most important ones are the anomalies associated with the Pampacancha deposit, the chargeability-magnetic anomalies observed in the Chilloroya South prospect and the chargeability anomalies located in Uchuccarco, at 3.8 kilometres northeast of the Constancia porphyry. In addition, a Titan-24 DC-IP-MT survey was completed in July 2011 to the south of the Constancia deposit. In late 2013, an aeromag and radiometric helicopter geophysical survey was carried out over an area of 80 square kilometres near Constancia.

 

*Exploration targets and drilling*

 

During 2013, no drilling activities were performed at the Constancia orebody deposit, instead drilling was mainly focused in the Pampacancha West , a group of geophysical anomalies  located approximately 2 kilometres west of the Pampacancha Main orebody skarn.

 

Pampacancha West shows several massive magnetite skarn outcrops with copper oxides mineralization in the area and chargeability anomalies in the Titan Lines. Also encouraging results from the drilling campaign (hole PR-10-22 intercepted mineralization near surface, first 42 meters with 0.82% CuEq) will support the need for further exploration to identify mineralization near surface.

 

Sixteen holes were drilled in these groups of anomalies representing approximately 4,200 metres as at December 31, 2013.  In addition, one drill hole was completed in the Limestone replacement area, representing  approximately 232 meters with slightly positive results for future evaluation and further review. The geophysical anomaly immediately west of the Constancia pit was not fully tested. The opportunity remains to pierce through the faulted structure utilizing a more suitable drill rig.

 

Closure and Remediation activities were carried out during 2013 as well; sixty five platforms and approximately six kilometers of access were remediated (equivalent to a 95% of the total remediation work).

 

*Mineralization*

 

The Constancia porphyry copper-molybdenum system, including skarn, exhibits five distinct deposit types of mineralization:

 

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1.              Hypogene fracture-controlled and disseminated chalcopyrite mineralization in the monzonite (volumetrically small);

2.              Hypogene chalcopyrite (rare bornite) mineralization in the skarns (significant);

3.              Supergene digenite-covellite-chalcocite (rare native copper) in the monzonite (significant);

4.              Mixed secondary sulphides/chalcopyrite in the monzonite (significant); and

5.              Oxide copper mineralization (volumetrically small).

 

Molybdenite, plus gold and silver, occur within all the above deposit types.

 

Two areas of porphyry-style mineralisation are known within the project area, Constancia and San José. At Constancia, mineralisation is deeper than that observed at San José which occurs at surface. The mineralized zone extends about 1,200 metres in the north-south direction and 800 metres in the east-west direction.

 

The Pampacancha deposit is located approximately 3 kilometres southeast of the Constancia porphyry. The stratigraphy unit in the area is the massive, gray micritic limestone of Upper Cretaceous Ferrobamba Formation; this unit in contact with the dioritic porphyry generate a magnetite skarn, hosts economic mineralization of Cu-Au-Mo.

 

The intrusive rocks are Oligocene age unmineralized basement diorite. Diorite porphyry is recognized as the source for skarn mineralisation, which in turn is cut by mineralized monzonite intrusions which provide minor local increases in Cu-Au mineralisation. Skarn Cu-Au mineralisation is best developed at the upper and lower margins of the limestone body. Prograde magnetite-chalcopyrite-pyrite skarn grades are marginally well mineralized garnet and pyroxene skarn which are locally overprinted by epidote-bearing retrograde skarn.

 

Epithermal mineralisation of the low sulphidation quartz-sulphide Au + Cu style, accounts for common supergene enriched Au anomalies, and along with other features such as hydrothermal alteration and veins typical of near porphyry settings.

 

*Sampling and Analysis and Security of Samples*

 

The sample preparation, analysis, security procedures and data verification processes used in the exploration campaigns on the Constancia project prior to our acquisition were reviewed through the documentation available in previously filed technical reports and we have been determined that the sampling methodology, analyses, security measures and data verification processes were adequate for the compilation of data at Constancia and Pampacancha and such processes continue to be used by us.

 

*Constancia*

 

At Constancia, a total of 1,247 bulk density measurements were taken by ALS Chemex from 145 drill holes using the paraffin wax coat method. Samples for density measurement in each major rock unit were extracted at approximately 50 metre intervals. Sample preparation and assaying used for the resource estimate in Norsemont’s 2009 Definitive Feasibility Study was done by ALS Chemex. In July 2008, the primary lab was changed to SGS del Peru (“SGS”) in Lima. Samples were prepared and analyzed using standard procedures, including Fire Assay (for gold) and Inductively Coupled Plasma — Atomic Emission Spectroscopy and Atomic Absorption Spectrophotometry (for other elements). All samples with copper values above 0.2% were analyzed by a Sequential Copper Method (although sequential copper data was not available for Rio Tinto’s exploration campaign).

 

All lithological, alteration, geotechnical and mineralization data was logged on paper logs that were later entered in spreadsheets from where they were imported into the database. It was noted that the data entry spreadsheets had a number of built-in logical checks to improve the validity of the database. As was mentioned in Norsemont’s 2009 Definitive Feasibility Study, the geological and sample data was verified by a senior geologist before importing into a database.

 

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Assay data was delivered in digital form by the main laboratory. Checks for inconsistent values were made by the senior geologist before data was uploaded.

 

We checked collar positions visually on plans for correctness in the data entry. Down-hole surveys were checked by examining coarse changes in the variables. Check runs were at regular intervals to check consistency of the drilling data.

 

Discrepancies were not identified between the log data and assay certificates and the drill hole database of text files used for the mineral resource estimate.

 

The quality control protocol during Norsemont’s Constancia exploration campaigns from 2006 to 2010 included the insertion of the following control samples in the sample batches:

 

·                  Twin samples (Core) or field duplicates (RC): one in 20 samples.

 

·                  Certified Reference Materials (CRMs): one in 20 samples; four CRMs are inserted in alternate order.

 

·                  Blanks: one in 20 samples.

 

The twin samples, field duplicates, coarse blanks and CRMs were inserted on the drill site prior to submission to the laboratory and Acme acted as secondary laboratory for the 2006 and part of the 2007 campaigns to check samples.

 

*Pampacancha*

 

A total of 56 bulk density measurements were taken from actual core at the Pampacancha deposit. The density measurements were conducted by ALS Chemex and are representative of the different rock and mineralization domains recognized to date.

 

All samples were sent to SGS for preparation and assaying. The SGS laboratory conforms to ISO/IEC 17025 and ISO 9002 standards and all samples were analyzed through Inductively Coupled Plasma — Atomic Emission Spectrometry  after multi-acid digestion and gold was determined by fire assay with Atomic Absorption Spectroscopy.

 

During the drilling, blanks were inserted into the sample stream as per geologist instruction at approximate intervals of every 30 samples. Standard references were prepared with material obtained from the Pampacancha deposit by us and were analyzed and certified by Acme labs. As part of the Pampacancha drilling, duplicates were obtained by splitting half core samples, obtaining two quarter core sub-samples, one quarter representing the original sample and the other quarter representing the duplicate sample.

 

We submitted a total of 26,927 samples from 175drill holes to SGS’s laboratory for analysis. In addition to these samples, 471 blanks, 336 reference standards and 486 duplicates were submitted.

 

·                  Blanks: During the drilling, blanks were inserted into the sample stream as per geologist instruction at approximate intervals of every 30 samples.

 

·                  Reference Standards: The reference standards certified by Acme labs were assayed by SGS. Of the 336 copper standards submitted for assaying, 124 of the assays fell outside the lower standard deviation indicating possible sub-estimation of copper content.

 

·                  Duplicates: The geologist routinely inserted duplicate core samples to check the homogeneity of the mineralization and sampling precision; duplicates were inserted approximately every 30 samples.

 

An internal validation of the drill hole database against the original drill logs and assay certificate information was carried out by us. The validation included 100% of the assay values from the 

 

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Pampacancha drilling. No significant discrepancies existed within the database and it is believed to be accurate and suitable for mineral resource estimation.

 

*Mineral Resource and Mineral Reserve Estimates*

 

*Mineral Resources*

 

*Constancia*

 

The Constancia mineral resource estimate was updated by Hudbay Peru. The mineral resource estimate updated a previous estimate done by AMEC and GRD Minproc as part of Norsemont’s 2009 Definitive Feasibility Study.

 

Resource estimation for Constancia was based on integrated geological and assay interpretations of information recorded from diamond core logging and assaying and is comprised of following key steps: Exploratory Data Analysis, Modelling (Composites, variography and Interpolation) and Validations. A total of 161,110 metres (554 holes) had been drilled at the time of the resource estimate.

 

The Constancia geological model is comprised of six lithology domains and five mineralization type zones. The mineralization type zones are: leached, oxide, supergene, mixed and hypogene material. The mineralization type model is based on logged codes, which have been checked against the sequential leach copper assay values.

 

Statistical analyses were performed by lithology type and mineralization type zone and were used to develop estimation domains.

 

In terms of resources categorization, the drill hole spacing analysis results indicate that a drilling spacing of 50 metres by 50 metres could be used to classify material as measured resources and drilling spacing of 80 metres by 80 metres could be used to classify material as Indicated resources.

 

*Pampacancha*

 

The Pampacancha mineral resource estimate was developed by our Geology Team under the direction of Robert Carter, P. Eng. Director, Technical Services. The estimate has been approved by Cashel Meagher, P. Geo., Vice President, South America Business Unit, a qualified person under NI 43-101.

 

The Pampacancha deposit was first drilled by Norsemont in 2008 and continued to be drilled by us after we acquired Norsemont in 2011. A total of 140 holes (38,239 metres) were used in the resource calculation with 11 of those being derived from reverse circulation drilling and the remaining 129 from HQ diameter diamond drilling. All holes were drilled from surface by Geotec. Core recovery was near 100% for all holes.

 

The drilling results were used to enable the preparation of a 3D geological interpretation and estimation of mineral resources. The database for the drill hole data utilised was maintained in Access spreadsheets and was validated by us in order to identify possible errors and compatibility to the assay certificates. We determined that the skarn mineralisation hosts the majority of the copper and the resource estimation was completed only for the skarn.

 

The mineral resource was estimated by ordinary kriging interpolation.

 

*Mineral Reserves*

 

The Constancia mineral reserve estimate as at January 1, 2014 consists of an analysis of the potential to increase the life of mine (LOM) of the Constancia and Pampacancha pits. This analysis is 

 

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based on the optimization of economic parameters, such as metal prices, which results in the mineral reserves increase for Constancia and Pampacancha deposits. In addition, the opportunity to expand the main mine facilities storage capacity, such as Tailings Management Facility (TMF) and Waste Rock Facility (WRF), takes part in this mineral reserves increase as well, considered as opportunity in terms of engineering.

 

This mineral reserve estimate has been determined and reported in accordance with NI 43-101 and the classifications adopted by CIM Council in November 2010. NI 43-101 defines a Mineral Reserve as “the economically mineable part of measured and indicated mineral resources”.

 

Proven and probable reserves have continued to grow at Constancia and Pampacancha to 620 million tonnes at a copper equivalent grade of 0.43% supporting a 22 year mine life. The mine plan is such that the process plant is expected to operate to the capacity of the grinding circuit throughout LOM. The plant is expected to process 29 Mt /a (84,500 t/d at 94% availability) of ore. Concentrate production rates average 328,000 t/a over LOM. Pampacancha is planned to be mined between 2016 and 2019.

 

The mine production plan contains 674 Mt of waste and 620 Mt of ore, yielding a waste to ore stripping ratio of 1.1 to 1. An average LOM mining rate of 60 Mt/a, with a maximum of 76 Mt/a, will be required to provide the assumed nominal process feed rate of approximately 29 Mt/a.  The ore production schedule for the project shows average grades of 0.32% Cu, 0.009% Mo, 0.06 g/t Au and 3.1 g/t Ag.

 

The Block Models used for the mineral reserve estimate for Constancia and Pampacancha are based on the original mineral resource estimate described above under “Mineral Resources”. The Selective Mining Unit (SMU) in each of the original resource models was re-blocked from 10x10x15 meters to 20x20x15 meters for Constancia and from 10x10x15 meters to 20x20x15 meters for Pampacancha. The regularized models which were created to simulate the actual mining practice by regularizing the SMU block sizes were considered a diluted model (the resulting dilution was approximately 2% in the Constancia deposit and 7.5% in the Pampacancha deposit). Neither internal nor external dilution was added to the block models during the Mineral Reserve Estimation.

 

The regularized models which were created to simulate the actual mining practice by regularizing the SMU block sizes were considered a diluted model (the resulting dilution applied is approximately 2% in the Constancia deposit and 7.5% in the Pampacancha deposit) and no internal nor external dilution was added to the block models during the Mineral Reserve Estimation.

 

The Qualified Person, Cashel Meagher, concluded that smoothing within the block model provided sufficient dilution and accounted for potential mine losses.

 

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***Reconciliation of Reserves and Resources***

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*A year over year reconciliation of our estimated mineral reserves and resources at Constancia and Pampacancha is set out below.*

 

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*Mining Operations*

 

The primary consideration to accommodate the increased Constancia mineral reserve in the LOM was the confirmation through pre-feasibility investigation to increase the tailings dam height to accommodate this extra tonnage and the waste rock facility configuration. The resulting LOM has increased to 22 years from 16 years. In this process some of the major cost components have been updated to reflect some known actual costs such as energy, fuel, concentrate transport and port charges. The resulting change is an average cost of US$0.72 per pound of copper produced net of by product credits from a previously disclosed US$0.66 per pound of copper in the first full five years of production. Contained copper metal in concentrate is expected to average 116,000 tonnes per year over the first five full years versus 118,000 tonnes as previously disclosed. Over the remaining years, the cost per pound of copper net of by product credits has increased to US$1.14 per pound from US$1.11 per pound; and the contained copper metal in concentrate is expected to average 67,000 tonnes per year versus 77,000 tonnes per year as previously disclosed. The cost per pound of copper net of by product credits does not include the impact of the precious metals streaming transactions.

 

The Constancia project is a traditional open pit shovel/truck operation with two deposits, Constancia and Pampacancha. The project consists of open pit mining and flotation of sulphide minerals to produce commercial grade concentrates of copper and molybdenum. Silver and a small quantity of payable gold will report to the copper concentrate. The Pampacancha deposit exhibits higher grades of copper and gold and is scheduled to enter into production during 2016.

 

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The Constancia ultimate pit will measure approximately 1.8 kilometres east to west, 1.6 kilometres north to south, and have a maximum depth of approximately 600 metres. The Pampacancha ultimate pit will measure approximately 0.6 kilometres east to west, 1 kilometre north to south, and have a maximum depth of approximately 300 metres. There will be one primary waste rock facility, which is located to the south of the Constancia pit and is intended to be used for both deposits. The processing facility will be located approximately 1 kilometre west of the Constancia pit, while the tailings management facility (TMF) will be located approximately 3.5 kilometres southwest of the Constancia pit.

 

Feed stockpiled during the pre-stripping period will be processed during the first year of plant production. The priority plant feed will enable the opportunity of maximizing the net value. The low grade material will be fed as needed and will otherwise be sent to the waste rock facility.

 

The processing plant is designed to process 76,000 tpd of ore (25.33 Mtpa at 91.3% plant availability) from the Constancia and San José ore bodies. In early 2012, Ausenco reviewed the processing plant and ancillary equipment design, resulting in the potential capacity moving from the originally designed throughput of 76,000 tpd at 91.3% availability to 85,000 tpd at 94% availability. This increased capacity is expected to require very little additional capital.

 

Annual concentrate production rates are expected to ramp up from 357,000 tpa in the first four quarters of production to a peak of 450,000 tpa in Year 3. Production then drops to around 270,000 tpa until Year 9, after which it falls to 240,000 tpa until mine closure in Year 22.

 

The primary crusher, belt conveyors, thickeners, tanks, pebble crushers, flotation cells, mills and various other types of equipment will be located outdoors without buildings or enclosures. To facilitate the appropriate level of operation and maintenance, molybdenum concentrate bagging plant, copper concentrate filters and concentrate storage will be housed in clad structural steel buildings.

 

The processing plant has been laid out in accordance with established good engineering practice for traditional grinding and flotation plants. The major objective is to make the best possible use of the natural ground contours to minimise pumping requirements by using gravity flows and also to reduce the height of steel structures.

 

*Development*

 

Detailed engineering and procurement were substantially completed during 2013, with only minor process controls and final contracts outstanding. As of the end of February 2014, the project was over 67% complete on a proportion spent basis; of the revised US$1.7 billion budget, we had incurred approximately US$1.15 billion in costs and had entered into an additional US$250 million in commitments as at that date. The project schedule contemplates initial production in late 2014 and full production in the second quarter of 2015.

 

*Exploration*

 

Currently there are no drilling activities underway with respect to exploration at Constancia. Through the balance of this year our intent is to drill some geophysical anomalies within 1.5 km west of the Constancia pit. Our regional geophysical survey for aeromag and radiometrics has yielded some interesting anomalies which we are reviewing for future target considerations.

 

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**HUDBAY MINERALS INC.**(the “**Company**”)

 

**AUDIT COMMITTEE CHARTER**

 

**PURPOSE**

 

The Audit Committee is appointed by the Board of Directors to assist the Board of Directors in its oversight and evaluation of:

 

·                  the quality and integrity of the financial statements of the Company,

 

·                  the compliance by the Company with legal and regulatory requirements in respect of financial disclosure,

 

·                  the qualification, independence and performance of the Company’s independent auditor,

 

·                  the appointment, independence and performance of the Company’s head of the internal audit function,

 

·                  the assessment, monitoring and management of the strategic, operational, reporting and compliance risks of the Company’s business (the “**Risks**”), and

 

·                  The performance of the Company’s Chief Financial Officer.

 

In addition, the Audit Committee provides an avenue for communication among the independent auditor, the internal audit function, the Company’s Chief Financial Officer and other financial senior management, other employees and the Board of Directors concerning accounting, auditing and Risk management matters.

 

The Audit Committee is directly responsible for the recommendation of the appointment and retention (and termination) and for the compensation and the oversight of the work of the independent auditor (including oversight of the resolution of any disagreements between senior management and the independent auditor or the internal audit function regarding financial reporting) for the purpose of preparing audit reports or performing other audit, review or attest services for the Company. Also, the Audit Committee is directly responsible for the approval of the appointment and retention (and termination) and the oversight of the work of the internal audit function.

 

The Audit Committee is not responsible for:

 

·                  planning or conducting audits,

 

·                  certifying or determining the completeness or accuracy of the Company’s financial statements or that those financial statements are in accordance with generally accepted accounting principles.

 

Each member of the Audit Committee shall be entitled to rely in good faith upon:

 

·                  financial statements of the Company represented to him or her by senior management of the Company or in a written report of the independent auditor to present fairly the financial position of the Company in accordance with generally accepted accounting principles; and

 

·                  any report of a lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by any such person.

 

*As in effect March 2013*

 

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The fundamental responsibility for the Company’s financial statements and disclosure rests with senior management.

 

**REPORTS**

 

The Audit Committee shall report to the Board of Directors on a regular basis and, in any event, before the public disclosure by the Company of its quarterly and annual financial results.  The reports of the Audit Committee shall include any issues of which the Audit Committee is aware with respect to the quality or integrity of the Company’s financial statements, its compliance with legal or regulatory requirements, the performance and independence of the Company’s independent auditor, the performance and independence of the Company’s internal audit function and changes in Risks.

 

The Audit Committee also shall prepare, as required by applicable law, any audit committee report required for inclusion in the Company’s publicly filed documents.

 

**COMPOSITION**

 

The members of the Audit Committee shall be three or more individuals who are appointed (and may be replaced) by the Board of Directors on the recommendation of the Company’s Corporate Governance and Nominating Committee.  The appointment of members of the Audit Committee shall take place annually at the first meeting of the Board of Directors after a meeting of shareholders at which directors are elected, provided that if the appointment of members of the Audit Committee is not so made, the directors who are then serving as members of the Audit Committee shall continue as members of the Audit Committee until their successors are appointed.  The Board of Directors may appoint a member to fill a vacancy that occurs in the Audit Committee between annual elections of directors.  Any member of the Audit Committee may be removed from the Audit Committee by a resolution of the Board of Directors.  Unless the Chair is elected by the Board of Directors, the members of the Audit Committee may designate a Chair by majority vote of the members of the Audit Committee.

 

Each of the members of the Audit Committee shall meet the Company’s Categorical Standards for Determining Independence of Directors and shall be financially literate (or acquire that familiarity within a reasonable period after appointment) in accordance with applicable legislation and stock exchange requirements.  No member of the Audit Committee shall:

 

·                  accept (directly or indirectly) any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries1 (other than remuneration for acting in his or her capacity as a director or committee member) or be an “affiliated person”2 of the Company or any of its subsidiaries, or

 

·                  concurrently serve on the audit committee of more than three other public companies without the prior approval of the Audit Committee, the Corporate Governance and Nominating Committee and the Board of Directors and their determination that such simultaneous service would not impair the ability of the member to effectively serve on the Audit Committee (which determination shall be disclosed in the Company’s annual management information circular).

 

A majority of the members of the Audit committee shall be “resident Canadians”, as contemplated by the *Canada Business Corporations Act*.

 

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1 A company is a subsidiary of another company if it is controlled, directly or indirectly, by that other company (through one or more intermediaries or otherwise).

 

2 An “affiliate” of a person is a person that, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with the first person.

 

*As in effect March 2013*

 

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**RESPONSIBILITIES**

 

**Independent Auditor**

 

The Audit Committee shall:

 

·                  Recommend the appointment and the compensation of, and, if appropriate, the termination of the independent auditor, subject to such Board of Directors and shareholder approval as is required under applicable legislation and stock exchange requirements.

 

·                  Obtain confirmation from the independent auditor that it ultimately is accountable, and will report directly, to the Audit Committee and the Board of Directors.

 

·                  Oversee the work of the independent auditor, including the resolution of any disagreements between senior management and the independent auditor regarding financial reporting.

 

·                  Pre-approve all audit and non-audit services (including any internal control-related services) provided by the independent auditor (subject to any restrictions on such non-audit services imposed by applicable legislation, regulatory requirements and policies of the Canadian Securities Administrators).

 

·                  Adopt such policies and procedures as it determines appropriate for the pre-approval of the retention of the independent auditor by the Company and any of its subsidiaries for any audit or non-audit services, including procedures for the delegation of authority to provide such approval to one or more members of the Audit Committee.

 

·                  Provide notice to the independent auditor of every meeting of the Audit Committee.

 

·                  Approve all engagements for accounting advice prepared to be provided by an accounting firm other than independent auditor.

 

·                  Review quarterly reports from senior management on tax advisory services provided by accounting firms other than the independent auditor.

 

·                  Review expense reports of the Chairman and the Chief Executive Officer.

 

**Internal Audit Function**

 

The Audit Committee shall:

 

·                  Approve the appointment and, if appropriate, the termination of the head of the internal audit function.

 

·                  Obtain confirmation from the head of the internal audit function that he or she is ultimately accountable, and will report directly, to the Audit Committee.

 

·                  Oversee the work of the internal audit function, including the resolution of any disagreements between senior management and the internal audit function.

 

·                  Approve the internal audit function annual plan.

 

·                  Review quarterly reports from the head of the internal audit function.

 

*As in effect March 2013*

 

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**The Audit Process, Financial Statements and Related Disclosure**

 

The Audit Committee shall:

 

·                  Meet with senior management and/or the independent auditor to review and discuss,

 

·                                          the planning and staffing of the audit by the independent auditor,

 

·                                          before public disclosure, the Company’s annual audited financial statements and quarterly financial statements, the Company’s accompanying disclosure of Management’s Discussion and Analysis and earnings press releases and make recommendations to the Board of Directors as to their approval and dissemination of those statements and disclosure,

 

·                                          financial information and earnings guidance provided to analysts and rating agencies: this review need not be done on a case by case basis but may be done generally (consisting of a discussion of the types of information disclosed and the types of presentations made) and need not take place in advance of the disclosure,

 

·                                          any significant financial reporting issues and judgments made in connection with the preparation of the Company’s financial statements, including any significant changes in the selection or application of accounting principles, any major issues regarding auditing principles and practices, and the adequacy of internal controls that could significantly affect the Company’s financial statements,

 

·                                          all critical accounting policies and practices used,

 

·                                          all alternative treatments of financial information within GAAP that have been discussed with senior management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor,

 

·                                          the use of “*pro forma*” or “adjusted” non-GAAP information,

 

·                                          the effect of new regulatory and accounting pronouncements,

 

·                                          the effect of any material off-balance sheet structures, transactions, arrangements and obligations (contingent or otherwise) on the Company’s financial statements,

 

·                                          any disclosures concerning any weaknesses or any deficiencies in the design or operation of internal controls or disclosure controls made to the Audit Committee in connection with certification of forms by the Chief Executive Officer and/or the Chief Financial Officer for filing with applicable securities regulators, and

 

·                                          the adequacy of the Company’s internal accounting controls and management information systems and its financial, auditing and accounting organizations and personnel (including any fraud involving an individual with a significant role in internal controls or management information systems) and any special steps adopted in light of any material control deficiencies.

 

·                  Review disclosure of financial information extracted or derived from the Company’s financial statements.

 

·                  Review with the independent auditor,

 

·                                          the quality, as well as the acceptability of the accounting principles that have been applied,

 

*As in effect March 2013*

 

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·                                          any problems or difficulties the independent auditor may have encountered during the provision of its audit services, including any restrictions on the scope of activities or access to requested information and any significant disagreements with senior management, any management letter provided by the independent auditor or other material communication (including any schedules of unadjusted differences) to senior management and the Company’s response to that letter or communication, and

 

·                                          any changes to the Company’s significant auditing and accounting principles and practices suggested by the independent auditor or other members of senior management.

 

**Risks**

 

The Audit Committee shall:

 

·                  Recommend to the Board of Directors for approval a policy that sets out the Risks philosophy of the Company and the expectations and accountabilities for identifying, assessing, monitoring and managing Risks (the “**ERM Policy**”) that is developed and is to be implemented by senior management.

 

·                  Meet with senior management to review and discuss senior management’s timely identification of the most significant Risks, including those Risks related to or arising from the Corporation’s weaknesses, threats to the Corporation’s business and the assumptions underlying the Corporation’s strategic plan (“**Principal Risks**”).

 

·                  Approve a formalized, disciplined and integrated enterprise risk management process (the “**ERM Process**”) that is developed by senior management and, as appropriate, the Environmental Health and Safety Committee, to monitor, manage and report Principal Risks.

 

·                  Recommend to the Board of Directors for approval policies (and changes thereto) setting out the framework within which each identified Principal Risks of the Corporation shall be managed.

 

·                  At least semi-annually, obtain from senior management and, as appropriate, the Environmental Health and Safety Committee, a report specifying the management of the Principal Risks of the Corporation including compliance with the ERM Policy and other policies of the Corporation for the management of Principal Risks.

 

·                  Review with senior management the Company’s tolerance for financial Risk and senior management’s assessment of the significant financial Risks facing the Company.

 

·                  Discuss with senior management, at least annually, the guidelines and policies utilized by senior management with respect to financial Risk assessment and management, and the major financial Risk exposures and the procedures to monitor and control such exposures in order to assist the Audit Committee to assess the completeness, adequacy and appropriateness of financial Risk disclosure in Management’s Discussion and Analysis and in the financial statements.

 

·                  Review policies and compliance therewith that require significant actual or potential liabilities, contingent or otherwise, to be reported to the Board of Directors in a timely fashion.

 

·                  Review the adequacy of insurance coverages maintained by the Company.

 

·                  Acting jointly with the Compensation Committee, discharge the Board’s oversight function in respect of the administration of the pension and other retirement plans of the Company and its affiliates.

 

*As in effect March 2013*

 

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**Compliance**

 

The Audit Committee shall:

 

·                  Obtain reports from senior management that the Company’s subsidiary/foreign affiliated entities are in conformity with applicable legal requirements and the Company’s Code of Business Conduct and Ethics including disclosures of insider and affiliated party transactions and environmental protection laws and regulations.

 

·                  Review with senior management and the independent auditor any correspondence with regulators or governmental agencies and any employee complaints or published reports, which raise material issues regarding the Company’s financial statements or accounting policies.

 

·                  Review senior management’s written representations to the independent auditor.

 

·                  Advise the Board of Directors with respect to the Company’s policies and procedures regarding compliance with applicable laws and regulations and with the Company’s Code of Business Conduct and Ethics.

 

·                  Review with the Company’s General Counsel legal matters that may have a material impact on the financial statements, the Company’s compliance policies and any material reports or inquiries received from regulators or governmental agencies.

 

·                  Establish procedures for,

 

·                                          the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and

 

·                                          the confidential, anonymous submission by employees of the Company with concerns regarding any accounting or auditing matters.

 

**Delegation**

 

To avoid any confusion, the Audit Committee responsibilities identified above are the sole responsibility of the Audit Committee and may not be allocated by the Board of Directors to a different committee without revisions to this Charter.

 

**INDEPENDENT ADVICE**

 

In discharging its mandate, the Audit Committee shall have the authority to retain (and authorize the payment by the Company of) and receive advice from special legal, accounting or other advisors as the Audit Committee determines to be necessary to permit it to carry out its duties.

 

*As in effect March 2013*

 

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