HudBay proxy battle turning nasty as vote looms

By Cameron French

TORONTO, March 5 (Reuters) - The battle for control of HudBay Minerals (HBM.TO: Quote, Profile, Research, Stock Buzz) is turning nastier ahead of a March 25 shareholder vote that could oust the base metals miner's board and replace it with a slate led by former HudBay chief executive Peter Jones.

On a conference call on Thursday, the current CEO, Allen Palmiere, criticized the shareholder group leading the proxy battle, saying its intention was to give HudBay's $700 million cash pile back to shareholders and trigger a short-term rise in its shares.

He also criticized the performance of Jones, who left HudBay in January 2008 amid complaints he was not aggressive enough in making deals to expand the company.

Palmiere dismissed claims from the shareholder group, SRM Global Master Fund, that Jones' performance should be judged by the company's strong stock gains during his tenure.

"The reality is that he simply had the good fortune to be in charge of a highly leveraged mining company just before a dramatic rise in metals prices," Palmiere said.

While Jones may not have executed the big takeovers some were hoping for, it is Palmiere's deal-making that has become the focus of the battle.

Palmiere was roundly criticized for buying Skye Resources last year at the top of the market for its Fenix nickel project in Guatemala. After paying more than C$400 million ($312.5 million) for Skye, HudBay put Fenix on hold last year due to plunging nickel prices.

The proxy battle came about after HudBay launched a friendly C$800 million bid for Lundin Mining (LUN.TO: Quote, Profile, Research, Stock Buzz) in November.

HudBay's stock immediately fell after the deal was announced, while shareholders complained the deal would jeopardize HudBay's strong balance sheet and result in a massive dilution of its shares.

HudBay canceled the transaction last month after the Ontario Securities Commission ruled it had to seek approval from its shareholders to issue the 153 million shares it was going to use to buy Lundin.

In its proxy circular, filed on Wednesday, Monaco-based SRM said HudBay's current leadership had destroyed shareholder value through the transactions. SRM also said it is not trying to take control of HudBay.

"The current board must be replaced to stop them from destroying further shareholder value, one transaction at a time," SRM said in a statement.

Palmiere said many of the board nominees proposed by SRM lack experience, and said SRM has no strategic plans for HudBay apart from using the cash hoard to buy back shares, which would cripple HudBay's future growth.

($1=$1.29 Canadian) (Reporting by Cameron French; Editing by Frank McGurty)

© Thomson Reuters 2008. All rights reserved. Users may download and print extracts of content from this website for their own personal and non-commercial use only. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters. Thomson Reuters and its logo are registered trademarks or trademarks of the Thomson Reuters group of companies around the world.