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HudBay Minerals, Inc. -- Moody's changes HudBay's B2 outlook to stable

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Rating Action: Moody's changes HudBay's B2 outlook to stable

Global Credit Research - 27 Aug 2020

Toronto, August 27, 2020 -- Moody's Investors Service, ("Moody's") revised the rating outlook for HudBay Minerals, Inc. (HudBay) to stable from negative . At the same time, Moody's affirmed HudBay's Corporate Family Rating (CFR) at B2, its senior unsecured rating at B3 and Probability of Default Rating at B2-PD. HudBay' Speculative Grade Liquidity Rating (SGL) was upgraded to SGL-2 from SGL-3.

"The outlook revision to stable reflects the resumption of operations at HudBay's Constancia mine in Peru, greater cushion on its credit facility covenants, improved liquidity and an expectation that leverage will move back towards 4x over the next 24 months supported by improvements in the price of copper and gold", said Jamie Koutsoukis, Moody's Vice-President, Senior Analyst.

Affirmations:

..Issuer: HudBay Minerals, Inc.

.... Corporate Family Rating, Affirmed B2

.... Probability of Default Rating, Affirmed B2-PD

....Senior Unsecured Regular Bond/Debenture, Affirmed B3 (LGD4)

Upgrades:

..Issuer: HudBay Minerals, Inc.

.... Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3

Outlook Actions:

..Issuer: HudBay Minerals, Inc.

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

HudBay's credit profile (B2 CFR) is constrained by its modest scale, mine concentration, commodity price risk, leverage expected to be 4.8x in 2020 (6.4x LTM Q2/20), and the risk of mine operation disruptions due to the coronavirus. Its Constancia copper mine in Peru accounted for over half of the company's revenues and over 85% of the company's gross profit in 2019. HudBay benefits from its mine locations in favorable mining jurisdiction (Canada and Peru), product diversity beyond copper (gold, silver, zinc and molybdenum) which allows for competitive costs, net of by-product credits and a long reserve life (17 year mine life) at its Constancia mine.

HudBay is exposed to environmental risks typical for a company in the mining industry. This includes, but is not limited to wastewater discharges, site remediation and mine closure, waste rock and tailings management, and air emissions. The company is subject to environmental laws and regulations in the areas in which it operates.

HudBay's liquidity is good (SGL-2) with about $590 million in sources compared to about $130 million of uses over the next year. The company's liquidity sources include about $300 million of cash at June 30, 2020 (net of Moody's assumption of operating cash needs of about $100 million) and about $290 million of availability under its $400 million secured credit facility maturing July 14, 2022. Liquidity uses include our expectation of negative free cash flow of about $130 million over the next 12 months, and no debt maturities. In July, 2020, HudBay amended its credit facility which included revised financial maintenance covenants. With the revised covenants, we expect the company to remain in compliance with its covenants.

The stable outlook reflects our expectation that leverage will remain near 4.5x in 2021 but move below 4x beginning in 2022 once the company delivers gold under its prepaid agreement and reduces that liability ($123 million), which we consider to be debt. It also incorporates our view that HudBay will maintain at least adequate liquidity and maintain consistent production at its Constancia mine.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be downgraded if HudBay's cash consumption will be in excess of our expectations, there is an extended shutdown of its Constancia mine, or the company's adjusted debt/EBITDA is expected to be maintained above 4.5x (6.4x LTM Q2/20) and (CFO- dividends)/ adjusted debt is sustained below 5% (8.5% LTM Q2/20).

HudBay's ratings could be upgraded if its adjusted debt/EBITDA is sustained under 3.0x and (CFO- dividends)/ adjusted debt is sustained above 15% (8.5% LTM Q2/20).

The principal methodology used in these ratings was Mining published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Toronto, Ontario, Canada, HudBay Minerals, Inc. is a mining company mainly focused on copper through its Lalor mine in Manitoba, Canada and its Constancia mine in Peru. Revenues in 2019 totaled $1.2 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jamie Koutsoukis Vice President - Senior Analyst Corporate Finance Group Moody's Canada Inc. 70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Donald S. Carter, CFA MD - Corporate Finance Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Canada Inc. 70 York Street Suite 1400 Toronto, ON M5J 1S9 Canada JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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