Hudbay Minerals (HBM) 40-F2023 FY Annual report (Canada)

Management's Discussion and Analysis of

Results of Operations and Financial Condition

For the year ended

December 31, 2023

February 22, 2024

INTRODUCTION

This Management's Discussion and Analysis ("MD&A") dated February 22, 2024 is intended to supplement Hudbay Minerals Inc.'s audited consolidated financial statements and related notes for the year ended December 31, 2023 and 2022 (the "consolidated financial statements"). The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB").

References to "Hudbay", the "Company", "we", "us", "our" or similar terms refer to Hudbay Minerals Inc. and its direct and indirect subsidiaries as at December 31, 2023.

Readers should be aware that:

- This MD&A contains certain "forward-looking statements" and "forward-looking information" (collectively, "forward-looking information") that are subject to risk factors set out in a cautionary note contained in our MD&A.

- This MD&A includes an updated discussion of the risks associated with business integration and, in particular, the risks associated with integrating our 75% owned Copper Mountain mine into our operations and uncertainties related to its potential impact on our financial condition, financial performance and cash flows, and supplements the discussion of these risks in our most recent Annual Information Form ("AIF").

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

- We use a number of non-IFRS financial performance measures in our MD&A. Please see the discussion under the "Non-IFRS Financial Performance Measures" section herein.

- The technical and scientific information in this MD&A has been approved by qualified persons based on a variety of assumptions and estimates.

For a discussion of each of the above matters, readers are urged to review the "Financial Risk Management" and "Notes to Reader" sections beginning on page 79 of this MD&A.

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

All amounts are in US dollars unless otherwise noted.

OUR BUSINESS

We are a diversified mining company with long-life assets in North and South America. Our Constancia operations in Cusco (Peru) produce copper with gold, silver and molybdenum by-products. Our Snow Lake operations in Manitoba (Canada) produce gold with copper, zinc and silver by-products. Our Copper Mountain operations in British Columbia (Canada) produce copper with gold and silver by-products. We have a development pipeline that includes the Copper World project in Arizona and the Mason project in Nevada (United States), and our growth strategy is focused on the exploration, development, operation, and optimization of properties we already control, as well as other mineral assets we may acquire that fit our strategic criteria. We are governed by the Canada Business Corporations Act and our shares are listed under the symbol "HBM" on the Toronto Stock Exchange, New York Stock Exchange and Bolsa de Valores de Lima.

OUR PURPOSE

We care about our people, our communities and our planet. Hudbay provides the metals the world needs. We work sustainably, transform lives and create better futures for communities.

We transform lives: We invest in our employees, their families and local communities through long-term employment, local procurement and economic development to improve their quality of life and ensure the communities benefit from our presence.

We operate responsibly: From exploration to closure, we operate safely and responsibly, we welcome innovation and we strive to minimize our environmental footprint while following leading operating practices in all facets of mining.

We provide critical metals: We produce copper and other metals needed for everyday products and essential for applications to support the energy transition toward a more sustainable future.

OUR STRATEGY

Our mission is to create sustainable value and strong returns by leveraging our core strengths in community relations, focused exploration, mine development and efficient operations.

We believe that copper is the commodity with the best long-term supply/demand fundamentals and offers shareholders the greatest opportunity for sustained risk-adjusted returns. Copper is essential for achieving global climate change goals - it is one of the most heavily utilized metals in renewable energy systems and is the least carbon intensive. Through the discovery and successful development of economic mineral deposits, and through highly efficient low-cost operations to extract the metals, we believe sustainable value will be created for all stakeholders.

Hudbay's successful development, ramp-up and operation of the Constancia open-pit mine in Peru, our long history of underground mining and full life-cycle experience in northern Manitoba, and our track record of reserve expansion through effective exploration, and our organic pipeline of copper development projects including Copper World, Mason and Llaguen, provide us with a competitive advantage to deliver sustainable value relative to other mining companies of similar scale.

Over the past decade, we have built a world-class asset portfolio by executing a consistent long-term growth strategy focused on copper. We continuously work to generate strong free cash flow and optimize the value of our producing assets through exploration, brownfield expansion projects and efficient and safe operations. Furthermore, we intend to sustainably grow Hudbay through the exploration and development of our robust project pipeline, as well as through the acquisition of other properties that fit our stringent strategic criteria.

To ensure that any investment in our existing assets or acquisition of other mineral assets is consistent with our purpose and mission, we have established a number of criteria for evaluating these opportunities. The criteria include the following:

- Sustainability: We are focused on jurisdictions that support responsible mining activity. Our current geographic focus is on select investment grade countries in the Americas, with strong rule of law and respect for human rights consistent with our long-standing focus on environmental, social and governance ("ESG") principles;

- Copper Focus: We believe copper is the commodity with the best long-term supply/demand fundamentals. Global copper mine supply is challenged due to declining industry grades, limited exploration success and an insufficient pipeline of development-ready projects while demand will continue to increase through global decarbonization initiatives. We believe this long-term supply/demand gap will create opportunities for increased risk-adjusted returns. While our primary focus is on copper, we recognize and value the polymetallic nature of copper deposits and, in particular, the counter-cyclical nature of gold in our portfolio;

- Quality: We are focused on investing in long-life, low-cost, expandable, high-quality assets that can capture peak pricing of multiple commodity price cycles and can generate free cash flow through the troughs of price cycles;

- Potential: We consider the full spectrum of acquisition and investment opportunities, from early-stage exploration to producing assets, that offer significant incremental potential for exploration, development, expansion and optimization beyond the stated resources and mine plan;

- Process: We develop a clear understanding of how an investment or acquisition can create value through our robust due diligence and capital allocation process that applies our technical, social, operational and project execution expertise;

- Operatorship: We believe value is created through leveraging Hudbay's competitive advantages in safe and efficient operations and effective exploration and project development and community relations. While operatorship is a key criterion, we are open to joint ventures and partnerships that de-risk our portfolio and increase risk-adjusted returns; and

- Capital Allocation: We pursue investments and acquisitions that are accretive to Hudbay on a per share basis. Given that our strategic focus includes allocating capital to assets at various stages of development, when evaluating accretion, we will consider measures such as internal rate of return ("IRR"), return on invested capital ("ROIC"), net asset value per share and the contained value of reserves and resources per share.

Our key objectives for 2024 are to:

- Enhance Hudbay's position to deliver its leading copper growth pipeline;

- Deliver copper production growth and maintain strong gold production from diversified operating platform to generate strong cash flow;

- Execute stabilization plan at Copper Mountain to drive improved operating performance and achieve operating synergies;

- Maintain continued focus on financial discipline as we progress towards achieving deleveraging targets by managing discretionary spending and generating strong returns on invested capital;

- Evaluate the viability of an additional mining phase at Constancia that could convert a portion of mineral resources to mineral reserves;

- Evaluate opportunities to utilize excess capacity at the Stall mill in Snow Lake to enhance production and achieve greater economies of scale;

- Progress de-risking of the Copper World project through final state permitting activities and a potential joint venture partnership to prudently advance the three pre-requisites plan required for sanctioning;

- Execute the large exploration program on the expanded land package in Snow Lake to target new discoveries;

- Advance plans to drill the prospective Maria Reyna and Caballito properties near Constancia;

- Assess economic viability of various metallurgical technologies for the reprocessing of Flin Flon tailings;

- Advance exploration partnership with Marubeni to explore for new discoveries within trucking distance of the Flin Flon processing facilities;

- Continue to identify and evaluate opportunities to further reduce greenhouse gas emissions in alignment with our climate change commitments and global decarbonization goals;

- Assess growth opportunities that meet our stringent strategic criteria and allocate capital to pursue those opportunities that create sustainable value for the company and our stakeholders; and

- As always, continue to operate safely and sustainably, aligned with our company purpose to ensure that our activities have a positive impact on our people, our communities and our planet.

SUMMARY

Delivering Record Fourth Quarter and Full Year Operating and Financial Results

- Achieved record quarterly and annual revenue of $602.2 million and $1,690.0 million, respectively, with strong consolidated copper production of 45,450 tonnes and record consolidated gold production of 112,776 ounces in the fourth quarter from continued higher grades at the Pampacancha deposit in Peru and the Lalor mine in Manitoba and the contributions of the newly acquired Copper Mountain mine in British Columbia.

- Delivered a significant increase in operating cash flow before change in non-cash working capital of $246.5 million in the fourth quarter, a 35% increase compared to $182.0 million in the third quarter, which was meaningfully higher than prior quarters.

- Achieved 2023 consolidated production guidance for all metals. Full year 2023 copper production of 131,691 tonnes, gold production of 310,429 ounces and silver production of 3,575,234 ounces increased by 26%, 41% and 13%, respectively, compared to 2022.

- Consolidated 2023 cash cost and sustaining cash cost per pound of copper produced, net of by-product credits¹ were better than expected and significantly outperformed the 2023 guidance range. Full year 2023 consolidated cash cost and sustaining cash cost per pound of copper produced, net of by-product credits¹, were $0.80 and $1.72, respectively, increasing by 7% and 17%, respectively, compared to 2022.

- Consolidated cash cost¹ and sustaining cash cost¹ per pound of copper produced, net of by-product credits¹, in the fourth quarter, were $0.16 and $1.09, respectively, improving by 85% and 42%, respectively, compared to the third quarter of 2023.

- Peru operations benefited from continued higher grades at the Pampacancha satellite pit, resulting in 33,207 tonnes of copper production and 49,418 ounces of gold production in the fourth quarter. Full year copper production was within 2023 guidance ranges while gold production exceeded the top end of guidance. Peru cash cost per pound of copper produced, net of by-product credits¹, in the fourth quarter improved to $0.54, and full year cash costs significantly improved over 2022 levels and achieved the low end of the 2023 annual cost guidance range.

- Manitoba operations produced 59,863 ounces of gold in the fourth quarter, a quarterly record as higher gold and copper grade zones were mined at Lalor and the New Britannia mill processed significantly higher amounts of gold ore. Full year gold production was well within the 2023 guidance range and exceeded recent expectations of being positioned at the lower end of the range. Manitoba cash cost per ounce of gold produced, net of by-product credits¹, was $434 during the fourth quarter and full year cash costs were within the 2023 annual guidance range.

- British Columbia operations produced 8,508 tonnes of copper at a cash cost per pound of copper produced, net of by-product credits¹, of $2.67 in the fourth quarter. Full year production and cash costs were within Hudbay's post-acquisition guidance ranges. Operational stabilization plans continue to be implemented at the Copper Mountain mine with a focus on opening additional mining faces, optimizing ore feed to the plant and improving plant reliability.

- Fourth quarter net earnings and earnings per share were $33.5 million and $0.10, respectively. After adjusting for a non-cash loss of $34.0 million related to a quarterly revaluation of our closed site environmental reclamation provision and a non-cash revaluation loss of $9.0 million related to the gold prepayment liability, among other items, fourth quarter adjusted earnings¹ per share were $0.20.

- Cash and cash equivalents increased by $4.6 million to $249.8 million during the fourth quarter due to strong operating cash flows bolstered by higher copper and gold prices and sales volumes enabling a $94.5 million reduction in net debt¹ during the quarter.

Strong Operating Performance Driving Free Cash Flow Generation with Continued Financial Discipline

- Executed on planned higher production levels and achieved continued operating and capital cost efficiencies to generate significant free cash flow in the fourth quarter.

- Achieved record quarterly revenue of $602.2 million. Achieved adjusted EBITDA¹ of $274.4 million in the fourth quarter, the highest quarterly level over the last five years and a 44% increase from the previous recent high in the third quarter of 2023.

- Completed $90 million in debt repayments during the fourth quarter with a $30 million net reduction of our revolving credit facility balance and a $59.7 million redemption of the remaining Copper Mountain bonds, well ahead of the 2026 maturity to increase financial flexibility and lower financing costs. Deleveraging efforts continued into the first quarter of 2024 with an additional $10 million repayment of our revolving credit facility balance in January 2024.

- Increased cash and total liquidity by $34.1 million to $573.7 million compared to the end of the third quarter of 2023. Net debt¹ reduced to $1,037.7 million during the fourth quarter, which together with higher levels of adjusted EBITDA improved our net debt to adjusted EBITDA ratio¹ to 1.6x compared to 2.0x at the end of 2022.

- Delivered annual discretionary spending reduction targets for 2023 with lower growth capital and exploration expenditures compared to 2022. As a result of a continued focus on discretionary spending reductions, total capital expenditures for 2023 (excluding Copper Mountain) of approximately $243 million were $57 million lower than original guidance levels, a further decrease from the $30 million in reductions announced in the third quarter.

Executing on Growth Initiatives

- Post-acquisition plans to stabilize the Copper Mountain operations are underway with a focus on mining fleet ramp-up activities, accelerated stripping and increasing mill reliability. Achieved the targeted $10 million in annualized corporate synergies as of January 2024.

- Released a NI 43-101 technical report for the Copper Mountain mine in December 2023, which contemplates average annual copper production of 46,500 tonnes in the first five years, 45,000 tonnes in the first ten years and 37,000 tonnes over the 21-year mine life. Average cash costs and sustaining cash costs per pound of copper produced, net of by-product credits¹ over the mine life are expected to be $1.84 and $2.53, respectively. Several opportunities to further increase production, improve costs and extend mine life are being evaluated for future mine plans.

- Achieved record copper recoveries of 87.4% at the Constancia mill in the fourth quarter of 2023 as a result of the successful completion of the recovery improvement program in the second quarter, on time and on budget.

- Achieved higher copper recoveries above 90% and gold recoveries above 65% at the Stall mill in the second half of 2023 because of the successful ramp up of the Stall mill recovery improvement project in the second quarter, on time and on budget.

- The New Britannia mill achieved record throughput levels averaging 1,650 tonnes per day in 2023 and 1,800 tonnes per day in the fourth quarter, exceeding its original design capacity of 1,500 tonnes per day due to the successful implementation of process improvement initiatives.

- Commenced largest annual exploration program in Snow Lake consisting of geophysical surveys and drill campaigns testing the newly acquired Cook Lake claims, former Rockcliff properties and near-mine exploration at Lalor.

- Advancing a development and exploration drift at the 1901 deposit in Snow Lake, located within 1,000 metres from the underground ramp access to the Lalor mine, with a focus on confirming the optimal mining method for the base metal and gold lenses and converting the inferred mineral resources in the gold lenses to mineral reserves.

- Continuing to evaluate the Flin Flon tailings reprocessing opportunity through advancing metallurgical test work studies and analyzing metallurgical technologies.

2024 Annual Guidance and Outlook

- Consolidated copper production is forecast to increase by 19% to 156,500 tonnes in 2024, compared to 2023, with continued higher grades in Peru and a full year of British Columbia production.

- Consolidated gold production is forecast to decrease slightly to 291,000 ounces in 2024, compared to 2023, due to higher than planned gold grades being mined in Peru in the fourth quarter of 2023 and deferral of high grade gold zones in Peru to 2025. Total gold production in Peru over the 2023 to 2025 period is expected to be higher than previous guidance levels.

- Consolidated cash cost, net of by-product credits, in 2024 is expected to be within a range of $1.05 and $1.25 per pound of copper, higher than 2023 as a result of lower gold by-product credits and a full year of contributions from British Columbia.

- Total capital expenditures are expected to be $335 million in 2024, reflecting lower expenditures in Peru, Manitoba and Arizona, offset by higher expenditures in British Columbia associated with accelerated stripping to access higher grades and a reclassification of costs from operating to capitalized stripping versus the recent technical report.

- Exploration expenditures are expected to increase in 2024 as we execute our largest-ever exploration program in the Snow Lake region, which is being partially funded by a critical minerals premium flow-through financing that was completed in the fourth quarter.

- Continued focus on reducing discretionary spending in 2024 with total growth capital expenditures 23% lower than 2023.

Summary of Fourth Quarter Results

Cash generated from operating activities in the fourth quarter of 2023 increased to $229.1 million compared to $86.4 million in the same quarter of 2022. Operating cash flow before change in non-cash working capital during the fourth quarter of 2023 was a record $246.5 million, reflecting an increase of $137.4 million compared to the same period of 2022. The increase in operating cash flow before change in non-cash working capital was primarily the result of higher copper and gold sales volumes from mining the high copper and gold grade zones of the Pampacancha deposit and higher gold and copper grade zones at Lalor, higher copper and gold prices, as well as an incremental contribution from our recently acquired Copper Mountain mine.

The operating results in the fourth quarter of 2023 included a full quarter of production from the recently acquired Copper Mountain mine. Consolidated copper, gold and silver production in the fourth quarter of 2023 increased by 55%, 109% and 51%, respectively, compared to the same period in 2022 primarily due to meaningfully higher recoveries in Peru and Manitoba, mining of the high copper and gold grade zones at the Pampacancha deposit, higher gold and copper grade zones at Lalor and incremental production from our Copper Mountain mine. Consolidated zinc production in the fourth quarter of 2023 decreased by 9% primarily due to lower throughput and lower planned zinc grades.

Net earnings and earnings per share in the fourth quarter of 2023 were $33.5 million and $0.10, respectively, compared to net loss and loss per share of $17.4 million and $0.07, respectively, in the fourth quarter of 2022. The results were positively impacted by higher copper, gold and silver sales volumes as well as higher copper, gold and silver realized prices. This was partially offset by a non-cash loss of $34.0 million related to the quarterly revaluation of the environmental reclamation provision at our closed sites and a non-cash revaluation loss of $9.0 million related to the gold prepayment liability.

Adjusted net earnings¹ and adjusted net earnings per share¹ in the fourth quarter of 2023 were $71.3 million and $0.20 per share, respectively, after adjusting for the non-cash loss related to the revaluation of our environmental provision and the revaluation loss on the gold prepayment liability, among other items. This compares to adjusted net earnings and adjusted net earnings per share of $2.6 million, and $0.01 in the same period of 2022. Fourth quarter adjusted EBITDA¹ was $274.4 million, compared to $124.7 million in the same period in 2022.

In the fourth quarter of 2023, consolidated cash cost per pound of copper produced, net of by-product credits¹, was $0.16, compared to $1.08 in the same period in 2022. This decrease was mainly the result of higher copper production and significantly higher by-product credits, partially offset by higher mining, milling and G&A costs from incorporating Copper Mountain. Consolidated sustaining cash cost per pound of copper produced, net of by-product credits¹, was $1.09 in the fourth quarter of 2023 compared to $2.21 in the same period in 2022. This decrease was primarily due to the same reasons outlined above partially offset by higher cash sustaining capital expenditures.

Consolidated all-in sustaining cash cost per pound of copper produced, net of by-product credits¹, was $1.31 in the fourth quarter of 2023, lower than $2.41 in the same period in 2022, due to the same reasons outlined above as well as lower corporate selling and administrative expenses.

As at December 31, 2023, total liquidity increased to $573.7 million, including $249.8 million in cash and cash equivalents as well as undrawn availability of $323.9 million under our revolving credit facilities. We redeemed, in full, the remaining $59.7 million of outstanding Copper Mountain bonds and reduced the net balance drawn under the revolving credit facilities by $30 million. Our net debt declined by $94.5 million during the quarter to $1,037.7 million as at December 31, 2023. Based on continued free cash flow generation in the fourth quarter of 2023, we continue to expect to make progress on our deleveraging targets as outlined in our "3-P" plan for sanctioning Copper World. Current liquidity combined with cash flow from operations is expected to be sufficient to meet our liquidity needs for the foreseeable future.

Summary of Full Year Results

We have achieved our 2023 consolidated production guidance for all metals. On a business unit stand-alone basis, Peru exceeded the top end of the gold production guidance range, Manitoba exceeded the top end of the copper production guidance range, while Copper Mountain exceeded the top end of the silver production guidance range for the portion of 2023 since acquisition.

Cash generated from operating activities decreased to $476.9 million in 2023 from $487.8 million. Operating cash flow before change in non-cash working capital increased to $570.0 million from $391.7 million in 2022. The increase in operating cash flow before change in non-cash working capital was primarily the result of higher copper and gold sales volumes and higher gold prices, partially offset by lower zinc sales volumes, lower copper and zinc metal prices and higher treatment and refining charges. Zinc sales volumes were lower than the prior year due to the planned closure of the 777 mine in June 2022.

Consolidated copper, gold and silver production for the full year 2023 increased by 26%, 41% and 13%, respectively, compared to the same period in 2022 primarily due to the acquisition of Copper Mountain in June 2023 as well as higher throughput in Peru and Manitoba, higher overall copper, gold and silver grades and higher gold and silver recoveries.

Net earnings and earnings per share for 2023 were $69.5 million and $0.22, respectively, compared to net earnings and earnings per share of $70.4 million and $0.27, respectively, in 2022. The prior period results were positively impacted by a non-cash $133.5 million revaluation gain of our Flin Flon environmental reclamation provision, partially offset by a $95.0 million pre-tax impairment loss related to the previous stand-alone development plan for the Rosemont deposit. Full year 2023 net earnings were negatively impacted by $21.4 million in non-cash mark-to-market losses arising from the revaluation of the gold prepayment liability, investments and share-based compensation, partially offset a by non-cash gain of $11.4 million primarily related to the revaluation of our Flin Flon environmental reclamation provision. Full year 2023 adjusted EBITDAⁱ was $647.8 million, an increase of 36% compared to $475.9 million in 2022.

Consolidated cash cost per pound of copper produced, net of by-product credits¹, was $0.80 in 2023, compared to $0.86 in 2022 and achieved the low end of our 2023 annual cost guidance range. This decrease was mainly the result of higher copper production and higher by-product credits, partially offset by higher mining and milling costs from incorporating Copper Mountain. Consolidated sustaining cash cost per pound of copper produced, net of by-product credits¹, was $1.72 in 2023, compared to $2.07 in 2022, outperforming 2023 guidance expectations. This decrease was primarily due to the same reasons outlined above and lower cash sustaining capital expenditures.

Consolidated all-in sustaining cash cost per pound of copper produced, net of by-product credits¹, was $1.92 in 2023, lower than $2.26 in 2022, due to the same reasons outlined above partially offset by higher corporate selling and administrative expenses.

* British Columbia production in Q2 2023 represents a 10-day stub period of production following the June 20, 2023 transaction closing date.

*British Columbia production is not included in the prior year comparative results.

¹ Adjusted net earnings (loss) and adjusted net earnings (loss) per share, adjusted EBITDA, cash cost, sustaining cash cost, all-in sustaining cash cost per pound of copper produced, net of by-product credits, cash cost, sustaining cash cost per ounce of gold produced, net of by-product credits, combined unit cost, net debt and net debt to adjusted EBITDA ratio are non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A.

KEY FINANCIAL RESULTS

KEY PRODUCTION RESULTS

KEY COST RESULTS

RECENT DEVELOPMENTS

Advancing Copper Mountain Mine Stabilization Plans

Since completing the acquisition of Copper Mountain on June 20, 2023, we have been focused on advancing our stabilization plans, including opening up the mine by adding additional mining faces and re-mobilizing idle haul trucks, optimizing the ore feed to the plant and implementing plant improvement initiatives.

On December 5, 2023, we released our first NI 43-101 technical report in respect of our 75%-owned Copper Mountain mine. As detailed in the technical report, the mine plan contemplates average annual copper production of 46,500 tonnes in the first five years, 45,000 tonnes in the first ten years and 37,000 tonnes over the 21-year mine life. Average cash costs and sustaining cash costs per pound of copper produced, net of by-product credits,¹ over the mine life are expect to be $1.84 and $2.53, respectively. The updated mine plan represents an approximate 90% increase in average annual copper production and an approximate 50% decrease in cash costs over the first 10 years compared to 2022.

Hudbay's stabilization plans are focused on improving reliability and driving sustainable long-term value:

• Increased mining activities - Commenced a fleet ramp-up plan to remobilize idle haul trucks. The plan entails remobilization of the mining fleet from 14 trucks to 28 trucks, by the end of 2023. A fully trained complement of truck drivers is expected to be in place in the first half of 2024. Once the fleet ramp up plan is complete, we expect to have improved flexibility in the Copper Mountain mine with additional mining faces.

• Accelerated stripping to access higher grades - We have commenced a campaign of accelerated stripping over the next three years to enable access to higher grade ore and to mitigate the substantially reduced stripping undertaken by Copper Mountain over the four years prior to completion of the acquisition. The accelerated stripping program is expected to improve operating efficiencies and lower unit operating costs.

• Improved mill throughput and recoveries - Our mine plan assumes a mill ramp up to its nominal capacity of 45,000 tonnes per day in 2025. An expansion to the permitted capacity of 50,000 tonnes per day is planned in 2027. The mine plan assumes approximately $23 million in growth capital spending over 2025 and 2026 in connection with the mill expansion. We intend to improve mill recoveries with a more consistent ore feed grade, changes to the flotation reagents and replacement of key pumps.

• Operating efficiencies and corporate synergies - Our stabilization plans are expected to generate more than $20 million in annual operating efficiencies over the next three years, compared to Copper Mountain's performance in 2022, through improvements in copper recovery, higher throughput rates and lower combined unit operating costs. In addition, we have realized the targeted $10 million in annual corporate synergies and is on track to exceed the target.

• Ensure stabilization of near-term cash flows - Recently entered into copper hedging contracts representing approximately 25% of expected Copper Mountain production in 2024 as a prudent measure to secure cash flows during the stabilization period.

The mine plan is based on a revised resource model and was constructed using consistent methods applied at the Constancia, Copper World and Mason deposits. The mineral reserve estimates total 367 million tonnes at a copper grade of 0.25% and a gold grade of 0.12 grams per tonne, supporting a 21-year mine life. An additional 140 million tonnes of measured and indicated resources at 0.21% copper and 0.10 grams per tonne gold and 370 million tonnes of inferred resources at 0.25% copper and 0.13 grams per tonne gold, exclusive of mineral reserves, provide significant upside potential for reserve conversion and extending mine life. Infill drilling is planned for 2024 to target reserve conversion.

There are several opportunities to further increase production, improve costs and extend mine life for Copper Mountain. While these opportunities have not been considered in the technical report as they are not yet at the level of required engineering, we are advancing studies to evaluate the potential for these to be reflected in future mine plans.

Please see "Qualified Person and NI 43-101" for further details regarding the technical and scientific information included in the technical report.

Delivered Brownfield Capital Projects On Time and On Budget

The Constancia mill achieved record copper recoveries of 87.4% in the fourth quarter primarily as a result of the successful completion of the recovery improvement program in the second quarter of 2023, as planned, ahead of the start of significantly higher grades being mined from the Pampacancha pit in the second half of 2023. The program scope was to increase copper recoveries by 2% by increasing the rougher mass, and the mill continues to achieve the targeted higher copper recoveries.

After the commissioning of the Stall mill recovery improvement project in the second quarter of 2023, subsequent optimization activities proved highly effective, resulting in notably higher recoveries for copper above 90% and gold above 65% in the second half of 2023. Specifically, the Stall mill achieved its targeted gold recovery levels of 67.5% in the third and fourth quarters, compared to 60% in the second quarter.

The total growth capital expenditures in 2023 associated with the completion of these recovery improvement projects were in line with our guidance of $25 million.

The New Britannia mill has consistently achieved higher throughput levels, averaging 1,650 tonnes per day in 2023 and approximately 1,800 tonnes per day in the fourth quarter, significantly exceeding its original design capacity of 1,500 tonnes per day. We have successfully implemented process improvement initiatives that required minimal capital outlays as we pursue higher output that aligns with increased gold production from the Lalor mine.

Generating Free Cash Flow with Increased Production and Continued Financial Discipline

We delivered a second successive quarter of positive free cash flow during the fourth quarter of 2023 as we executed our plan for higher copper and gold production from Pampacancha and higher gold production at Lalor, both driven by higher grades. We continue to expect to see strong production levels throughout 2024 from sustained higher grades in Peru and Manitoba, along with additional production from the recently acquired Copper Mountain mine.

During the fourth quarter, we completed $30 million in net repayments on our revolving credit facilities and redeemed, in full, the remaining $59.7 million of Copper Mountain's bonds from our treasury. We also recommenced deliveries under the gold forward sale and prepay agreement in October 2023, further reducing our outstanding gold prepayment liability, and are scheduled to fully repay the gold prepay facility by August 2024. Despite these debt repayments, we increased our cash and cash equivalents to $249.8 million and reduced our overall net debt to $1,037.7 million as at December 31, 2023, compared to $245.2 million and $1,132.2 million, respectively, as at September 30, 2023. The $94.5 million decline in net debt, together with higher levels of adjusted EBITDA¹ in the fourth quarter, have improved our net debt to adjusted EBITDA ratio² to 1.6x compared to 2.0x at the end of 2022. Subsequent to quarter-end, we continued our deleveraging efforts with an additional $10 million repayment on our revolving credit facilities.

During the fourth quarter, we continued to take steps to ensure free cash flow generation and continued financial discipline into 2024 and 2025. To this end, we entered into forward sales contracts at Copper Mountain for a total of 3,600 tonnes of 2024 copper production over the twelve-month period from May 2024 to April 2025 at an average price of $3.93 per pound as well as a zero-cost collars for 6,000 tonnes of copper production over the twelve-month period from May 2024 to April 2025 at an average floor price of $3.83 per pound and an average cap price of $4.03 per pound. As at December 31, 2023, 7.9 million pounds of copper forwards and 13.2 million pounds of copper collars were outstanding.

We successfully delivered on our annual discretionary spending reduction targets for 2023. As a result of continued financial discipline and capital cost efficiencies achieved, total capital expenditures of approximately $243 million for Peru, Manitoba and Arizona in 2023 were approximately $57 million lower than the original guidance levels, a further decrease from the $30 million reduction announced in the third quarter, representing a 19% reduction from the original 2023 total capital expenditure guidance of $300 million.

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² Net Debt to EBITDA ratio is a non-IFRS financial performance measures with no standardized definition under IFRS. For further information and a detailed reconciliation, please see the discussion under the "Non-IFRS Financial Performance Measures" section of this MD&A. "

Senior Management Team Appointments

In November 2023, Hudbay promoted Luis Santivañez to Vice President, South America. Mr. Santivañez joined Hudbay in Peru in 2018 and was promoted to General Manager of the South America operations in 2022. Mr. Santivañez has over 20 years of experience at global mining companies working across Peru, Central America and Australia. Under his leadership, the Constancia operations have delivered a successful ramp up at Pampacancha, navigated through a period of politically-driven social unrest in Peru and further enhanced our partnerships with the local communities.

In January 2024, Hudbay appointed John Ritter as Vice President, British Columbia Business Unit. Mr. Ritter brings a diverse background with over 30 years of experience in technical, operational and senior leadership roles at global mining companies. He was most recently the General Manager of the New Afton mine in British Columbia and has strong ties with the local community near the Copper Mountain mine. His focus on operational excellence and value-creating improvements will be instrumental as he leads the stabilization and optimization plans at the Copper Mountain mine.

Advancing Permitting at Copper World

The first key state permit required for Copper World, the Mined Land Reclamation Plan, was initially approved by the Arizona State Mine Inspector in October 2021 and was subsequently amended to reflect a larger private land project footprint. This approval was challenged in state court, but the challenge was dismissed in May 2023 as having no basis. In late 2022, Hudbay submitted the applications for an Aquifer Protection Permit and an Air Quality Permit to the Arizona Department of Environmental Quality. We expect to receive these two outstanding state permits in 2024.

We intend to initiate a minority joint venture process prior to commencing a definitive feasibility study, which will allow the joint venture partner to participate in the final Copper World project design and the funding of definitive feasibility study activities. The opportunity to sanction Copper World is not expected until late 2025 based on current estimated timelines. The decision to sanction Copper World will ultimately be evaluated against other competing investment opportunities as part of Hudbay's capital allocation process.

We released results of the de-risked and enhanced Copper World pre-feasibility study for Phase I in September 2023, which demonstrated a simplified mine plan with an extended 20-year mine life requiring only state and local permits, an after-tax net present value (8%) of $1.1 billion and a 19% internal rate of return at a copper price of $3.75 per pound. Average annual copper production over the first ten years is expected to be approximately 92,000 tonnes at cash costs and sustaining cash costs per pound of copper¹ of $1.53 and $1.95, respectively. Copper World is one of the highest-grade open pit copper projects in the Americas with proven and probable mineral reserves of 385 million tonnes at 0.54% copper.

Snow Lake Exploration

We continue to compile results from ongoing infill drilling at Lalor, which will be incorporated into the next annual mineral reserve and resource estimate update expected to be announced in March 2024.

The planned 2024 exploration program is our largest Snow Lake program in Hudbay's history and it is currently underway with plans to continue testing the deep extensions of the gold and copper zones at Lalor and complete follow up drilling at the Lalor Northwest target. The 2024 program will also explore the newly acquired Cook Lake claims and the former Rockcliff claims located within trucking distance of the existing Snow Lake processing infrastructure. As previously disclosed, both the Cook Lake and former Rockcliff claims were acquired by the company as part of transactions completed in 2023.  A majority of the Cook Lake and former Rockcliff claims have been untested by modern deep geophysics, which was the discovery method for the Lalor deposit. Our 2024 exploration program includes a large geophysics program consisting of surface electromagnetic surveys using cutting-edge techniques that enable the team to detect targets at depths of almost 1,000 metres below surface. The company is exploring its newly expanded land package in hopes of finding a new anchor deposit to maximize and extend the life of the Snow Lake operations beyond 2038.

We also expect to advance a development and exploration drift at the 1901 deposit located within 1,000 metres of the haulage ramp to Lalor. The program is expected to take place over 2024 and 2025 with the development of an access drift, drill platforms and diamond drilling to further confirm the optimal mining method to extract the base metal and gold lenses and to convert the inferred mineral resources in the gold lenses to mineral reserves.

Advancing Metallurgical Test Work for the Flin Flon Tailings Reprocessing Opportunity

We identified the opportunity to reprocess Flin Flon tailings, with initial confirmatory drilling completed in 2022 indicating higher zinc, copper and silver grades than predicted from historical mill records while confirming the historical gold grade.

In 2023, we advanced metallurgical test work and evaluated metallurgical technologies, including the signing of a test work co-operation agreement with Cobalt Blue Holdings ("COB") examining the use of COB technology to treat Flin Flon tailings. Initial results from preliminary roasting test work were encouraging in converting more than 90% of pyrite into pyrrhotite and elemental sulphur. Final test work results will support the development of an overall flowsheet. We expect to continue these metallurgical activities throughout 2024 as we assess the economic viability of the various metallurgical technologies.

Peru Exploration Update

We continue to execute a limited drill program and technical evaluations at the Constancia deposit to confirm the economic viability of adding an additional mining phase to the current mine plan that would convert a portion of the mineral resources to mineral reserves. The results from this drill program and technical and economic evaluations are expected to be incorporated in the annual mineral reserve and resource estimate update in March 2024.

We control a large, contiguous block of mineral rights with the potential to host satellite mineral deposits in close proximity to the Constancia processing facility, including the past producing Caballito property and the highly prospective Maria Reyna property. We commenced early exploration activities at Maria Reyna and Caballito after completing a surface rights exploration agreement with the community of Uchucarcco in August 2022. A drill permit application was submitted for the Maria Reyna property in November 2023, and a similar application for the Caballito property is planned for the first half of 2024. In parallel, we continue to advance community engagement activities. Surface mapping and geochemical sampling confirm that both Caballito and Maria Reyna host sulfide and oxide rich copper mineralization in skarns, hydrothermal breccias and large porphyry intrusive bodies.

Dividend Declared

A semi-annual dividend of C$0.01 per share was declared on February 22, 2024. The dividend will be paid out on March 22, 2024 to shareholders of record as of March 5, 2024.

CLIMATE CHANGE INITIATIVES

Progressing Towards Climate Change Commitments

In December 2022, we announced our commitment to achieve net zero greenhouse gas ("GHG") emissions by 2050 and the adoption of interim 2030 GHG reduction targets to support this commitment. While our operations are well-positioned in the lower half of the global GHG emissions curve for copper operations, we recognize our role in mitigating climate change. We also recognize that copper and the metals Hudbay produces play an important role in the world's transition to a greener future. Hudbay's GHG emissions reduction plan includes pursuing a 50% reduction in absolute Scope 1 and Scope 2 emissions from existing operations by 2030 and achieving net zero total emissions by 2050.

In 2023, we made significant progress towards its climate change goals, including:

• Peru Renewable Power Supply Agreement - During the first quarter of 2023, Hudbay signed a new 10-year power purchase agreement with ENGIE Energía Perú for access to a 100% renewable energy supply to Constancia. The agreement will come into effect in January 2026 following the conclusion of Constancia's existing power supply agreement. Total Scope 1 and Scope 2 GHG emissions company-wide at our current operations are expected to decline by 40% during the life of the contract, positioning us well to achieve our 50% reduction target by 2030.

• Electric Shovel at Copper Mountain - In September 2023, Hudbay commissioned a new Komatsu PC8000 electric shovel at the Copper Mountain mine, which reduces carbon intensity by displacing existing diesel shovel production.

• Renewable Diesel at Copper Mountain - In 2023, Hudbay tested the use of renewable diesel in two of our non-trolley assist haul trucks at Copper Mountain in an effort to further reduce GHG emissions. The test results were promising and we subsequently entered into renewable diesel contracts for approximately 80% of the expected fuel to be purchased in 2024.

• Electric Scooptram at Lalor - In the first quarter of 2023, Hudbay initiated the trial of an electric Epiroc scooptram ST14 SG at the Lalor mine, which reduces carbon intensity by lowering emissions and reduces the temperature in the lower areas of the mine to improve ventilation. The trial was successful and, in the third quarter, a second electric scooptram was added to the fleet.

PERU OPERATIONS REVIEW

Ore mined from Pampacancha during the fourth quarter increased 47% to 5.6 million tonnes compared to the same period in 2022 at average grades of 0.56% copper and 0.32 grams per tonne gold. Total ore mined in the fourth quarter of 2023 decreased by 30% compared to the same period in 2022 primarily due to phase 5 stripping activities at Constancia and a significant increase in Pampacancha mining activity which entails a higher amount of stripping. The decrease in total mined ore was in line with our mine plan and similar to the third quarter and, as such, mill feed continued to be supplemented with ore from stockpiles during the quarter.

Ore milled during the fourth quarter of 2023 was 2% higher than the same period in 2022 mainly due to treatment of softer ore from stockpiles. Milled copper and gold grades increased by 17% and 108%, respectively, in the fourth quarter of 2023 compared to the same period in 2022 due to a significant increase in the mining of higher copper and gold grade ore from Pampacancha. 

Recoveries of copper, gold and silver during the fourth quarter of 2023 were 3%, 11% and 17% higher, respectively, than the comparative 2022 period and were in line with our metallurgical models. The Constancia mill achieved record copper recoveries of 87.4% in the fourth quarter, primarily as a result of the successful completion of the recovery improvement program in the second quarter of 2023, as planned ahead of the start of significantly higher grades being mined from the Pampacancha pit in the second half of 2023.

Ore mined during 2023 was 30% lower than 2022 due to the same factors as the quarterly variance as well as increased stockpile processing early in 2023 to ration fuel during the protests and civil unrest experienced in Peru. Copper recoveries during the year ended December 31, 2023 were 1% lower than the same period in 2022 due to higher levels of contaminants in processed stockpile ore during in the first half of 2023. Gold and silver recoveries during the year ended December 31, 2023 were 13% and 7% higher, respectively, than in 2022 due to increased processing of higher grade Pampacancha ore. 

Combined mine, mill and G&A unit operating costs in the fourth quarter and full year 2023 were 10% and 2% lower, respectively, than the same periods in 2022 primarily due to higher capitalized stripping, partially offset by higher mining and G&A costs and the costs associated with the scheduled semi-annual plant maintenance shutdown in the fourth quarter.

Fourth quarter 2023 production of copper, gold and silver was 23%, 137% and 28% higher, respectively, than the comparative period in 2022 due to higher copper and precious metal grades, higher recoveries and higher throughput. Production of molybdenum in the fourth quarter of 2023 was 15% higher than the comparative prior year period due to higher ore grades and higher molybdenum plant throughput.

Full year 2023 production of copper, gold, silver and molybdenum was 12%, 96%, 8% and 14% higher, respectively, than 2022 for the same reasons outlined above in the quarterly variance analysis. Copper production was in line with our annual guidance range, whereas silver and molybdenum production were near the upper end of our annual guidance range and gold production exceeded the top end of our annual guidance range by 6%.

Peru Cash Cost and Sustaining Cash Cost

Cash cost per pound of copper produced, net of by-product credits, in the fourth quarter of 2023 was $0.54, a decrease of 60% compared to the same period in 2022 due to higher by-product credits mainly from gold, higher capitalized stripping, and increased copper produced. This was partially offset by higher profit sharing expenses and higher treatment, refining and freight costs. Cash cost per pound of copper produced, net of by-product credits, in 2023 was $1.07, and achieved the lower end of our 2023 cost guidance range due to the same factors noted above for the quarter.

Sustaining cash cost per pound of copper produced, net of by-product credits, for the fourth quarter and for the year ended 2023 were 42% and 23% lower, respectively, than the comparative 2022 periods primarily due to the same factors affecting cash cost noted above and lower sustaining capital expenditures. Total annual sustaining capital expenditures in Peru were $27.9 million lower than the original guidance levels of $160 million, exceeding the $10 million previously reduced target, primarily a result of lower capitalized stripping costs.

Metal Sold

Payable copper, gold and silver sales during the fourth quarter of 2023 were 31%, 152% and 71% higher, respectively, than the corresponding period in 2022 primarily due to higher grades from Pampacancha. Gold and silver sales did not increase in line with fourth quarter production due to a precious metal stream sale that was recognized in revenue shortly after the fourth quarter cutoff date. Payable gold and silver included in this sale was approximately 16 thousand ounces of gold and 309 thousand ounces of silver.

MANITOBA OPERATIONS REVIEW

In Manitoba, we continue to focus on improvement initiatives aimed at supporting higher production levels, minimizing dilution, and enhancing metal recoveries at our Snow Lake operations. A significant focus continues to be placed on improving the quality of ore production at Lalor mine, employing techniques such as stope redesigns, grade control practices prior to blasting, assaying blasthole cuttings and implementing mine design adjustments to mitigate dilution. These proactive measures have successfully reduced the inclusion of waste rock in the mining cycle and increased gold, copper, and silver grades during the fourth quarter.

Optimization of development drift size has led to a 15% reduction in waste volume and an 18% decrease in unit development costs in 2023 compared to 2022. Higher shaft availability has led to efficient ore hoisting and has eliminated the need for trucking ore to surface resulting in a 5% increase in tonnes hoisted in 2023 compared to 2022. Despite encountering some production challenges in deeper mining areas due to longer haul distances, smaller stope dimensions, and lower ore bulk density, our team is actively pursuing initiatives to continue to bolster efficiency and further enhance mucking productivity.

Additionally, we have advanced optimization initiatives at New Britannia mill to achieve higher throughput rates by prioritizing process improvements and seamlessly integrating additional gold ore feed from the Lalor mine. This reallocation of ore has led to reduced feed to Stall mill, prompting a careful evaluation of lower tonnage set points to optimize plant operations. We have also started exploring opportunities to share maintenance services with New Britannia during shutdown periods which, if successful, would reduce overall contractor requirements.

At Lalor, we achieved higher development advance rates during the fourth quarter compared to prior quarters of 2023. A comprehensive review of the long-range mine plan for zone 40 has led to significantly reduced future capital development needs by transitioning to a more selective mining method, thereby enhancing the reserve grade for this mining front.

Lalor ore mined during the fourth quarter, increased by 1% from the comparative 2022 period. Notably, copper, gold, silver and zinc grades mined during the fourth quarter of 2023 were 42%, 48%, 49% and 1% higher than the same period in 2022.

Total ore mined at our Manitoba operations in 2023 was 24% lower than in 2022 mainly due to the planned closure of the 777 mine in June 2022. However, total ore mined at Lalor in 2023 was 1% higher than in 2022. Gold, copper and silver grades mined at Lalor during 2023 were 19%, 18% and 12% higher than in 2022, reflecting the successful execution of our strategic mine plan. Zinc grades mined at Lalor for the full year 2023 were 4% lower compared to the same period in 2022, consistent with the mine plan. Total mine unit operating costs during the fourth quarter of 2023 increased by 5% compared to the same period in 2022, primarily attributed to a lower capital development allocation.

The Stall mill processed 12% more ore in the fourth quarter of 2023 than the corresponding period of 2022 as it drew down base metal ore stockpiles. After the commissioning of the Stall mill recovery improvement project in the second quarter of 2023, we have continued to focus on optimizing circuits to achieve targeted recoveries by reducing primary grind size, refining the flotation circuit balance and mass pull, and reagent selection. These adjustments have proven highly effective, resulting in notably higher recoveries for copper, gold and silver during the fourth quarter of 2023 compared to the same period in 2022. Specifically, the Stall mill achieved its targeted gold recovery levels of approximately 67.5% in the fourth quarter, compared to 62.4% in the fourth quarter of 2022. Compared to the same period in 2022, unit operating costs at the Stall mill were 3% lower during the fourth quarter of 2023 primarily due to higher throughput.

Process improvement initiatives at New Britannia have successfully been implemented with minimal capital outlays, enabling us to reach progressively higher production targets during the fourth quarter. The New Britannia mill averaged approximately 1,800 tonnes per day in the fourth quarter, approximately 13% above average levels in the third quarter of 2023. New Britannia unit operating costs decreased by 14% during the fourth quarter of 2023 versus the same period of 2022, primarily due to higher throughput.

Combined mine, mill and G&A unit operating costs in the fourth quarter of 2023 decreased by 11%, compared to the same period in 2022 reflecting higher throughput and a reduction of contractor usage at Lalor. Combined mine, mill and G&A unit operating costs for the full year 2023 were C$217 per tonne reflecting the standalone cost structure of the Snow Lake operations in 2023 after the closure of the Flin Flon operations in June 2022.

Manitoba operations produced a record 59,863 ounces of gold during the fourth quarter of 2023. Production of gold, copper, and silver in the fourth quarter of 2023 was higher by 81%, 65%, and 83%, respectively, while production of zinc was 9% lower than the comparative 2022 period due to mining of higher grade gold zones with a focus on higher quality ore production and generally higher recoveries at the New Britannia and Stall mills. Despite significantly higher metal production in the fourth quarter, 2023 production of copper and zinc was lower by 18% and 37%, respectively, than in 2022, mainly due to the loss of production from the closure of the 777 mine in June 2022 and lower comparative zinc grades. Production of gold in 2023 was 16% higher than in 2022 while silver production was unchanged year-over-year. The production of all metals achieved our 2023 production guidance, while copper exceeded the top end of our 2023 annual guidance range.

Manitoba Cash Cost and Sustaining Cash Cost

Cash cost per ounce of gold produced, net of by-product credits, has trended lower throughout 2023, averaging $434 in the fourth quarter. Cash costs were lower in the fourth quarter than the comparative 2022 period, primarily due to higher by-product credits and higher gold production, in accordance with the mine plan, offset by higher overall costs. Full year 2023 cash cost per ounce of gold produced, net of by-product credits, was $727 which was higher than 2022 costs primarily due to significantly lower by-product credits partially offset by lower overall costs due to the closure of the 777 mine in June 2022 and higher gold production. Our full year 2023 cash cost per ounce of gold produced, net of by-product credits, was within our annual guidance range.

Sustaining cash cost per ounce of gold produced, net of by-product credits, for the fourth quarter of 2023 was $788, a decrease of 56% from the comparative 2022 period primarily due to the same factors affecting cash cost noted above, and lower sustaining capital expenditures. Sustaining cash cost per ounce of gold produced, net of by-product credits, in 2023 was $1,077, a decrease of 1% from 2022, primarily due to the same factors affecting fourth quarter sustaining cash cost noted above.

Metal Sold

Due to significantly higher metal production during the quarter, as noted above, quantities of payable metal sold in the fourth quarter of 2023 were significantly higher than the comparable period in 2022. Payable metal sold in 2023 was generally lower than the comparable period in 2022 primarily due to the closure of the 777 mine in June 2022.

BRITISH COLUMBIA OPERATIONS REVIEW

During the fourth quarter of 2023, the British Columbia operations produced 9,119 tonnes of copper, 3,091 ounces of gold and 98,441 ounces of silver. Hudbay achieved the post-acquisition 2023 production guidance for copper and gold and exceeded the post-acquisition guidance for silver. 

Total ore mined at Copper Mountain in the fourth quarter of 2023 was 2.6 million tonnes, less than initially planned but production was supplemented with stockpile rehandle of 1.5 million tonnes. The mine operations team has initiated a fleet production ramp up plan to capture the full value of idle capital equipment at the Copper Mountain site. This plan entailed remobilization of the mining fleet from 14 trucks to 28 trucks by the end of 2023, allowing for increased waste removal during the fourth quarter. We continue to focus on hiring additional haul truck drivers and a fully trained complement of truck drivers are expected to be in place in the first half of 2024. The utilization of our full truck fleet enabled additional 2023 pre-stripping to access higher head grades.

Benefitting from stabilization initiatives within the comminution circuit, the mill processed 3.3 million tonnes of ore during the fourth quarter reflecting average mill availability of 86.7% and a 3% increase versus the third quarter of 2023. The initiatives included, but were not limited to, changes in screen sizes, a reduction in grinding media loading rates and a change in semi-autogenous grinding (SAG) mill operational strategy. The SAG mill throughput in the fourth quarter has been impacted by lower freshwater availability for processing, higher coarse feed from stockpiled ore and reduced reliability of the crushing circuit, driven principally by significant interruptions caused by the removal of scrap metal from the material handling system as the mining progresses through areas of historical underground workings.

Maintenance practices to improve mill availability continue to be a key pillar of our stabilization initiatives. These include the implementation of improved maintenance management processes planned for the first half of 2024 and a change in our maintenance organizational structure which was completed in the fourth quarter of 2023. Beyond maintenance practices, material handling and transportation in the comminution circuit, particularly in the winter months, have a significant impact on mill performance. Work has begun to analyze the trade-off among the various alternatives to further enhance mill performance.

Milled copper grades during the fourth quarter of 2023 averaged 0.33%, an 8% reduction from the third quarter, but were significantly higher than the reserve grade of 0.25%. Copper recoveries of 78.8% were lower than the third quarter of 2023 due to volumetric restriction in the regrind circuit limiting the rougher circuit performance. Following a period of investigation, changes to the flotation operational strategy that mirror our successful processes at Constancia were implemented, including reagent selection and dose modification, reactivation and reprogramming of expert controls and circuit configuration changes. The benefits of these operational strategy improvements are expected to start to be realized in the second half of 2024.

Combined mine, mill and G&A unit operating costs in the fourth quarter of 2023 were C$20.90 per tonne milled, 16% below the third quarter. Combined unit operating costs are expected to decrease over time as we continue to implement our stabilization and optimization initiatives at Copper Mountain.