ANDY HOFFMAN

15:54 EDT Monday, March 23, 2009

A slate of directors put forward by dissident shareholders of HudBay Minerals Inc. are poised to seize control of the mining company after the incumbent board failed to win enough support in a bitter proxy battle.

HudBay's current board of directors is expected to concede defeat to a group of directors nominated by the company's largest shareholder, Monaco-based hedge fund SRM Global Master Fund LP, according to sources.

A handover of power by the incumbent board to the dissident slate of directors would avoid an embarrassing public defeat at a meeting of shareholders scheduled to be held Wednesday in Toronto.

An announcement detailing the handover could come as soon as later Monday. HudBay's current board came under fire from SRM and other major investors such as mutual fund giant Goodman & Co. after the Toronto company attempted to merge with rival Lundin Mining Corp. late last year.

Shareholders revolted at the surprise deal which offered a premium of more than 100 per cent for Lundin's stock and a 50-50 share exchange ratio for the cash-strapped Vancouver company.

Investors chastised HudBay and its management for trying to double the company's share count without giving HudBay shareholders a vote on the deal. Citing lapses in HudBay's corporate governance, the Ontario Securities Commission ordered HudBay to give its shareholders a vote on the proposed takeover.

HudBay and Lundin eventually cancelled the transaction, however, SRM decided to continue with its effort to oust the HudBay board.

Even after HudBay's embattled chief executive officer, Allen Palmiere, resigned earlier this month, SRM pressed on with the proxy battle.

HudBay's current directors include chairman Norman Anderson, interim chief executive officer Colin Benner and Lloyd Axworthy, Canada's former minister of foreign affairs.

SRM's slate of nominees include Peter R. Jones, HudBay's former CEO, who was forced out of the company in early 2008 by Mr. Palmiere and the HudBay board.

Wesley Voorheis, a Toronto-based lawyer, who once served on the board of Hollinger Inc. following the collapse of Conrad Black's media empire, is expected to be named chairman of HudBay.

With about $700-million on its balance sheet, HudBay is cash rich. However, the Toronto company, which was formerly based in Winnipeg, is having growth problems. Prospects at HudBay's flagship operations in Flin Flon, Man., are stalled. The company will need to develop projects such as its Lalor Lake deposit or make acquisitions in order to increase production.