A Member of Pat McKeough’s Inner Circle recently asked for his advice on Hudbay Minerals, a diversified Americas-focused copper and precious metals miner that has just reported solid gold and copper production.
Pat likes the firm’s strong operational position as it delivers steady results from its recent acquisition which have also mitigated its geopolitical risks. He also likes the robust project pipeline. However, Pat notes the firm is vulnerable to commodity price volatility and cost pressures.
Hudbay Minerals Inc. (Symbol HBM on Toronto; www.hudbayminerals.com), is a Canadian mining company with properties in the U.S. and Peru as well as Canada. It mines and sells copper (approximately 62% of revenue), gold (27%), molybdenum (5%), zinc (4%) and silver (2%).
Hudbay’s three producing mines are the Constancia mine in Cusco (Peru), the Snow Lake operations in Manitoba, and the Copper Mountain mine in B.C.
The company’s development pipeline includes the Copper World project in Arizona, the Mason project in Nevada, the Llaguen project in La Libertad (Peru) and several expansion and exploration opportunities near its existing operations.
In June 2023, Hudbay completed the acquisition of Copper Mountain Mining Corp. (symbol CMMC on Toronto) for $439 million U.S. in stock. Copper Mountain’s flagship operation was the Copper Mountain mine in southern B.C. Hudbay now owns 75% of the operation. The remaining 25% belongs to Mitsubishi Materials of Japan.
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The acquisition created an Americas-focused copper miner with about 55% of its assets in North America and 45% in South America. Together, the two companies formed the third-largest copper producer in Canada.
As part of the acquisition, the Hudbay board now includes two seats for Copper Mountain representatives, and the Hudbay executive team includes select members from the Copper Mountain team.
Hudbay Minerals: Operational efficiencies lead to significant cost reductions
The company achieved solid consolidated copper production of 43,462 tonnes and gold production of 94,161 ounces in the quarter ended December 31, 2024. The company reported revenue of $584.9 million in the quarter, plus earnings of $0.18 a share (all figures except share price in U.S. dollars).
Going forward, Copper Mountain continues to be a good fit for Hudbay. The Copper Mountain mine struggled before Hudbay bought it with several operational issues. However, Hudbay’s Constancia mine in Peru is similar in many respects to Copper Mountain, and Hudbay continues to improve throughput and lower costs.
As well, Copper Mountain in Canada let Hudbay diversify away from its focus on the politically riskier country of Peru.
The merger also resulted in an annual operating savings of $30 million U.S. at Copper Mountain. That included a savings of $20 million U.S. from applying Hudbay efficiencies at the mine.
Recommendation in Pat’s Inner Circle: Hudbay Minerals Inc. is a buy for aggressive investors.
